Summary:

In the balancing act between reducing the budget deficit and giving automakers enough long-term certainty to gamble on building and launching green vehicles in the UK, the government has stayed firm in trying to cultivate the next generation of cleaner cars.

Starting in January 2011, electric and hybrid car buyers in the United Kingdom will be able to tap a £43 million (around $67 million) grant fund to knock up to 25 percent off their purchase price, with a max grant of £5,000 (about $7,789). The grants, initially promised last year by the previous Labour government and announced on Wednesday by Transport Secretary Phillip Hammond, are set to be available through March 2012.

If all participants reap the max grant of £5,000, the funds will cover up to 8,600 vehicles next year from companies like Mitsubishi, Toyota, Renault-Nissan and Tesla Motors, which all have plug-in models on the UK market or in the pipeline for 2011.

Details of exactly which types of cars will qualify for the incentive have yet to be finalized, however. Also undecided is the level of funding for a program dubbed the Plugged-In Places initiative, which would support a buildout of thousands of public charging stations for plug-in cars. According to today’s statement from the Department of Transport, that piece of the puzzle will remain in limbo until a comprehensive budget review taking place this fall.

French-Japanese allies Renault and Nissan, which together aim to dominate the global electric car market, have greeted the 2011 grant plan as a positive development. “As a result of this morning’s news,” Renault said in a statement today, “we are even more excited about encouraging as many people as possible to consider using electric vehicles.”

With help from the UK government (in the form of a £20.7 million grant and a proposed incentive package for up to £197.3 million), Nissan plans to invest £420 million pounds, or about about $642 million, expanding its plant in Sunderland, UK, to produce the upcoming LEAF electric sedan as well as lithium-ion batteries for Renault and Nissan vehicles. The plan is to start cranking out the LEAF at Sunderland by 2013, with initial production capacity of some 50,000 units per year. A £5,000 grant could go a long way to help make these cars more competitive with conventional vehicles.

Funding for this grant program beyond March 2012 remains uncertain at this point, however. It will come up for review in early 2012, when lawmakers will weigh how the nascent green car market has progressed before setting the level of funding for subsequent years.

So far, funding announced today for 2011 matches promises from the UK’s previous administration for the first year of this program. But it’s a fraction of the total £230 million that the previous Labor government had pledged to pony up by 2014.

Yet today’s announcement comes amid a major budget squeeze. And in the balancing act between reducing the budget deficit and giving automakers enough long-term certainty to gamble on building and launching green vehicles in the UK, the government has stayed firm in trying to cultivate the next generation of cleaner cars.

Image courtesy of Flickr user cliff1066

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