Government policies on electric vehicles
Electric vehicles (EVs) are in the news again this week. Last week, I gave some information about what manufacturers are doing and how EV uptake will be driven by consumers - as the costs of a new electric vehicle reduce over time; eventually becoming cheaper than a traditional internal combustion vehicle. The news this week is all about Governments and what they're doing to increase uptake of electric vehicles.
This week saw an announcement by the UK indicating that sales of petrol and diesel vehicles will be banned by 2040. This follows a similar announcement by France at the beginning of July. Both the UK and France have stated that the reason for the ban is to improve air quality and that it's a public health issue. This is very similar to the reasons the Chinese Government has given to closing down coal fired power. Obviously reduction in greenhouse gas emissions and contribution towards national targets under the Paris Agreement are important side benefits. France in particular will see a relatively large reduction in greenhouse gas emissions from this move as a result of their high reliance on nuclear power, which is zero emissions for the electricity generation step.
There are a now a number of countries world wide who have targets for rollout of electric vehicles. Both Norway and the Netherlands have a target to phase out all fossil fuel powered cars by 2025. It is important to note however that they have not introduced or legislated a ban, this is a target. Norway however does provide generous incentives for electric vehicles - such as the exemption from the 25% VAT when purchasing an EV. These incentives, which will be in place until 2020 at this stage, have resulted in EV uptake rates far in excess of other countries. In June 2017, 42% of all new car sales in Norway were either fully electric or hybrid vehicles.
Two of the biggest vehicle markets in the world, China and India, are putting policy frameworks in place to advance electric vehicles. In India, the plan (Transformative Mobility Solutions for All - co-written by the Rocky Mountain Institute) aims for electrification of all vehicles by 2032 and proposes a number of policy levers such as incentives for purchase (lower taxes/lower interest rates), capping sales of fossil fuel powered cars and prioritising battery manufacture and charging infrastructure. The new plan marks a slight, but significant, change in direction for India as hybrid vehicles are not supported - different to the current incentives in place in the country. It describes a mobility future that is "Electric", "Shared" and "Connected" - very similar to the future described by Tony Seba in his recent work on rethinking transportation.
In China, already the world's largest EV market, moves are afoot to sustain leadership in electric vehicles - driven by a desire to ensure Chinese companies are at the forefront of EV sales worldwide. The city of Beijing has announced that the entire taxi fleet will be electric within 5 years. Shenzen has also declared that all new taxis will be electric from this year. In addition, the Government has drafted rules indicating that from 2018, so called "new energy vehicles" should account for 8% of total car fleets - which is a very ambitious target from the current EV sales rate of 2% of all sales. The Government is also spending significant money on charging infrastructure with 100,000 charging stations to be installed in 2017. They have also relaxed rules on car ownership for electric vehicles. For example, in Beijing, there are restrictions on car ownership and you have to enter a lottery to win the ability to buy a car. This is waived for electric vehicle purchases.
Both China and India state that reducing reliance on oil importation is a key driver to promoting uptake of electric vehicles. China also quote positive effects on air quality as being a driver. Both of these countries have comparatively high intensity power generation so overall effect on greenhouse gas emissions may be initially small. The power grids in both countries is also in the process of being decarbonised.
So there is significant action being taken by Governments around the world to promote uptake of electric vehicles. In Australia, changes to vehicle fuel efficiency standards have been indicated by the Government as one of the contributors to their Paris Agreement targets. There was a recent media flurry however that painted talk of increasing vehicle efficiency as a stealth carbon tax. The US also is reviewing vehicle efficiency standards with a view to potentially holding them steady out to 2025 rather than having increasing efficiency requirements. Nonetheless, as explained in the previous post, the economics of electric vehicles may win out - and may even win out in a shorter time frame than that proposed by the UK and France. It may well be that consumers drive the big change and that all new car sales naturally move to electric by 2040, even without incentives. What Governments will then have to do is ensure the change is smooth and required supporting items such as installation of charging infrastructure is enabled.
The big question once again is what the impact on the fossil fuel industry may be. All of these projections of EV uptake must result in a reduction in demand for liquid hydrocarbons - which will have a profound impact on long term forecasts of oil price.