What to Look for in Electric Vehicle Policy

Electric vehicles have been getting a lot of attention. Rightly so; they are exciting, and their arrival is a benefit environmentally. They have attracted the attention of the government, and we are expecting that Simon Bridges, as the Minister of Transport and of Energy, will make a policy announcement on EVs before long. What are we looking for in this or any other announcement that might be made on the subject? We actually know quite a bit from international experience about what are the barriers to the uptake of EVs, and what works to deal with them.¹ Here’s my list of the features that we should expect to find in good EV policy.

Price.   Let’s start with price. The likely immediate comment of a New Zealand policy maker or law maker to this is that the New Zealand government is not going to introduce a big subsidy programme. That’s understandable given the political heritage of the last thirty years. And indeed there are lots of ways that subsidies can go wrong; they can be socially unjust if they are out of the reach of poor people, and they can be unduly focussed on one system or technical option.

But EVs are much more expensive than internal combustion vehicles (ICVs) – let’s generalize outrageously and say they cost $20,000 more. There is a lot of talk about the prices coming down, and a lot of graphs to be found with bold downward-tracking curves on them. There is also recognition that the lifetime cost of an EV – taking into account fuel and running costs over a period of years – is competitive with an ICV. That’s a point that may make fleet purchasers act differently from retail purchasers. But the EV price gap is quite large. The research literature shows that price is the main factor that affects the decisions of potential EV purchasers, internationally and in New Zealand.² That’s not surprising. But this blunt fact or inconvenient truth is a challenge for policy makers. They can’t wish it away or hope that a good advertising campaign will fix the problem.

Fringe benefit tax.  Fringe benefit tax rules need to be revised to prevent the capital cost of an EV from weighing unduly on a company’s evaluation of prices. An adjustment of FBT is something to look for.

Road user charges.   The one financial incentive that EVs get at the moment is exemption from road user charges, RUC, at least until 2020. For an average driver this is worth about $800. This is nice but probably too little to affect purchase decisions and spread out too much over time. It probably operates inequitably in letting more prosperous vehicle drivers off the hook for paying for the roads, and in the long term, if EVs really take off, EV owners will have to contribute to roading. So that is something that needs attention, but maybe not immediately.

All of these policy points concern price or initial capital cost. Price is something to look for in EV policy. One practical way to deal with it is discussed below. Price can’t be ignored, and if it is not tackled then other policy measures may not work.

Public awareness.   The next main set of things to look for in EV policy is measures intended to promote public awareness, receptivity, and knowledge about buying and owning an EV. We know from the research that consumers and fleet managers are often not well informed about EVs. Well-targeted awareness campaigns can address perceptions and concerns about costs of ownership over time, durability and maintenance, and vehicle range. In New Zealand useful work has been done by the Energy Efficiency and Conservation Authority (EECA) to compare total cost of ownership of EVs and ICVs, and to compare their lifetime environmental footprint.³ The Energy Efficiency (Vehicle Fuel Economy Labelling) Regulations 2007 are a form of awareness-raising and education.

In other countries, EVs have been given preferential access to parking, bus lanes, and the like. Sometimes a special number plate is part of the package. As well as being a modest incentive, perks of this kind promote public awareness of EVs.

All told, public awareness measures have a place if well targeted. But New Zealanders already have a good sense of the benefits of EVs; and such measures will not be of any use if price is a problem.

Charging network.   Perceptions meet reality in relation to ‘range anxiety’ – concern about the shorter driving range of EVs. Information and awareness measures can reassure people that the great majority of daily commutes are well within EV driving range, and that an ordinary plug in a garage or carport will provide a good overnight charge for an EV.

At the same time, fast chargers are needed for inter-city and rural driving. Fast chargers also provide reassurance and public awareness. In fact, power companies, municipalities and companies like Charge.net.nz are busy installing fast chargers through the country. To be sure, the coverage is far from complete, but then there are only about 1000 EVs in the country so far. Network growth will probably keep up with demand.

So if the private sector is producing a charging network, there doesn’t seem to be much need for government policy action. What is probably needed is a set of minor legislative adjustments so that road controlling authorities can manage parking for chargers – along with rules for bus lanes and the like.

Fuel efficiency standards and the vehicle fleet as a whole.   At this point we need to think about the general policy context for motor vehicles, in relation to fuels and greenhouse gas (GHG) emissions, which are the main reasons for the government to be interested in EVs. What we find is that New Zealand is one of the few developed countries (along with Australia) without fuel efficiency standards of any kind. Eighty per cent of the world’s cars are sold under laws that require car vendors or importers to sell vehicle fleets that on average meet prescribed standards of efficiency, in miles per gallon, litres per 100 km, or CO₂e per km. These measures have been very effective, promoting better vehicle construction and saving huge amounts of fuel, pollution, and GHG emissions. They put pressure on the market for ordinary vehicles, ICVs, that makes EVs more attractive in comparison. The key point is that EVs are more difficult to introduce without fuel efficiency standards.

Without policy action on fuel efficiency standards, any EV action in New Zealand will be flying into a head wind. So an important thing to look for in EV policy is fuel efficiency for the vehicle fleet as a whole. The government dropped plans for fuel efficiency standards in 2008, so it will be interesting to see if it thinks that circumstances have changed.

Carbon prices.   The price signal to discourage emissions of GHGs is a vital part of the framework for EV policy, just as is fuel efficiency regulation. That is the NZ Emissions Trading Scheme. Work is already under way that might fix some of the worst features of the NZ ETS, but there is a long way to go. The NZ ETS price on petrol is about one cent per litre, far too little to change transport behaviour. Again, we cannot expect EVs to look very attractive when the adverse effects of ICVs are treated so gently.

So watch to see if the link is recognized between climate policy and EV policy, even if only in the language. EV uptake depends on the health of the NZ ETS.

Long-term policy settings.   A final thing to look for is whether an EV policy announcement is for short-term fixes or whether it is put in place more durably. The RUC exemption, which we noted above, is a case in point. It expires in 2020 so someone considering an EV purchase in 2016 does not know whether the incentive will last for the life of the vehicle. Remember that the average vehicle age in New Zealand is 14 years.

EV policy will be more effective if it is made in a durable form. Key parts should be in legislation, and without sunset clauses. This produces a stable policy environment and increases security of investment.

Feebates.   One policy instrument that I have identified as addressing the issues that the research shows to be important is a feebate or bonus-malus scheme. A feebate system would assess each vehicle as it comes into New Zealand for its fuel efficiency, in GHG terms. Poor-performing vehicles – gas guzzlers – would pay a fee, while high-quality vehicles – especially EVs – would get a rebate. A feebate system is revenue-neutral and self funding, and it is neutral as to technology too, producing benefits for the whole vehicle fleet. It works well in France. It may not be the only policy option, but it presents something of a benchmark. If the government chooses some other mix of policy measures, will they be better than a feebate?

Overall.   EVs are only one aspect of transport policy, and only one small slice of climate policy. There are few EV possibilities for the heavy vehicle fleet, which uses almost half of our transport fuel. Also, EVs are still cars; they still need motorways and cause congestion; in that, they are not as good as public transport or walking and cycling. As for climate change they are one of the dozens of things that we need to do to make a real difference. But they present a real and attractive opportunity to do something positive with the vehicle fleet. 

¹B Barton and P Schütte, Electric Vehicle Policy: New Zealand in a Comparative Context (Centre for Environmental, Resources and Energy Law, 2015), www.waikato.ac.nz/cerel; B Barton and P Schütte, “Electric Vehicles: Promoting Improvements in Transport” [2016] NZ Law Journal 31-35.

²Element Energy, Pathways to High Penetration of Electric Vehicles (Report for Committee on Climate Change, 2013) p 127; for NZ, R Ford, J Stephenson, M Scott, J Williams, D Rees & B Wooliscroft, Keen on EVs: Kiwi Perspectives on Electric Vehicles, and Opportunities to Stimulate Uptake (2015, Centre for Sustainability, University of Otago).

³Arup and Verdant Vision, Life Cycle Assessment of Electric Vehicles (2015) and “Vehicle total cost of ownership tool” both available at www.eeca.govt.nz.

Prof. Barry Barton