Originally published in Australian Financial Review by Craig Emerson on November 10 2015 – http://www.afr.com/opinion/the-big-switch-to-electric-cars-20151109-gkubt4

Spurred in part by the scandal surrounding global carmaker VW’s deception about the emissions performance of its vehicles, the Turnbull government has foreshadowed a new approach to vehicle emission standards. The review, however, will not only examine vehicle emission testing arrangements and seek to improve fuel quality standards. Its remit also includes reducing carbon emissions. But any serious review should extend beyond low-emission engines to no-emission electric vehicles.

Just a few years ago, electric vehicles were considered a futuristic fantasy. Yet in a short time they have moved well beyond the experimental stage to account for more than 5 per cent of total vehicle usage in Norway and the Netherlands. If billionaire innovator Elon Musk has his way, Tesla and other electric vehicles will discernibly increase their market penetration in the United States and Australia within a very short period of time.

Hybrids using a combination of conventional fuel and electric power are already well established in the Australian market and are likely to smooth the transition to fully electric vehicles.

With the government committed to reducing greenhouse gas emissions to 26per cent to 28 per cent below 2005 levels by 2030 and the opposition adopting a 50 per cent renewable energy target for 2030, both sides of politics have an interest in finding new ways to reduce carbon emissions. For understandable reasons of political sensitivity about forcing up petrol prices, the various emissions trading policies dating back to the Howard government’s market-based mechanism have excluded vehicle emissions. This was despite road transport accounting for around 17 per cent of Australia’s total greenhouse gas emissions.

As transport and infrastructure minister in the previous Labor government, Anthony Albanese tightened emission standards against strident industry opposition. Now the signs are positive that the Turnbull government will seek to make further progress. It will need to. The International Energy Agency estimates that 75 per cent of all vehicle sales would need to be electric vehicles by 2050 in order to limit global average temperature increases to 2 degrees.

COMPETITIVE PRICING

Electric vehicles must be competitively priced if they are to make a meaningful contribution to reducing carbon emissions. Encouragingly, prices of electric commuter vehicles are falling as new models come onto the market. The Victorian Department of Transport estimates that within five years the electric vehicle operating cost advantage will outweigh the purchase price penalty for most drivers.

Yet without any policy interventions, electric vehicles are likely to make only minor inroads into Australian market share in the foreseeable future despite their environmental benefits. A key reason is that motorists typically display what is known as range anxiety about electric vehicles – worry that their batteries will flatten while out on the road.

Low-cost policy options might include leasing specified numbers of competitively priced electric vehicles for car fleets; access to high-occupancy vehicle lanes for drivers of electric vehicles; and offering identifiable number plates for electric vehicles at motor registries.

A policy of government agencies assigning a proportion of motor vehicle leases to electric vehicles is likely to be most practicable in circumstances of return-to-base usage. Where vehicles must be returned to base each evening, recharging is easier and range anxiety is greatly reduced, since the vehicles are for use during the working day only. Taking advantage of the scale of their operations, fleet owners could install their own charging facilities at their parking depots, reducing dependence on the development of public infrastructure.

LANE OCCUPANCY

Access to high-occupancy lanes for electric vehicles would enable state governments to send a positive message about electric vehicle usage. Users of conventional vehicles would see electric vehicles travelling in these preferred lanes. This is where motor vehicle registries could make available number plates that clearly identified the vehicle as an electric vehicle.

Environmentally conscious users of electric vehicles might want to be able to choose electricity supplies generated exclusively from renewable energy sources.

In order to accelerate the take-up of electric vehicles in Australia, modest incentives are preferable to large, taxpayer-funded subsidies that might be of limited effectiveness anyway. A more ambitious incentive might be to offer a fringe benefits tax concession for electric vehicles. As the Turnbull government prioritises tax reform, using the tax system to improve the take-up of electric vehicles to correct for the market failure associated with carbon emissions from conventional vehicles might be worthy of consideration.

Craig Emerson is CEO of Craig Emerson Economics whose clients include AGL Energy. He is an adjunct professor at Victoria University’s College of Business.



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