The PM’s electric car policy misses the point - Grattan Institute

Victoria’s Hazelwood coal-fired power station has now closed, and NSW’s Liddell is not far behind; meanwhile, Australia has just passed the milestone of 3 million homes with rooftop solar. More and more drivers who choose an electric vehicle for their next car will be able to power it from renewable energy. But drivers are only going to make that choice if they can afford an electric vehicle in the first place.

Prime Minister Scott Morrison’s shift to electric vehicles is both belated and welcome – but his new policy misses the point.

The Future Fuels Strategy, unveiled with prime ministerial gusto this week, proposes big spending on new charging stations for electric vehicles, but it does nothing to tackle the main reason Australians have been so slow to embrace the worldwide movement to cleaner cars.

The real problem is that electric cars cost too much here. And the best way to fix that – ignored in Morrison’s multibillion-dollar strategy – would be for the government to impose an emissions ceiling on new vehicle sales, and lower that ceiling each year until it reaches zero.

As well as making a big dent in our carbon emissions, this would change the profit equation for the car manufacturers, ensuring they offered Australian drivers a bigger range of cheaper electric vehicles.

Australians currently can choose from only a small range of electric vehicles, many of them quite expensive. In Australia, there were 31 models on offer last year; Britain has more than 130.

Why? Because in Australia, as it stands, manufacturers can make much more profit by selling conventional petrol and diesel vehicles. As Toyota said in 2019, “nobody is selling electric vehicles at a profitable margin”. And as Nissan Australia says: “Clear and consistent direction from governments is a critical signal to car makers to prioritise the importation of the latest low and zero-emissions vehicles for Australian consumers.”

For as long as there is more profit in higher-emissions vehicles, manufacturers will prefer to sell gas guzzlers instead of efficient or zero-emission models. To make headway in reducing vehicle emissions, the federal government needs to tip the profit balance in favour of low-and zero-emissions vehicles, just as Europe has.

Unlike the measly 8 million tonnes of emissions savings the Morrison government expects from its $2.1 billion Future Fuels investment by 2035, Grattan Institute research shows we would save more than 90 million tonnes by imposing an emissions ceiling. It is the best tool we have.

This is nothing new: fleet-wide ceilings are the norm internationally, applying to more than 80 per cent of global sales. Australia has debated a fleet-wide ceiling since the early 1970s, and the policy has been recommended by the federal Transport Department, the Climate Change Authority, and even the car manufacturers lobby. In 2017, the ministerial forum on vehicle emissions came close to finally achieving progress – until the Prime Minister stepped on it when it mattered, during the 2019 election campaign.

An emissions ceiling gives manufacturers an emissions target they must meet each year. This is calculated by averaging the carbon emissions of every new vehicle they sell. Manufacturers that fail to meet a target face a financial penalty. It is no longer more profitable to sell high-emissions petrol and diesel cars because if manufacturers fail to meet their emissions targets, they get fined. Instead, they have a financial incentive to sell low and zero-emissions vehicles – and we can expect them to respond accordingly.

The policy works. In Europe, where an emissions ceiling is on target to hit net-zero emissions by 2035, early sales data from 2021 shows that more than one in 5 new vehicles sold are electric – as opposed to 1 in 100 in Australia. And where they are sold, combustion-engine vehicles tend to be far more efficient than those sold here.

Everyone’s a winner. Emissions are reduced. Pollutants from combustion engines fall. And drivers will save money in the long run, because the running costs of electric cars are far lower.

Vehicle manufacturers around the world are preparing for a future of zero-emissions cars. Once it’s in their interest to do so, it’s difficult to believe the world’s biggest manufacturers would risk the financial cost of failing to supply more electric vehicles to Australia. All that’s needed is some forward-thinking policy to tip the scale in favour of better technology.

Instead of pouring money into electric vehicle charging stations, Morrison should focus on the basics first – and that means bringing more affordable electric cars to Australian consumers.

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