Thomas Anderson: Feebate way to cut car emissions

A feebate scheme would be an attractive way to drive the transition to a newer, more efficient vehicle fleet. Photo / File

COMMENT: The French do it. The Swedes are trying it. California is making it work even with Donald Trump sitting on its back. Why isn't a feebate scheme for new electric cars at the top of our climate change agenda?

Our domestic climate change policy is at a critical stage. The Productivity Commission has released its final report on a "Low-emissions Economy" and the Government will publish its Zero Carbon Bill this year. As the commission's report highlights, curbing transport emissions will be essential for any successful decarbonisation strategy.

In the commission's view, the "adoption of electric vehicles [EVs] represents the most significant opportunity" to achieve this goal. Fortunately, transport technology is "going through an unprecedented period of innovation in vehicle, infrastructure and services", dramatically reducing the costs and improving the utility of EVs in the process.

But while demand for EVs is increasing, with about 500 new registrations a month, the pace of change is too slow. New Zealand has an old and inefficient vehicle fleet, with many second-hand imports. The average age of light vehicles is close to 14 years and turnover is low.

It isn't hard to see why EV uptake remains sluggish. They cost more up-front, our national charging network is inadequate, and drivers remain unconvinced they have enough range.

Plus, many consumers tend to discount the fuel savings EVs provide when considering a new vehicle.

Hence, as the commission argues, transforming the vehicle fleet in the coming few decades will require regulation. One option would be to ban the sale of new or second-hand imports powered by internal combustion engines beyond a certain date (eg 2030).

Many European countries do this. In the long run, it would work. But a faster option would be a "feebate" scheme. New or newly-imported low-emissions vehicles would receive a rebate on registration.

The tax revenue loss would be offset by a fee added to the cost of new higher-emissions vehicles. We'd bring down the cost of low-emissions vehicles and raise the price of high-emissions ones.

The commission favours such a scheme, for good reason. It would help ensure anyone buying high-emissions vehicles, whether new or second-hand imports, pays some of the environmental costs. It would achieve environmental benefits without additional costs on taxpayers. And a feebate scheme could be implemented quickly.

Politically, too, such a scheme is more attractive than some of the other ways of discouraging emissions, such as dramatically higher fuel prices.

In France a feebate scheme was introduced in 2008 with strong price incentives for consumers. All-electric cars receive a rebate of about €6300 ($11,135) while hybrids receive about €2000. In its first year, the average carbon dioxide emissions of new cars fell by 6 per cent. France has also pursued other initiatives to encourage the uptake of EVs, such as providing a bonus premium for scrapping a car over 15 years old.

Very recently Sweden introduced a feebate scheme, with a considerable premium of 60,000 krona (about $10,000) for fully electric vehicles.

Designing a scheme like this poses challenges. The emissions benchmark (the point at which vehicles are either subsidised or taxed) must strike a balance between incentivising EV demand without drastically punishing consumers who may require a higher-emissions vehicle. Also, depending on the scheme's design, fuel-efficient diesel vehicles may be favoured, with a risk of increasing local air pollution, as occurred in France.

Equity considerations pose another challenge. Low-income consumers often buy second-hand imports. These are low-cost but frequently inefficient, with high emissions. Under a feebate scheme such vehicles will cost more.

Meanwhile, over the short-to-medium term, new and second-hand EVs are likely to remain outside the reach of low-income consumers, even with a feebate scheme. By contrast, high-income consumers will be able to buy new and second-hand EVs at a lower cost than previously.

One solution, as the commission notes, is to give households with incomes below a certain threshold a greater rebate when buying EVs.

Another option would be to offer cash incentives to scrap older vehicles in exchange for a low-emissions vehicle, helping low-income consumers access the EV market.

Decarbonising our vehicle fleet will be critical if New Zealand is to meet meaningful long-term emissions-reduction targets. A feebate scheme offers an attractive, efficient way to accelerate the required transition.

Let's get on with it.

• Thomas Anderson is a Research Assistant and Jonathan Boston is Professor of Public Policy at Victoria University of Wellington.