The UK Prime Minister has just announced that new petrol or diesel cars will not be sold in the UK after 2030 and will continue subsidising electric cars. Joe Biden, the newly elected President of the USA, also has signalled that he will maintain subsidies for electric cars. Many other governments do the same also subsidise electric cars.
So, what is wrong with these announcements, should the world not to be saved from global warming? Well, let us ignore for a minute the global warming debate as the science is hardly settled. The fact is, that even if the current subsidies are maintained, the IEA estimates that these actions would reduce global emission only by 0.4 percent and the share of electric cars would only be 13.4% by 2030(https://www.iea.org/reports/electric-vehicles).
The key focus of this blog is to show, that the current, substantial government subsidies for pure electric cars are nothing more than upper middle-class welfare. If governments are really concerned about the environment, they should first of all invest into areas like energy generation, where they get much more ‘bang for their buck’. They should only encourage the development of hybrid and electric cars by the private. They should not spend tax payers’ money on it. As technology associated with electric cars improves, the private sector will develop electric cars at the ’right price’ and consumers will buy them on their merit without subsidies.
2. Part1- explicit subsidies of electric cars as an upper middle-class welfare
Electric cars (EVs) seem like such an easy way of signalling to the world that one cares about the environment. On top of it, so many other ‘goodies’ are associated with EVs, such as cash subsidies, special (or even free) parking spots, use of bus lanes, free charging for a given period and so on. So why do governments need to force people only to buy EVs after 2030?
The answer is not the range anxiety associated with EVs or the cost of EVs. These issues can be solved over time. The real problem is where to charge them. An upper-middle class European or English person, who lives in a house with a garage outside of a city, charging his/her electric car is not an issue. The same is true in the USA. However, millions of people in inner New York, London, Paris, Milan, Berlin, Budapest, Warsaw, Moscow, Mumbai, Shanghai and so on live in old multi storey apartments, social housing or post war prefabricated apartments. These homes do not have garages, hence there is no opportunity to charge EVs at home. This problem is again documented by an English journalist, when he reviewed an electric car(A.Taylor-Jones, What Car, October,2020, p20). Let us also think about people on other continents, where hundreds of millions live even in worse conditions than in Europe and in the USA.
Governments should not spend tax payers’ money on subsidising upper – middle class people and their electric cars.
3.Part2- implicit subsidies of electric cars as an upper middle class-welfare
In many, if not all, countries the ownership of an electric car also comes with an implicit subsidy. EY provides a detailed analyses of Fuel and Gas taxes in 86 countries(https://www.ey.com/en_gl/tax-guides/global-oil-and-gas-tax-guide-2019), which shows the substantial tax revenue earned by governments all around the world from fuel( gasoline) taxes.
As an illustration of this indirect subsidy of EVs, I focus on the Australian fuel taxes.
In Australia, the Federal Government taxes fuel at a differential rate depending on the type of fuel. The highest excise taxes (gasoline tax or fuel duty) are placed on unleaded fuel, which was 0.418 cents per litre on August 2019(https://www.accc.gov.au/consumers/petrol-diesel-lpg/about-fuel-prices). Most passenger vehicles use unleaded petrol. This is a substantial tax considering the average fuel price was around $1.50 per litre at the time. This tax in part pays for roads and associated infrastructure. An equivalent tax does not apply to EVs despite the fact that they are also road users.
Interestingly enough, governments have been mute about how to replace fuel taxes, if the take up of electric vehicles becomes substantial. There is only some recognition of the likely reduction of fuel excise taxes, but there is no decision of what new taxes to introduce(https://home.kpmg/xx/en/home/insights/2019/05/tnf-oecd-declining-tax-revenue-from-transport-fuel-taxes.html).
The EV announcements and subsidies of EVs are typical of government actions; virtual signalling first and announcing the associated economic costs later.
In the meantime, the upper-middle class EV users’ welfare is continuing.
4. Key take-aways
Subsidising EVs or stopping the sales of non-EV vehicles is just virtue signalling and upper middle-class welfare.
Upper-middle class people living in houses with garages can charge their electric vehicles at home.
People in inner cities of developed countries cannot charge their vehicles at home as they do not have garages.
People in cities of less developed countries often do not even have adequate accommodation.
If technological changes enable everybody to have EVs as aimed by governments, then they must announce now, what taxes are going to replace petrol taxes.