The Ministry of Transport has warned Cabinet this month on the extent to which removing the Clean Car Discount, subsidising the purchase of EVs and hybrids, impacts on New Zealand’s international obligations to reduce emissions.
That’s disclosed in a departmental disclosure accompanying the repeal bill, though the details have not been made publicly available yet.
A report by Concept Consulting finds repealing the scheme would mean about 100,000 fewer electric vehicles on the road by 2030.
That reduced uptake would add at least $900 million in costs, mostly because of the import of petrol and diesel, and increase carbon emissions by about 900,000 tonnes.
The costs and emissions increase further if changes to the Clean Car Standard are factored in, although the Government has yet to make decisions on whether changes will occur.
The report, commissioned by lobby group Drive Electric, finds if both the Clean Car Discount and the Standard are removed it will result in up to 3 million tonnes of emissions. If these have to be paid for with carbon credits, this could cost anywhere from $125m to $680m.
“If (as is almost certainly likely to be the case) New Zealand doesn’t meet its emissions reduction target, it will need to purchase offshore mitigation measures.
“Given that international efforts to reduce emissions are generally progressing at a materially slower rate than required to meet individual countries’ [targets], it is likely that there will be significant international demand for purchasing offshore mitigation credits. This suggests that the price of offshore measures which New Zealand will need to pay to meet its liability is likely to be at the upper end of the Treasury’s estimate – and potentially even higher.”
Prime Minister Christopher Luxon was grilled in Parliament this week by Green Party co-leader Marama Davidson about how emissions reduction targets would be met in light of the roll back of policies including the Clean Car Discount.
“We are deeply committed to our climate goals and commitments. The way we go about doing that may be different from the previous government but don’t misunderstand our commitment to the targets and goals,” Luxon said.
It comes off the back of the Climate Change Commission’s advice to the Government this week that the “rapidly climbing share” of new electric vehicles needs to continue throughout the second emissions budget, “with sustained support”.
“Continued policy support is essential to encourage the purchase of new EVs at the pace needed to achieve the second and third emissions budgets. Supports to address the upfront cost barrier are especially important,” the commission’s advice said.
The Government has committed to cancelling the scheme by the end of the year.
Drive Electric chair Kirsten Corson says the research shows an alternative form of electric vehicle incentive is needed.
“A new [internal combustion engine] vehicle bought today will stay on roads for 20 years consuming costly oil and releasing emissions. Cumulatively, this research is telling us this will cost the economy at least $900m and probably more, and make it much harder to hit our 2030 emissions targets.
“Without EV incentives, the carbon price will need to be higher to hit New Zealand’s emissions targets. This increases costs to households in terms of energy bills, and could result in more sheep and beef farms being converted to forestry to offset those emissions.
“EV incentives are simply an effective and comparatively cost-effective way to reduce emissions from transport and they won’t be needed forever. As soon as EVs reach upfront price parity, they can be removed.
But Transport Minister Simeon Brown is standing by the removal of the discount scheme, telling Parliament it is “fiscally unsustainable”.
“The previous government promised the scheme would be fiscally neutral but as at November 30 $579m has been paid out in rebates, $13.5m has been spent on administration costs while only $290m has been received in charges.
“This has led to taxpayers footing the bill for an eye-watering $302.5m deficit.”
He said the scheme as it was currently structured would not survive past mid-2024.
“Continuing the scheme would likely require a combination of lowering and restricting rebates to EVs, increasing charges and applying them to all petrol, diesel and some hybrids or providing more Crown funding.”
Drive Electric has previously called for the scheme to last until at least mid-next year, to give consumers time to adjust.
“There are other options too, including … accelerating depreciation for commercial fleets. Businesses buy 50-60 percent of new vehicles (and 60 percent of new EVs), and usually only keep them in their fleets for two to five years. This could be a great source of second-hand vehicles. This model is being used in Australia, and so far is proving to be successful,” Corson said.
“We know the Government wants to electrify New Zealand, and intends to invest in public charging. This is essential work. However, we’re also going to need to accelerate demand for EVs to take full economic advantage of electrification. We are working with industry right now on solutions to EV incentives and look forward to discussing these with the Government.”
The Climate Commission’s report already singled out the transport sector as the most off-track to meet its sub targets.
This was mostly because of the previous government’s decision to halt the Sustainable Biofuels Obligation.
But the uptake of electric vehicles were seen as a way to close the gap.
“Uptake of low-emissions vehicles has grown rapidly since the introduction of the Clean Car Discount in 2021, exceeding Te Manatū Waka Ministry of Transport’s modelled impact of the Clean Car policy package.
“This highlights the opportunity for electric and hybrid vehicles to deliver significantly higher and faster emissions reductions than previously thought.”
The advice did not take into account the removal of the scheme.
In 2021 New Zealand’s total road transport emissions were 12.7 million tonnes.
Labour climate change spokesperson Megan Woods says the Government doesn’t have a plan.
“The Clean Car Discount is one of those that was going to make substantial changes into emissions budgets two and three. And we’ve seen from advice that was released yesterday that they are challenging budgets, a lot of work needs to be done and the switch from fossil fuel vehicles to electric vehicles will be critical.
“So again, show us your plan, Government, how are you going to accelerate the uptake of electric vehicles that the advice from the independent climate commission is showing us that we need?”
She says there will be a cost if the obligations are not met.
“We’ll have to go out and buy expensive carbon credits on the international market, essentially paying other countries to decarbonise rather than investing in things that will actually lower costs for New Zealanders.
“So time to stop telling us what you’re not going to do, Government, show us what you’re going to do. Simon Watts is saying they will have an alternative plan. The clock is ticking. New Zealanders need to see it, minister.”
It seems to me that Simeon Brown’s comment of:
“Continuing the scheme would likely require a combination of lowering and restricting rebates to EVs, increasing charges and applying them to all petrol, diesel and some hybrids or providing more Crown funding.” points to increasing carbon taxes on (fossil) fuels in order to address Luxon’s claim of: “We are deeply committed to our climate goals and commitments. The way we go about doing that may be different from the previous government but don’t misunderstand our commitment to the targets and goals,”. As a RUC system change is in the offing I expect to see a revision (i.e. increase) of the carbon taxation rates on fossil fuels being implemented in conjunction with the removal of FET on petrol which would both disincentivise high consumption vehicles and act as an EV incentive. The increased tax take could also be channeled towards addressing our ETS responsibilities.
Spreading fuel taxes across all ICE vehicles would also be more palatable than the much derided ‘Ute tax’ but would have a similar end result in disincentivising high emission vehicles.
The ute tax was derided by a vocal minority. The only way I see an increase in fuel tax being palatable is if it coincides with the removal of excise and resulting in no change at the pump. By stealth in other words.
A carbon tax on fuel to the same degree as FET which essentially is just a name change for the tax may be stealth but the addition of distance based RUCs is a bit more obvious and likely to raise a few hackles.
By “palatable” I was referring to a broadbased incremental tax being more acceptable to vehicle owners than a lump sum tax at purchase that has been seen as targeting select vehicle types (i.e. DC utes).