Room for argument over impact of feebates but common sense may help

Wednesday, 4 September 2019

Feebates are being promoted as a way to cut emissions and save Kiwis a fortune in fuel.

ANALYSIS: The National Party says advice from the Treasury confirms the Government's 'feebate' plan to encourage people to switch to EVs and other low emission vehicles is a costly and bad idea that will have a 'near zero' impact on emissions.

The party's transport spokesman Chris Bishop said the Treasury showed the feebate plan would reduce emissions 'by just 0.09 per cent over 20 years' and it was 'not worth forcing New Zealanders to pay up to $3000 more for some vehicles just to reduce emissions by such a minuscule amount'.

But Associate Transport Minister Julie Anne Genter said the feebate scheme and its associated 'clean car standard' would make a substantial positive difference and the Treasury's opposition to feebates was out-of-line with advice from the Productivity Commission, the OECD, and 'many other developed countries'.

What's the big picture?

The feebate scheme would involve the transfer of about $200 million a year from buyers of newly-imported higher emission vehicles to buyers of lower emission vehicles, including smaller petrol cars, hybrids and EVs, with fees and rebates cancelling each other out.

For example a new Hyundai Kone electric car might get a $8000 rebate and a second-hand imported Ford Fiesta might qualify for a $1100 rebate when they were first registered in New Zealand, while a new Toyota Landcruiser might attract a $3000 fee and a second-hand Holden Commodore a fee of $1300.

Kiwis spend about $5 billion on newly-imported cars each year, half of them new and the other half second-hand, so anyone could probably come to their own conclusions about the broad impact they'd expect the policy to have without too much help from officials.

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But what are the estimates?

Officials have estimated the feebate scheme itself, if it was in place for six years, would reduce New Zealand's carbon emissions by 1.6 million tonnes (mt) over a 20-year period.

That estimate was included in a Cabinet paper that gave the go-ahead for public consultations on the scheme, so isn't really in dispute.

But it is just an estimate, as the actual carbon savings would depend on the extent to which people bought different cars as a result of feebates.

New Zealand's total carbon emissions are 80mt a year, which is how the '0.09 per cent' figure National quotes was derived.

Hang on. Six years, 20 years, come again?

Cars such as the Nissan Leaf would become thousands of dollars cheaper if feebates are applied.

The impact of the feebates would extend beyond the life of the feebate scheme itself because the lower-emission cars that it encouraged people to buy would still be on the road after any feebate scheme ended.

So if feebates were in place for six years, as the policy proposals assume, the carbon saving would be 1.6mt over 20 years. Or at least that is the estimate.

If feebates ended up being in place for 20 years, the savings would be much higher than estimated in the officials' advice.

Is that the whole picture?

Not really.

National Party transport spokesman Chris Bishop has given feebates the thumbs down.

The feebate scheme would be introduced alongside a 'clean car standard' that would require vehicle importers reduce the average emissions of cars they imported from about 180 grams of carbon dioxide per-kilometre-travelled today to 105g/km by 2025.

Targets after 2025 would be set by future governments.

Importers that didn't meet the emissions target would pay a financial penalty.

Officials estimate that if the clean car standard was in place for just six years, that would cut emissions by 5.1 million tonnes of carbon over 20 years.

What has that got to do with the feebate scheme?

Quite a lot, because the two policies are designed to work in tandem.

The feebate scheme is really intended to persuade consumers to buy the mix of vehicles that importers would need to sell in order to avoid the penalties they would otherwise have to pay if they didn't meet the targets of the clean car standard.

The bottom line?

The 'clean car standard' is expected to do more of the heavy-lifting reducing emissions, with feebates largely a means to achieving the ends of that policy.

It probably makes most sense to think of the feebate scheme as part of a policy that – overall in its first six years of operation – would be estimated to reduce carbon emissions by between 5.1mt and 6.7mt, albeit with those savings accruing over 20 years.

To put that in context, light vehicles are responsible for about 10.5mt, or about 13 per cent, of the 80mt total annual emissions figure.

So the estimated impact arguably isn't huge, but nor is it negligible.

It is correct to say the feebate scheme is forecast to cut New Zealand's carbon emissions by 0.09 per cent over 20 years.

But it is equally true to say the feebate and clean car standard schemes are together expected within six years to 'lock in' carbon savings equivalent to about 7 per cent of New Zealand's total emissions, or 50 per cent of its light vehicle emissions, in any one year.

Why 'between 5.1mt and 6.7mt'?

Because of the interplay between the schemes, it is not quite as simple as adding up the carbon reductions from both schemes.

As the Cabinet paper notes, the savings from the two schemes could be expected to be a bit less than if each was enacted individually.

The Transport Ministry does intend to come up with a single 'combined' estimate of the carbon saving from the two schemes before ministers make any decisions, but remember that will still only be an estimate.

Treasury officials have rubbished the government's 'feebate' scheme aimed at promoting sales of electric vehicles, warning it will have an infinitesimal effect on carbon emissions over two decades.

What would be the cost of the reductions?

There may not be one, although the policies would have undoubtedly create winners and losers.

According to cost-benefit analyses conducted by the Transport Ministry, the clean car standard would have a 'net benefit' of between $1.2b and $4.7b over 20 years, while the feebate scheme would have a net benefit of $111m to $821m.

Again, that assumes both policies were in place for only six years.

Most of the benefits would come in the form of the savings drivers would experience as a result of having to spend less on fuel because they had bought more fuel-efficient cars.

Those net benefits take into account the fees, the costs involved in some people buying more expensive and different cars than they would otherwise do, and compliance and administrative costs.

Officials acknowledge their estimates of carbon savings from the feebate and clean car standard schemes are subject to uncertainty, because it depends how they change buying behaviours.

Again though, the net benefits probably can't just be added up because of the interplay between the two policies.

So we have fewer emissions and may be billions of dollars better off?

That is what the Transport Ministry's studies suggest.

The Treasury doesn't sound convinced.

It says the main rationale for the feebate scheme is that people undervalue or partly ignore fuel savings when they choose a vehicle, but it believes the evidence on whether they really do that is 'mixed'.

Its published advice doesn't go into any detail about its doubts.

Are there other alternative policies?

Yes. The Treasury would rather emissions were discouraged solely through the emissions trading scheme (ETS), describing the feebate and clean car standard as a 'double whammy' if they were imposed on top of the ETS.

David Vinsen, chief executive of the Vehicle Importers Association, doesn't have a problem with feebates but believes the clean car standard is unnecessarily complex and will prove difficult to administer.

He suggests the Government could instead simply increase the excise tax on fuel to discourage emissions.

That would motivate people who hadn't been actively looking for new cars to switch to lower emission vehicles as well as those who were already shopping.

But he acknowledges higher fuel taxes might not be politically palatable.

On the other hand, Kiwis appear to have so far warmed to the feebate scheme, with both a Colmar Brunton poll conducted for TVNZ and a (non-scientific) poll by Stuff recording a 12 percentage point margin in favour of the initiative.

It is not an overwhelming endorsement, but one that suggests National risks somewhat misjudging the public mood.