Professor Paul Kerin: The electric vehicles push fails the public interest test

Advocates of further subsidies for electric vehicles were out in force last week. But if you look beyond the evangelistic hand-waving, the case for subsidies is weak.

We need to be very clear about the purpose of proposed subsidies and carefully assess whether subsidies are the best way to achieve that purpose. EV subsidies could be used to increase domestic demand and/or to stimulate domestic production.

On the demand side, EV advocates such as Greens transport spokeswoman Janet Rice claim we’re a “global laggard”. If they provide any evidence to support this claim, they usually selectively cite one or a handful of the world’s 195 countries. True, EVs’ share of new vehicle sales is 28 per cent in Norway, which provides substantial subsidies. But EVs’ market share is less than 1 per cent worldwide, as it is in 189 of the world’s 195 nations. As one of the 189, Australia is hardly a laggard!

Why provide demand-side subsidies anyway? The one half-sensible argument is that EVs have lower emissions (of greenhouse gas and other pollutants). However, other options to stimulate demand would be much better than subsidies. As dumb state and federal government policies have given us the world’s highest electricity prices, it’s hardly surprising that EV demand is low.

We should fix those dumb policies first. In any case, the most efficient way to deal with emissions is to put a price on them and let the market decide how to reduce them, rather than pick winners and favour  particular technologies. A recent Canadian study found that the cost per tonne of emissions abatement achieved through EV subsidies exceeded $500 — more than 20 times the cost of doing so by pricing emissions.

On the production side, advocates such as South Australian Premier Jay Weatherill make fatuous statements. EVs are an “industry of the future”, they say, as if that alone is enough to justify taxpayer subsidies.

We may well all be driving EVs at some point in the future, but there’s much uncertainty as to when. In any case, we need to learn the lessons from our failed auto industry policy. Motor vehicle production is a scale-intensive business. Australian vehicle manufacturers couldn’t obtain the scale to be cost-competitive because our domestic market is small and transport costs to export markets are high. The market for EVs will be much smaller than the market that our vehicle manufacturers previously served for many years to come, making it even more difficult to achieve scale economies.

Rice also claimed that the federal government was “asleep at the wheel” because it was doing little to support EVs, “even while business leaders such as Sanjeev Gupta were potentially willing to invest in EV manufacturing in Australia”. Well, if Gupta is willing to invest, that’s great. Good luck to him. But if private investors are willing to invest anyway, subsidies would simply waste taxpayers’ dollars. And if they’re not willing to invest, taxpayers shouldn’t, either. I’d back the judgment of investors with skin in the game over that of politicians spending other people’s money any day.

The other refrain for production subsidies is the old jobs nugget. Weatherill says “these are the jobs of the future”. But EV production subsidies would simply shift jobs from sectors in which we have comparative advantages to one in which we’ll always have a major scale disadvantage. In any case, the best way to promote jobs is to create the best business environment for growth, such as low cost conditions. Paying selective subsidies means higher costs and lower demand for other businesses, as they and their customers pay more taxes to fund the subsidies.

Indeed, a report published last week by the South Australian Centre for Economic Studies found that the SA government has wasted many millions of taxpayer dollars on industry subsidies.

The report found that the claimed economic benefits of subsidies (such as jobs) were often “overblown”, “wouldn’t pass the laugh test” and “without any evidential basis’.

Some have also argued that EV charging stations should be subsidised. True, EV demand may not take off unless drivers are sure they can drive anywhere in them. But that would only be a possible concern on long-distance trips. In any case, charging networks are being rolled out under current policy settings.

Indeed, Tesla’s Australian website tells us that its existing charger network already means “Tesla can get you anywhere you want to go”.

Further, Chief Scientist Alan Finkel has predicted that EVs may be able to drive 1000km on a single charge by 2025.

Unfortunately, EV subsidy advocates have indulged in absurd characterisations of others’ positions. Rice’s media release on EVs was headlined “Coalition naysayers should stop blocking Australia’s EV future”. In fact, the federal government already provides positive assistance, so how that is blocking is beyond me. Apparently, “blocking” in Rice’s book is not handing out as many taxpayer dollars as she wants to.

Similarly, Weatherill claimed that supporting EV production was “progressive thinking”, criticised “knuckle-draggers” who question it and told Malcolm Turnbull to “just get on with it”.

But true progressive thinkers don’t simply act on thought bubbles. They think carefully about what would best serve the public interest and advocate change whenever they think it would. EV subsidies fail this test.

True progressive thinkers aren’t lemmings. There’s a big difference. The real danger is when the lemmings think they’re progressive thinkers. That’s what got us into our electricity policy mess in the first place.


Paul Kerin is Adjunct Professor, School of Economics, at the University of Adelaide.

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