Business Daily Media

NZ’s clean car discount is a turn in the right direction, but how much will it drive consumer demand?

  • Written by Basil Sharp, Professor of Energy Economics, University of Auckland
NZ’s clean car discount is a turn in the right direction, but how much will it drive consumer demand?

New Zealand faces two enormous challenges if it is to meet its international climate change commitments under the Paris Agreement[1]: biogenic methane emissions from agriculture, and carbon emissions from industry and transport.

For now, there seems little prospect of significantly reducing agricultural emissions, short of reducing actual livestock numbers, because the technology is currently not available. The same can’t be said for decarbonising industry and transport.

The question is, how best to do that. Carbon emissions are currently priced by the emissions trading scheme (ETS[2]), but in its present form this can’t provide the financial incentives to decarbonise within the timeframe recommended[3] by the Climate Change Commission.

To meet the government’s target of reducing greenhouse gas emissions to 30% below 2005 levels by 2030, other market mechanisms will be required. Hence the recently announced “feebate[4]” scheme to encourage a transition to electric and cleaner hybrid or conventional vehicles.

There’s no doubt the technology exists to transition industry and transport to a low-carbon future. For industry, electricity and possibly hydrogen are the obvious substitutes for coal and gas.

Decarbonising transport is also technically feasible, but creating the right incentives remains a challenge. While taxes on petrol and diesel already include a price on carbon, demand is relatively insensitive to price, regardless of global costs and local taxes.

Read more: Climate policy that relies on a shift to electric cars risks entrenching existing inequities[5]

The new rebate policy simply switches the focus from fossil fuel energy for internal combustion-powered transport to electricity-powered transport.

Ironically, this reverses what happened when hybrid electric vehicles were first produced[6] in the late 19th century. Mass production of cars and cheap oil put an end to that early form of EV. Back to the future!

How will consumers respond?

Reducing the price of EVs by lowering the government’s tax take and increasing the levy on certain classes of fossil-fuelled vehicles is a bold initiative — but also something of an experiment. The outcome will depend on the extent to which the rebate increases consumer demand.

New Zealand has one of the highest rates of car ownerships in the world — close to 0.8 vehicles per person[7]. EVs are becoming more popular but still account for less than 1% of the market. Higher uptake depends on a range of variables.

Most car manufacturers are moving into the production of EVs. Although this will occur at scale, we can’t be sure the vehicles will become cheaper, particularly if recent price spikes in raw material markets continue.

Read more: NZ's Climate Change Commission needs to account for the huge potential health benefits of reducing emissions[8]

New Zealand is also at the end of the supply chain, making us price takers in the global market for new EVs. The supply of second-hand EVs from Japan will depend on how often owners replace their vehicles.

On the demand side, the feebate initiative will change the relative price of cars and should increase sales. By how much and over what period is harder to predict.

New Zealanders’ ability to pay for EVs is perhaps more significant. New Zealand is not a high-income economy, and this will probably have a greater bearing on uptake. Even a second-hand vehicle at NZ$25,000 is beyond the reach of many households.

If demand turns out to be relatively insensitive to a change in price, further policy adjustments will be needed. This, of course, opens up the possibility of future governments altering the entire course of transport decarbonisation policy.

Read more: As NZ gets serious about climate change, can electricity replace fossil fuels in time?[9]

A nudge in the right direction

Economies are complex interdependent systems. The rebate scheme is a policy “nudge”, but clearly public transport, cycling and walking should be part of a broader set of policies aimed at getting people out of private motor vehicles.

Furthermore, the impact on electricity prices remains unclear. About 80-85% of New Zealand’s electricity comes from renewable sources. Timely investment in wind, geothermal and stored hydro can add to supply in the future, and the current government wants to see 100% renewable electricity[10] generation by 2030.

Paradoxically, however, transitioning to a low-carbon economy will most likely result in higher electricity bills. Bringing additional generation capacity on line, increased demand from transitioning industry and transport to electric, and the prospect of producing green hydrogen from renewable sources, will all drive up prices.

Nevertheless, New Zealand’s endowment of renewable resources positions it well to meet its obligations under the Paris Agreement. But achieving the 2030 target remains a huge challenge. The rebate scheme is but a step in that direction.

Authors: Basil Sharp, Professor of Energy Economics, University of Auckland

Read more https://theconversation.com/nzs-clean-car-discount-is-a-turn-in-the-right-direction-but-how-much-will-it-drive-consumer-demand-162751

Business Today

Cathay Pacific 2021 Sustainability Report

New commitments in carbon neutrality and diversity, and supporting the Hong Kong community during the pandemicThe Cathay Pacific Group has released its annual Sustainable Development Report that addresses its commitment and prog...

Cozycozy, is tackling consumer manipulation in the travel industry

With its user-centric algorithm, Cozycozy fights against the Online Travel Agencies' rampant manipulation of consumers’ choices. In 2019, 112.3 million domestic trips and 11.3 Million international trips were taken by Austral...

Foreign companies exiting Russia echo the pressure campaign against South Africa's racist apartheid system

McDonald's is leaving Russia after three decades of operating there.Sefa Karacan/Anadolu Agency via Getty ImagesMcDonald’s provided many Russians with their first taste of capitalism three decades ago. Now, the global fast-f...

Jennifer Westacott's interview with Ross Greenwood

Ross Greenwood, host, Business Now: Joining us is the chief executive of the Business Council of Australia, Jennifer Westacott. Jennifer, many thanks for your time as always. Quite clearly the government is setting out its age...

Business success as Aussie kids skateboard brand, Ookkie, launches in UK and Europe

Australia’s leading kids skateboard company, Ookkie, has set the wheels in motion for global business success, expanding into two new overseas markets thanks to growing demand for its products from ‘skateboard loving paren...

How a sustainability index can keep Exxon but drop Tesla – and 3 ways to fix ESG ratings to meet investors' expectations

Tesla CEO Elon Musk, shown at an electric vehicle factory, called ESG ratings 'a scam' after an index dropped Tesla. Maja Hitij/Getty ImagesA major stock index that tracks sustainable investments dropped electric vehicle-maker Tes...

Business Daily Media Business Development

Cathay Pacific 2021 Sustainability Report

New commitments in carbon neutrality and diversity, and supporting the Hong Kong community during the pandemicThe Cathay Pacific Group has released its annual Sustainable Development Repor...

Business Daily Media - avatar Business Daily Media

Cozycozy, is tackling consumer manipulation in the travel industry

With its user-centric algorithm, Cozycozy fights against the Online Travel Agencies' rampant manipulation of consumers’ choices. In 2019, 112.3 million domestic trips and 11.3 Million i...

Business Daily Media - avatar Business Daily Media

How to talk to your employer about trauma

Chanintorn.v / ShutterstockThe impact of trauma and post-traumatic stress disorder (PTSD) is a hidden chronic mental health issue in the workplace. A 2016 survey of UK adults found that one ...

Stefanos Nachmias, Principal Lecturer and Deputy Head of HRM Department, Nottingham Trent University - avatar Stefanos Nachmias, Principal Lecturer and Deputy Head of HRM Department, Nottingham Trent University

Jennifer Westacott's interview with Ross Greenwood

Ross Greenwood, host, Business Now: Joining us is the chief executive of the Business Council of Australia, Jennifer Westacott. Jennifer, many thanks for your time as always. Quite clear...

Ross Greenwood - avatar Ross Greenwood

Business success as Aussie kids skateboard brand, Ookkie, launches in UK and Europe

Australia’s leading kids skateboard company, Ookkie, has set the wheels in motion for global business success, expanding into two new overseas markets thanks to growing demand for its ...

Business Daily Media - avatar Business Daily Media

world's biggest port is returning to normal, but supply chains will get worse before they get better

Shanghai is slowly emerging from a gruelling COVID lockdown that has all but immobilised the city since March. Although Shanghai’s port, which handles one-fifth of China’s shippi...

Sarah Schiffling, Senior Lecturer in Supply Chain Management, Liverpool John Moores University - avatar Sarah Schiffling, Senior Lecturer in Supply Chain Management, Liverpool John Moores University



NewsServices.com

Content & Technology Connecting Global Audiences

More Information - Less Opinion