Numerous studies have acknowledged the importance of massive deployment of full battery electric vehicles (BEVs) and plug-in hybrid vehicles (PHEVs), in order to reduce environmental externalities from personal road transport, in particular CO2 emissions. Good news about declining battery costs and ambitious output pronouncements by major car manufacturers may give the misleading impression that mass-penetration of electric vehicles is just around the corner. But in the short to medium term, large scale penetration is far from assured, unless there are further policies to address a number of barriers. This paper looks at the financial challenges that need to be addressed to enable mass-roll out of EVs.
Recommendations
- CURRENT DEPLOYMENT RATES ARE NOT ON TRACK WITH DEEP DECARBINZATION
Numerous studies have acknowledged the importance of massive deployment of full battery electric vehicles (BEVs) and plug-in hybrid vehicles (PHEVs), in order to reduce environmental externalities from personal road transport, in particular CO2 emissions. Good news about declining battery costs and ambitious output pronouncements by major car manufacturers may give the misleading impression that mass-penetration of EVs is just around the corner. But current deployment rates of EVs are significantly off track for deep decarbonisation of the French transport system by 2050. In the short to medium term, large scale penetration is far from assured, unless there are further policies to address a number of barriers.
- THE IMPORTANCE OF THE FINANCING CHALLENGE
In the short term to around 2020-2025, EVs will remain more expensive to purchase and run than equivalent internal combustion engine (ICE) vehicles. In the medium term beyond 2020-2025, EVs are likely to become competitive on a lifetime cost basis. However, they may still confront other financing challenges, such as higher upfront purchase costs (as opposed to lifetime costs). This barrier may be particularly important if consumers are myopic and discount future fuel savings, or if they are credit constrained. In the longer run, EVs will create other challenges for governments to deal with, such as fuel tax revenue erosion. EV support policy should therefore be designed with a dynamic, at least decadal perspective. In this paper, we consider a three-phase financing strategy corresponding to the above described challenges.
- THE IMPORTANCE OF CONSIDERING DISTRIBUTIONAL ISSUES
A range of fiscal policy tools are likely to be needed as part of any feasible regulatory framework for supporting massive EV roll out. But this raises the critical issue of the distributional impacts of the transition to EVs. The upfront financing challenge may be particularly relevant for lower income households, while at the same time, massive rollout of EVs will require that middle and lower income households start to purchase electric vehicles. This requires that policy consider how to ensure access to EVs for such consumers. The progressive compensation of declining fuel tax revenues through fuel tax increases and the ratcheting up of malus policies on ICEs could also have important distributional impacts. Thus EV support policy should also be designed and monitored with distributional impacts in mind.
- THE EV FINANCING CHALLENGE IS FEASIBLE, IF WE CAN GET THE MIX AND TIMING OF POLICIES RIGHT
The EV financing challenge is eminently feasible, and we can be optimistic about the capacity of a judicious policy mix to push the massive deployment of EVs. However, one should not be deluded by the hype currently surrounding EVs: rapid deployment will not occur without a further policy. This policy push should be fiscally neutral if possible; be phased out once the technology reaches maturity; and pay attention to the distributional aspects of policy.
