The UK Prime Minister, Rishi Sunak, has this week pushed back the date of the forthcoming ban on petrol and diesel vehicles from 2030 to 2035. He argues that this is a pragmatic move, that helps prevent UK households bearing large costs in the process of meeting the objective to deliver substantial carbon savings in the transition to a zero-carbon economy by 2050. The move provides consumers with a longer period of opportunity to buy what are still relatively cheaper petrol and diesel cars as well as aligning the UK with the EU timeline for the ban of sale of cars with internal combustion engines (ICEs). It also buys the government and the private sector more time to provide the necessary infrastructure to ensure charging is feasible, especially for those who do not have off-street parking. The car industry is divided on the efficacy of this move. Whilst some see it as a pragmatic move, others are concerned that it will lead to increased uncertainty and reduced confidence in the transition more generally. [i]
The government appears to be placing more weight on evidence related to the potential adverse economic impacts of a ban. For instance, a 2022 study by Cebr[ii] shows that the environmental benefits associated with the proposed 2030 ban are significantly outweighed by the additional costs. Whilst the value of the environmental benefits add-up to £76 billion, the assessed costs add up to £400 billion – a multiple of five. The sooner the ban is put in place, the larger the relative costs will be. The key costs are the following: additional new vehicle purchase price costs of £188 billion; increased time lost due to waiting whilst recharging EVs, valued at £47 billion and increased infrastructure for electricity generation and additional charging points of £99 billion. And whilst it is widely reported that EVs are cheaper to run, this is in large part due to the fuel duty embodied in the price of petrol and diesel. The government will eventually face a trade-off: keeping EVs relatively cheaper to run will entail a significant loss of tax revenue. Indeed, we estimated that under a 2030 ban, the annual revenue loss to HM Treasury would be £198 million in 2030 rising to about £16 billion in 2050. Overall, it would cost households an estimated extra £1,000 per household per year from 2022 until 2050.
The delay is coupled with a shift towards more responsibility for reaching net zero being borne by the car industry, which will have to meet increasingly ambitious mandatory electric vehicle sales targets starting in 2024. Whilst the delayed ban will likely slow the uptake of EVs, the ZEV mandate[iii] is likely to significantly ameliorate this impact as manufacturers will have to increasingly restrict the supply of new petrol and diesel cars, whilst increasing the supply of EVs. They will want to do so by producing more attractive EVs at cheaper prices to ensure they meet their sales targets. This ZEV mandate will also indirectly serve to increase the relative price of petrol and diesel cars, thereby creating an increased incentive for consumers to purchase EVs.
The government will be hoping that this delay does not significantly slow down the momentum that the car industry already has. There are encouraging signs for the government. Stellantis, which owns Vauxhall, Peugeot, Citroen and Fiat, is already fully committed to achieving 100% zero emission new car and van sales in the UK and Europe by 2030 regardless of any delay to the ban.[iv] Indeed, it may be that the car industry can enforce a de-facto 2030 ban itself regardless of any regulatory intervention. If a large majority of car manufactures commit to only selling EVs by 2030, consumers will be left with no choice but to purchase EVs. Furthermore, perhaps there has already been sufficient commitment shown to ensure that the car industry is by now passed the point of no return.
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Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.