With Bryan Field / 7 October 2019
Data scientist Bryan Field looks at the potential impact of the Government’s proposed Clean Car policy package and what it could do to push New Zealand drivers towards a low-emissions transport future.
The Government recently proposed a two-pronged ‘Clean Car’ policy for reducing light-vehicle emissions — an average vehicle emissions standard for new and used imported vehicles, and a discount/fee (or ‘feebate’) scheme on purchase prices.
This combines a clear ‘supply-side’ intervention to get more low-emissions cars into the country, along with a ‘demand-side’ nudge to get people to choose these cars when they buy. But what sort of impact could the proposed new policy have?
The Clean Car Standard: A supply-side intervention
In 2018 the three biggest-selling new cars here were the Ford Ranger ute, the Toyota Hilux ute and the Toyota Corolla, in that order. Of course, many people and businesses need heavy-duty vehicles — but there are also many who buy big utes and SUVs simply because they like driving them.
Our fondness for large, inefficient vehicles just isn’t sustainable. The proposed Clean Car Standard could be an excellent way to change the supply of vehicles coming into New Zealand to reduce emissions.
The proposed standard, to be phased in gradually from 2021 to 2025, would require importers to lower the average CO₂ emissions of all the new and used vehicles they’re bringing into the country. It would apply to all new vehicles and to used vehicles imported for the first time.
For importers the new standard is all about averages. Higher-emissions vehicles can still come in — so farmers, tradespeople and so on will still be able to get their utes and vans — but each importer will have to balance those out with lower-emissions vehicles.
The average vehicle entering the New Zealand fleet today emits 180 grams of CO₂ per kilometre. The proposed standard of 105 grams CO₂/km is roughly in line with standards currently being proposed in Australia, but weaker than those in Europe. New Zealand should also have no trouble accessing vehicles that meet the proposed standard, as 105 grams CO₂/km is the same as the average emissions intensity of Japan’s vehicle fleet in 2014, and we import most of our cars from Japan.
A demand-side nudge: the Clean Car Discount
On the demand side, the Government’s proposed policy is intended to provide an incentive to buy lower-emissions vehicles — and of course to not buy higher-emissions ones.
The ‘Clean Car Discount’ is off the purchase price for low-emissions vehicles, and the policy also adds a fee to the purchase price for high-emissions vehicles sold in New Zealand for the first time (both new and used imports). As with the Clean Car Standard, the discounts and fees wouldn’t apply to cars already in New Zealand in January 2021.
As shown below, the proposed numbers here are quite significant:
Tackling behavioural barriers
As behavioural scientists understand, there’s more to the world of consumer ‘incentives’ than meets the eye. My colleagues Andy and Renee wrote recently about the complex psychology of climate change, and how to use behavioural science to get people to make low-emissions choices, not just in personal transport but across the board.
As an example of the difficulties here, if people were completely rational car buyers they would consider the total lifetime costs of a car and choose the most affordable option. But people usually don’t have the mental bandwidth to make these long-range calculations.
What’s more, they prefer ‘smaller-sooner’ rewards to ‘larger-later’ rewards (a phenomenon the specialists like to call ‘hyperbolic discounting’). Because of that bias, the initial purchase price tends to be more important to people than future ongoing costs such as fuel and maintenance.
So for electric vehicles to be a more attractive option, first, it needs to be easier and simpler for people to work out and compare the total cost of ownership of different vehicle options. Second, the purchase price ideally needs to come down — because it’s those ‘right now’ costs that matter to people.
So it’s good news that by reducing those right-now costs, the proposed Clean Car Discount could help nudge our car-buying choices in the right direction.
Making comparisons simple and easy
Taking on the challenge of making it easier for people to work out total cost of ownership, EECA has a handy tool on their website that allows you to compare this total cost across different types of vehicles (it’s really pretty nifty).
I gave the EECA tool a test-drive to compare the current total cost of ownership of four common new models — two EVs (the Series 3 Nissan LEAF and the Hyundai IONIQ), and two petrol-engine cars (the Toyota Corolla and the Suzuki Swift). I then used the tool to see what impact the proposed Clean Car Discount would have on the total cost for those vehicles.
The total cost of ownership considers all the costs of owning a vehicle over a given period, including purchase price, fuel, maintenance, WOF and registration and so on, as well as the residual value of the vehicle when it’s sold in the future.
EECA’s tool has a bunch of default settings for a wide range of parameters — like fuel price, variable electricity price, purchase price, and the amount of time to do the assessment over. Most of their assumptions seemed fairly reasonable — apart from the 91 octane petrol price, which I adjusted up to be the average over the 2019 year to date.
Here’s what I found.
What the clean Car Discount did for purchase prices
With the proposed Clean Car Discount, the purchase prices of the two new electric vehicles, the Nissan LEAF and the Hyundai IONIQ, drop quite significantly — from about $60,000 to $52,000.
This makes a reasonable dent in the price differential between the two EVs on the one hand and the petrol-engine Corolla and Swift on the other. But after the discount, the differential is still substantial.
So what does the proposed discount do to the total cost of ownership?
The new discount and the total cost of ownership
After factoring in the proposed Clean Car Discount, I found that the total cost of ownership for the Nissan LEAF and the Hyundai IONIQ both fall slightly below that of the very popular Toyota Corolla.
There are many assumptions and parameters at work in this comparison — but this does give a useful rough indication that the total costs of owning a new EV are comparable to that of a similar new petrol car.
What might go wrong?
But for a twist in the electric vs fossil fuels narrative here, my comparison also showed that the petrol-fuelled Suzuki Swift has a much lower total cost of ownership than both EVs and the Corolla — about $12,000 compared with $20,000 to $21,000 for the other three.
The Swift is a lower-carbon choice compared with a Corolla, but it’s not the lowest-carbon choice out of the four cars in our study. Buying a new car locks in emissions for 15 to 20 years, so if the Clean Car Discount incentivises buying Suzuki Swifts over EVs, it may not result in strong uptake of electric vehicles, because very small cars like the Swift are still cheaper to own than an EV — even after a substantial discount on EV purchase prices. This could be a significant perverse outcome of the new policy, and something for our policymakers to think carefully about.
Shifting buyers from larger petrol or diesel-fuelled vehicles to smaller ones like the Suzuki Swift would help reduce emissions from transport, but it may not reduce transport emissions enough to meet our emissions reduction targets set by the Zero Emissions Bill and our international obligations. If we don’t act now to adopt enough of the lowest-emissions options, we risk missing our targets.
The Clean Car Discount policy also poses a fiscal risk to the Government. It’s meant to be ‘fiscally neutral’ — that is, the fees charged on high-emissions vehicles are calculated to balance the discounts offered on low-emissions vehicles. But if the uptake of particular types of vehicles is different from what the Ministry of Transport has assumed, the policy could end up costing the government — or consumers — money.
Building in some flexibility
These policies are certainly a nudge in the right direction for the New Zealand transport system. Here at MartinJenkins we’ll be watching with interest the results of the consultation and then the final policy decisions.
Given the potential for those unintended outcomes discussed above, however, we think the Ministry would be wise to monitor this policy very closely, and build in the flexibility needed to change the settings should things play out differently to what they’ve assumed.
About the author
Bryan Field is a Senior Consultant with professional services firm MartinJenkins. He is an experienced researcher with a penchant for distilling information from data, and insights from information.
Bryan specialises in communicating complex information to non-technical audiences. He has deep experience in the Energy Sector, and on Climate Change issues gained from leading the Energy and Building Trends team at the Ministry of Business, Innovation and Employment (MBIE) for several years.
Since joining MartinJenkins in 2017, he has also worked on projects for the Ministry for the Environment, Interim Climate Change Committee and MBIE. Bryan has particular skills in modelling and analysis of Energy and Climate Change issues, and of the economic impacts of policy changes in these areas.
Bryan holds a Master of Science degree in Physics from the University of Otago.