While the salience of climate change as an issue has varied among the UK electorate, the general sentiment has been consistent.  Most UK voters want the UK government to take steps to mitigate climate change.  But they are not prepared to pay much for this.  With little fiscal headroom the government is probably going to have to listen to voters on this point.

Helpfully the Climate Change Committee (CCC) has analysed which decarbonisation measures are cheapest.  Less helpfully some of its analysis has proved unduly optimistic in the light of recent trends in the costs of renewables in the UK.  The CCC estimates that the sector where the economics of decarbonisation are most favourable is private motoring; its analysis of the costs of getting to net zero concludes that decarbonising cars would save the economy £360bn over the next 25 years and would offset many of  the more costly parts of its recommended path to net zero.  Is the CCC correct that the decarbonisation of car transport is a ‘no-brainer’ economically as well as environmentally?

We might think we know the answer here; research buying an EV and you quickly find that (provided that you are able to charge it at home)  the cost per mile of electricity for an EV will be much lower than the cost per mile of petrol, and this will allow you to more than repay the extra capital cost of the car.  Moreover – depending on the choice of model and what is on offer in the market place – many EV’s don’t currently cost that much more than petrol cars anyway.

But this tells us less than we might think about the long term cost to the economy of a full transition to electric vehicles.  The lower fuelling cost is mostly driven by high taxes on petrol.  The current pricing of new EV’s relative to petrol cars is based on the price at which they will sell (given that drivers can get a payback from a lower driving cost per mile), on subsidies, and on a manufacturing cost base which has not yet reached maturity.  Neither the current purchase price nor the long term cost of ownership contain much information about the long term competitive advantage of EV technology.  

We have to dig deeper and look at the underlying costs of manufacture and the ex-tax costs of operating the cars.  I have done that here for the UK.  

The analysis tells us that EV’s today are still more expensive than petrol cars across their lifecycle if you are comparing a European EV to a European petrol car.  Once we strip out fuel duty and VAT, and take account of the fact that not all EV charging happens on cheap rates at home, the per mile fuel cost of an EV and of a petrol car are today very similar.  The underlying manufacturing costs of EV’s  are higher – I estimate by about 4p/ mile based on recent analysis of cost bases from the International Energy Agency – and EV’s are therefore more expensive over their lifetime. 

The answer is different if we compare Chinese EV’s to European petrol cars.  Here the evidence suggests that the manufacturing costs of a Chinese EVs and European petrol cars are already very similar.

The analysis also considers the likely lifetime costs of an EV and a petrol car in the future.  Here it concludes that within a few years the lifetime cost of ownership even of an EV manufactured in Europe will likely be lower than that of a petrol car.  The conclusion is based on a range of plausible assumptions about future manufacturing costs, electricity prices and vehicle longevity.

So what?

Those committed to the net zero project but also worried about the economic costs of decarbonisation and its impact on growth need worry less about decarbonising cars than other parts of the transition they want to bring about.  

Those who don’t think the UK’s net zero commitment is an effective or important policy but still care either about climate change or about what the electorate wants should also back this particular transition from fossil fuels to relatively clean electricity.   

There is room for policy disagreement about how fast such a transition should take place, and what government needs to do to smooth its course, but as an overall objective, there is good economic reason for their to be a consensus about changing the car fleet from petrol/ diesel to electric.  And in a world where political polarisation is making the planning of individuals and businesses much more uncertain, we should grab onto and consolidate potential areas for consensus where we can.

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