Opposition’s electric dreams

After the Rudd-Gillard governments’ school halls, pink batts, National Broadband Network and cash for clunkers debacles, voters are entitled to be apprehensive about the opposition’s uncosted climate change policy — especially its target that electric vehicles comprise 50 per cent of new car sales by 2030, compared with 0.2 per cent now. That ambitious pledge sets several sets of alarm bells ringing. These include the cost to taxpayers of subsidising EVs, the cost of providing recharging stations, the cost of fuel excise forgone and the potential drain on electricity when coal-fired baseload power would presumably be phased out under Labor. More disturbing, Bill Shorten used the policy announcement to revive the economically inefficient notion, popular among protectionist fringe parties and some unions, that Australia should be making cars again. Launching the policy on Monday, budget eve, when he minimised scrutiny, the Opposition Leader said: “It’s about time that this country decided that we can make electric vehicles in Australia, that we can also help create a set of circumstances, create a market for electric vehicles, which makes them affordable for household users.”

It sounded like another magic pudding, reviving the nightmare of the bottomless pit of subsidies shovelled into the now defunct Australian car industry until its closure in 2017. Productivity Commission figures show vehicle manufacturers received more than $30 billion in transitional assistance between 1997 and 2012 alone yet were still unable to compete internationally. As former Business Council of Australia president Tony Shepherd has warned, the cost and energy requirements involved in making EVs domestically would be prohibitive. A Shorten government would have no shortage of rent-seekers lining up to access whatever start-up assistance it might offer. Its chances of “picking a winner”, however, would be remote given the limited size of Australia’s market and high manufacturing costs.

Increased EV use also would cost the budget bottom line in lost fuel excise. Labor says EV drivers would be able to use roads free of charge for the foreseeable future, depriving the budget of the 41.2c-a-litre paid by drivers of petrol cars. That impost will raise almost $20bn in 2019-20, of which $7.5bn will be returned to ­exempt users, including farmers and miners, leaving net revenue of at least $12bn. Based on overseas experience, taxpayers could also find themselves subsidising EV buyers. South Korea, in an effort to reduce its reliance on oil imports, is providing incentives of about $17,000 to EV buyers. In the event of a major take-up of EVs, the effects on Australia’s overstretched power grid also would need to be factored in. As reported today, Energy Networks Australia recently warned a Senate inquiry that growing numbers of EVs could worsen energy peaks and exceed the capacity of low-voltage networks.

The Coalition, in principle, is also committed to increasing the use of EVs. As energy minister in the Turnbull government, Josh Frydenberg compared the cars to the advent of the iPhone and predicted a million of them would be on the roads by 2030. The Treasurer now says Labor’s policy is a case of “virtue signalling”. It is. Regardless of the potential of EVs to cut emissions and reliance on oil, neither major party has done enough work to drive such a transition. Labor’s proposal to do so without adequate cost-benefit analysis poses a serious economic risk.