The great feebate debate
The Government has recently proposed the introduction of a vehicle efficiency standard and feebate scheme to incentivise consumers to buy more efficient vehicles.
The Productivity Commission’s recommendation
The Productivity Commission outlined a central strategy for efforts to reduce greenhouse gas emissions (GHG).
Specifically, they argued that the price of goods should accurately reflect the costs of GHGs that good creates.
Then, and this is really the most important part, “emissions pricing can and should be used as the central policy lever to incentivise businesses and individuals to make decisions that lower their GHG emissions”.
The transport sector accounts for about 20% of GHG emissions in New Zealand.
What we need is a stronger carbon tax on petrol and diesel.
What we have received is a complex and convoluted vehicle efficiency standard and a feebate system.In theory, this is a good start or even a good complement, but the devil is in the detail.
The efficiency standard is so rife with loopholes that utes can and will be driven right through them.
For instance, they do not apply to private imports.
This means that the cars can just be imported in the name of the buyer, making it a private import and completely bypassing the standard.Of course, this also means the buyer loses all protections under consumer law.
This will have a direct and detrimental impact on the viability of traditional business models.
As for the feebate, well we know where most utes are driven, and we know where most EVs are driven.I am not sure how well a wealth transfer from rural to urban will go over, but I have my doubts.
Don’t get me wrong, I think with significant effort, both policies can be made to work (and loopholes closed).
In their current state, however, they will just lead to higher prices, less safe vehicles, and people using vehicles that are not fit for purpose (due to the right vehicles either no longer being available or being priced out of reach of most consumers).
There is also an issue with implementing too many initiatives at once; how do you measure the effectiveness of each when you cannot separate the variables or effects?
The standard and feebates also do nothing to address the biggest issue, high GHG emitting vehicles already in the fleet.
Internalising the negative externality
A carbon tax on fuel is ideal because it specifically targets those who use the most fuel, and therefore emit the most GHGs.
There are no loopholes, no one escapes.
The carbon tax should be directly tied to the price of carbon.
This way as the price of carbon increases, the tax automatically increases.
The biggest problem, oddly, is that the price of carbon is set so low that it would hardly be noticed, much less an influencing factor on whether to buy a more efficient vehicle or not.
Why this is the case is an important question for government.
The price of carbon has been set for use by NZ ETS for the sole purpose of using it to deter GHG emissions.
That said, the Productivity Commission did also recommend the price of carbon be increased.
Recent research out of the University of Auckland suggests the price of carbon should be set at $75/tonne CO2e (opposed to the current $25/tonne CO2e) and increased $20 per year.
The proposal from Auckland University also suggested the money collected from this tax would be enough to allow for lowering the GST to 12.5%, stimulating the economy.
This is very similar to policy recommendations from policy researchers at MIT in the US.
The research looked specifically at the effectiveness of petrol taxes versus vehicle standards.
“With a vehicle efficiency standard, your costs won’t increase unless you buy a new car, and even better than that, policymakers will tell you you’re actually saving money.As my colleague likes to say, you may see more money in your front pocket, but you’re actually financing the policy out of your back pocket through your tax dollars and at the point of your vehicle purchase.”
Fuel standards, they argue, hide the true costs of the policy.
They continue by pointing out that while drivers of more efficient vehicles might save at the pump, it rarely matches the increased cost of the vehicle.And consumers who pay less at the pump often drive more, offsetting reductions in emissions.
In addition, emissions standards cost between three and seven times as much as a petrol tax for the same GHG emissions savings.
The Government has balked at the idea of a further fuel tax, claiming it is regressive.
Instead, efficiency standards have been proposed even though we know they cost more.
But.. what if the fuel tax was not regressive?
It would then be cheaper and better target the intended purpose, both at the point of vehicle sale and in the fleet.
Researchers have found that in general fuel taxes become “more progressive as the income of the country in question decreases”.
Additionally, they propose a solution that would always make fuel taxes progressive.
Why not fully or partially refund the money collected from the tax evenly among all a country’s ratepayers?
Most people with lower incomes would likely get more back than they put in.
Over time, as the price of carbon increases and more taxes are collected, the refund can be complemented with programmes such as underwriting long-term, low-interest loans for EVs.
This is not even wealth redistribution, it is the price we each pay to each other to use our shared resource – our planet.
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