Clean car scheme has “serious flaws”: Taxpayers’ Union

The cost-benefit analysis by the Ministry of Transport used to advise ministers on the Government’s clean car standard and feebate policies has serious flaws, says the Taxpayers’ Union.

Union economist Joe Ascroft says the ministry incorrectly calculated before-tax fuel prices at 40 to 50 cents per litre more expensive than in reality.

“In short, they got the price of fuel totally wrong – using previous forecasts, instead of current reality. As a result, the proposed savings calculations do not reflect reality,” Ascroft says.

More than 90% of the ministry’s estimated benefit is attributable to consumer fuel savings, says Ascroft.

But the fuel price assumption isn’t the ministry’s only mistake, also assuming consumers are irrational, and the Government need to intervene to fix this issue when Ascroft says there is no evidence to reflect this.

He says while the union was preparing its clean car policies submission, the group found evidence that consumers do understand the benefits of fuel-efficient cars.

“None of this evidence is addressed by ministry officials in their analysis,” Ascroft says. “That’s potentially fatal for the ministry’s analysis – if almost all the benefits from buying EVs flow through to consumers from fuel savings and consumers understand the value of these savings, there’s no good reason for the Government to intervene.”

Ascroft says officials need to reconsider how they perform cost-benefit analysis and says the infamous Business and Economic Research Limited (BERL) alcohol paper is a joke in economics circles as the paper did not take into consideration consumer benefits, like enjoyment.

He compares this to accounting all the costs from driving a petrol car, which is less efficient than an EV or a Prius but ignores the benefits and reasons consumers would have made that choice.

“The Government’s clean car discount and standard policies should not proceed until Ministry of Transport officials fix the analysis ministers relied upon to set the policies.”