Barry Brill: Why subsidise more congestion?

Rumours abound that the Coalition’s second budget might introduce ‘Green’ subsidies for such items as domestic solar panels and private electric vehicles, as yet another strand of its hydra-headed climate policy.  

Every sane economist would counsel against such steps:

•     Governments should never try to pick winners. When politicians claim an ability to foresee the future, the law of unintended consequences invariably runs rampant; 

•     Coerced subsidies are usually handouts from the poor to the rich. Always and everywhere, climate change policies are severely regressive (i.e. they increase child poverty);

•     Mitigating global warming within any economy is best achieved by an emissions price mechanism, such as a carbon tax or ETS. A potpourri of price, regulatory and subsidy  policies delivers the worst of all worlds;

•     The purpose of any subsidy is to bridge the calculated gap between the private and public benefits of a targeted behaviour change; but the national economic benefit of reducing New Zealand’s transport emissions cannot be measured (or even identified);

•     Subsidy costs are too often open-ended. Offer too little and the policy transparently fails; offer too much, so everybody wants it, and the budget is blown apart.

Climate policy subsidies must be paid from increases in taxes or borrowing (both of which have been ruled out by the Coalition) or by a transfer from some other departmental ‘pocket’. But which pocket will James Shaw be permitted to raid – Foreign Affairs, the Provincial Growth Fund, hospitals, housing, teacher’s salaries?  Something’s gotta give! 

Why EVs?

New Zealand’s trivial emissions are irrelevant to future global warming, so climate policies here are purely symbolic and pour encourager des autres. They have no useful impact unless they are both  innovative and apparently cost-effective. Merely copying a climate policy that has been tried and failed elsewhere has zero precedent value and is indistinguishable from blind masochism.

The objective of ‘green’ subsidies is to reduce the aggregate quantity of fossil fuels burned within our borders. Obviously, this cannot be achieved by increasing the popularity of household PV panels, which merely reduces the summertime usage of hydropower – while wrecking the wholesale electricity market. But can it be achieved by accelerating the mortality of New Zealand’s private fleet of internal combustion engines (ICEs)?    

The Green Coalition’s view is that the conversion of our existing ICEs to EVs is as pre-ordained as night follows day. The future ICE fightback is doomed, fuel cells will fail, non-plugin-hybrids won’t cut it, battery storage will improve 1000%, cobalt will be found, prices will fall, renewables will increase our base electricity generation levels by 40%, and new inventions will all occur as needed. The Greens say that only the timing is up for debate, and subsidies could “make the boat go faster’. In the real world, all of these assumed axioms are highly disputable. As Mike Hosking points out, “the cold hard truth is that EVs are not popular”.

EVs are hugely expensive, despite favoured treatment^[1] by most governments and massive cross-subsidies by all the car manufacturers – and this won’t change anytime soon. We know from its published modelling that the Government expects no average price increase in New Zealand’s private car fleet during the whole de-carbonisation period between 2020 and 2050 –  so the major part of any EV expansion must come from the East Asian used-car market. But New Zealand has no control of Japan’s rate of adoption of EVs or their average economic life under future ‘Shaken’ policies. Can Japan justify rapid conversion on environment grounds when most of its incremental electricity will be coal-fired?  Will plug-ins replace hybrids?

Like Auckland housing, New Zealand’s EV appetite will be limited by supply – and the consequence of stimulating demand can only be price increases.

But what of the New Zealand corporate fleet, which is usually bought new? This fleet falls into two categories: the genuinely commercial cars and ‘white vans’ that are on the road most of the day; and the executive sedans which are largely used for commuting/private purposes and burn very little fuel. While national benefit might well accrue from the conversion of the high-mileage vehicles, subsidy of the latter group (the FBT class) would be an all-too-obvious instance of ‘crony capitalism’.

So, how could a government policy help minimise the fuel burned in New Zealand ICEs?

An alternative scenario

My crystal ball is very different from that of the Green Coalition. I foresee a 2050 in which the  Auckland CBD has very few parking buildings and no single-passenger cars apart from RoboTaxis. Most of these are hybrids but some are plug-ins and some hydrogen-fuelled, while others use the new fuels perfected in the 2040s. In urban areas everywhere, the 100-year-long Age of the Private Car has been overtaken by sophisticated ride-sharing, autonomous taxicabs, hire-scooters, electric bicycles, and revolutionary modes of public transport. Uber Eats, Instacart, Pikmykid, Amazon and countless other services have largely killed off any need or desire for car ownership.

None of this change was brought about by bureaucratic decrees. When the Uber, Lyft, Lime, etc of the 2010s were overtaken by even smarter new entrants in the 2020s, and private drivers became largely redundant in the 2030s, people simply realised that these new modes were much cheaper, faster, safer and more convenient than the inefficient own-your-own transport that sits unused in expensive carparks or garages for 90% of the average week. Of course, cars are still readily available for rural people or urban enthusiasts but New Zealand’s private fleet has reduced by over 70% since its peak in 2020. Congestion issues have disappeared with modern road pricing systems, commuting times have been decimated and annual road casualties are now down to double figures.

Transport-as-a-Service

 On the very eve of this revolution in motorised private transport, why even contemplate subsidising and prolonging the obsolescing Age of the Private Car? Why should scarce taxpayer funding be diverted from, say, public healthcare to buy more inefficient private roadsters? How justify government monies being part of the road congestion problem rather than contributing to its solution?

Instead, New Zealand ought to be positioning itself as a test-bed and facilitator of cutting edge  developments in the upcoming Age of Transport-as-a-Service. It already has the highest density of motor vehicles per capita of any country in the OECD – higher even than the notoriously gas-guzzling USA. Our rate of road deaths per million vehicle-kilometres are amongst the world’s highest. The inefficiency of road congestion weighs heavily on our productivity and prosperity. Of all the world’s developed countries, none has more scope than New Zealand to benefit from the burgeoning technological revolution of personal transport. 

Enormous sums have been invested in the development and road-testing of self-driving cars over the past decade, and there is no question that the world is now on the cusp of the commercialisation stage. Alphabet’s Waymo1 is about to debut in Arizona, Apple has had 45 test cars on the road for over a year, Elon Musk says Tesla will be mass-producing autonomous vehicles for some US states by June 2020, Florida has legalised self-driving Ubers. Most of the world’s major car manufacturers plan to be producing Robo-Taxis by 2025.

In the communications sector, developing countries are skipping the traditional step of rolling out expensive wired networks and moving directly to cellphone technology. Similarly, in the road  transport sector, many countries will skip the intermediate infrastructure of private car ownership (whether ICEs or EVs) and move directly to transport-as-a-service.    

Technology leadership

Minister Shaw says he wants New Zealand to be a “world leader” in mitigating climate change, so that the major emitters (countries that can make a difference) will note our successful policies and follow behind. There is absolutely no chance of China, India, Russia, or Indonesia being influenced by New Zealand to subsidise EVs – while USA and the EU are already doing so!  By contrast, actions that identify and demonstrate workable solutions for the legal, administrative, institutional  and technological barriers to transport-as-a-service is of major interest to all of them. 

The Green Party is also fond of claiming that New Zealand might develop world-changing ‘green’  intellectual property that the world will want to adopt and that could form the basis of new export industries. No such IP has yet been identified. But such an outcome is certainly possible, and even likely, if this country is chosen as a locale for the many essential trial-and-error steps required for the successful optimisation of this innovative technology. Just as the USA once rode the mass production of private motor cars to become the world’s most prosperous economy, New Zealand could ride the next revolution in personal transport to be a centre of innovation in the transport-as-a-service era.   

Least regrets

The future is always an unknown, and the climate change scenarios of 21st century science, economics, diplomacy and politics are fraught with risks and uncertainty. In 5, 20 or 50 years, New Zealanders might well discover their well-intentioned climate mitigation investments have been ill-directed or even counter-productive.

The options are to either wait for more clarity or take a large punt right now. if the latter course is chosen, it is vital that our leaders do not “bet the farm” on projects that have no pay-offs outside the narrow parameters of today’s most fashionable scenario.

Instead, common sense dictates ‘least regrets’ policies which will always deliver some useful purpose regardless of the scenario that actually eventuates. Research, development and demonstration (RD&D) in the private transport revolution could satisfy that demanding benchmark.      

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^[1] e.g. In New Zealand, EVs are exempt from contributions to roading costs.

Barry Brill is a former Minister of Energy, Petrocorp director, and Chair of the Gas Council, Power NZ, ESANZ, and EMCO.