Electric Vehicles and Climate Policies

The pace at which transport is electrified is deeply uncertain, but, in spite of apparent excitement in government circles, departmental expectations for reduction in oil demand resulting from electrification are moderate up until 2030, with great uncertainty thereafter. Part of this uncertainty results from the unknown speed at which Autonomous Vehicles (AVs) will develop, something not under governmental control, and part from the high cost of electricity resulting from climate policies. The Autumn Budget of 2017 has shown real willingness to limit policy costs, but a determination to cut costs may be required to accelerate the uptake of Electric Vehicles (EVs).I have just returned from a week in Tokyo, giving talks about British energy policy. One topic that I did not raise in my presentations, but came up repeatedly in discussion with Japanese analysts was the strength and sincerity of the promise by the Secretary of State for the Environment, Michael Gove, to phase out non-electric vehicles. – I was asked several times “Will the UK actually try do this, and on time?” The answer, as it seems to me, is that while the UK government may not meet its timetable, it will try to do so, and that the interest in this technology is sincere. It is, of course, perfectly correct to make some discount to the announcement on account of Mr Gove’s own political needs, but electric vehicles are genuinely promising by virtue of the fact that the electrification of any process is intrinsically interesting and all but certainly desirable.Moreover, air quality in British cities has long compared unfavourably with that in other developed countries, Japan for example, which, unlike the EU, rejected diesels for personal transport and restricts their use in urban areas even for the delivery of goods (there are very strict “No Idling” regulations). Electrification of some transport would make a real difference, and would probably be popular with a British public, Leavers and Remainers alike, well aware that the enthusiasm for diesels was an EU policy that in the context of the VW scandal looks not only misguided but corrupt.But what are the realistic prospects for international and domestic growth in EVs? Some indications towards an answer can be found in the UK government’s Fossil Fuel Price Projections (30.11.17), which include a useful synthetic chart bringing together various predictions of EV displacement of oil consumption:Figure 1: Crude oil displacement from Electric Vehicles, worldwide. Source: BEIS, Fossil Fuel Price Assumptions (2017), p. 10. BEIS cites its sources as: “Analysis on BNEF New Energy Outlook 2016, IEA 2016 World Energy Outlook, McKinsey Global Energy Perspective 2016 presentation, Carbon Tracker “Expect the Unexpected” report, BP 2017 Energy Outlook.”Up until 2030 the various studies see a reduction of no more than 4mb/d, comparing with predicted global demand at that time of between 90 and 109mb/d. This is, obviously, a modest reduction, and the Department of Business quite understandably comments:

Even under the most optimistic scenarios BEIS sees no evidence that in 2030 the volume of crude oil displaced is sufficient to completely reshape the outlook for 2030 prices.

After 2025 the most salient feature of the estimates is the degree to which they diverge. One should infer from this that there is deep uncertainty. That is hardly surprising but pleasant to have in solid form.Behind this uncertainty are at least two major factors. Firstly, the difficulty in predicting the speed at which Autonomous Vehicles (AVs) become safe and attractive in the market. To be really successful, EVs will have to be AVs, vehicles that can deliver their passengers then take themselves to centralised charging points with dedicated high capacity grid connections, thus avoiding the high cost cost of reinforcing local distribution networks to permit domestic charging.Secondly, and much more problematic for the electrification of transport, amongst other activities, is the fact that climate policies put such a heavy burden on the electricity sector by mandating renewable generation, the higher costs of which imply a slower pace of electrification in all sectors, including transport.This awkward situation will be a demanding test of governmental commitment to EVs, to say nothing of Mr Gove’s sincerity. If there is an electric future for road transport, it will require cheap electricity. In spite of the Autumn Budget's determination to prevent the creation of new subsidies, current policies will not deliver such an outcome. Firmer action dealing with the costs of the existing policies will be required.