That’s the self-explanatory headline for my latest piece in The Conversation , written with Robin Smit of Transport Energy/Emission Research (TER), who did the research. It’s another point showing the falsity the Morrison governments claim that Australia can “do its bit” to reduce emissions even as his government does nothing.
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John Quiggin 
Sorry, but I think that just for once the craven cargo cult is correct. Australia is too small to affect the learning curves and global adoption rates for electric cars, electric trucks and buses, and their batteries. There is no domestic ICEV industry to protect, so the revolution will fall from the sky on golden parachutes, like the food parcels for the liberated internees at the end of JG Ballard’s “Kingdom of the Sun”.
The analysis is done in the rear-view mirror. Since the absolute EV share of the market is still tiny outside Norway, it reflects an ICE world in which small reductions in inefficiency had to be wrung out of a mature technology and recalcitrant manufacturers by coercive regulation. That’s irrelevant now: with a jump from 15% to 85% in efficiency, a cut in tailpipe emissions and pollution to zero, and annual EV growth rates over 70%, future small improvements in ICE tech are irrelevant. (Mercedes have announced they are not going to develop any new ICE powertrains: https://www.autoevolution.com/news/goodbye-new-mercedes-combustion-engines-at-least-for-a-while-137642.html).
The only metric that counts for emissions from now on is the rate of adoption of EVs. Overall fleet standards are a muffled and indirect way of affecting it. It’s possible to set these so high that carmakers can only meet them with a rising share of zero-emission vehicles, as in California. But the countries driving EV adoption – China, Norway, the Netherlands – rely far more on direct subsidies, tax breaks, perks like toll exemptions, and (in China) registration quotas for ICE cars.
I suggest that the Australian government devote its apparently limited attention budget to direct support of EVs. This is not just a matter of Pigovian subsidies (if there are to be any, the priority is electric buses, which offer a very high emissions and pollution bang for the buck). EVs also need policy support in regulation and planning over highway fast charging, daytime workplace charging, home charging for flat-dwellers, V2G, ToD electricity pricing, and allowing citywide low-emission zones. You can forget about slow top-up chargers at shops and the like: with typical 200-mile EV car ranges, they won’t be needed.
“I suggest that the Australian government devote its apparently limited attention budget to direct support of EVs. ”
No thats idiotic. Subsidies never work. They are always a disaster. And there is no such thing as a Pigouvian subsidy. Pigou suggested taxing negative externalities in some cases. He never came out in favour of subsidies. Only a fool would do so, since they don’t lead to reinvestment in cost-effectiveness. They lead to permanent failure in cost-effectiveness and a gold rush mentality.
Zero interest loans don’t distort price signals and are compatible with growing cost-effectiveness, so long as they are extended to producer goods and not things like land. You could have 50 year tax exemptions for retained earnings for stand-alone producers of the product you are after. In this regard the anti-scientific panic that you people put about is not appropriate because in energy economics things take time. Things which you think should take 20 years take 50 or 70 years in energy economics, and we need to give the situation the seriousness and time it needs.
You could do a lot of things, some of which you have mentioned. But subsidies are anti-social. They’ve never done any good. You cannot point to successes in that space. The subsidies for renewables, just by way of example, were a disaster for electricity prices. And now that a lot of the subsidies have wound up, that first wave of renewables will stagnate in their growth and fall back. We will have to wait for a second wave. Whereas more economically sophisticated incentives would have lead to a slower growing by more viable industry.
Its very much like when the young people find that rich guys are making money while they sleep and more and more people are on minimum wage. They jump to the first solutions which are income tax increases or death duties. But these are crude solutions and the super-rich always side-step them. Well in the same way calls for direct subsidies are crude ideas. And when we grow up we are supposed to put these childish things away.
In Australia’s capital cities there is a massive scope to increase cycling and public transport usage and discourage car use. Having lived overseas in cities where they know how to provide sensible weekend public transport many more people live without the expense and hassle of cars. Australian’s are pretty much oblivious to this possibility.
In the suburb I live there has been a large increase in density in the last decade and a half but no change in the feeder buses schedule. The bus runs once every 30 mins and only in peak hour. Instead endless plans are drawn up for crippling road projects that just induce more traffic. Almost nothing is spent on cycling infrastructure. The irony is that the average traffic speeds in inner city areas are slower than a bicycle but motorists still need two tons of metal capable of driving faster than any legal speed limit to get themselves to work at 20kms an hour.
TER was not a proper demand study. The increase in emissions is due to population growth (and hence greater klms driven) and use of heavier vehicles. Engine sizes reduced emissions.
Real fuel prices – roughly constant over the period – were not considered. I am surprised congestion costs and the rising time cost of travel were not considered – as incomes rise these should become more important. Eventually they will.
I’d prefer pricing rather than standards – the former will drive more fuel efficient choices anyway. Certainby don’t abolish the fuel excise but perhaps increase it. Currently it is about 7X the cost of a $25 per ton Co2 carbon tax so quite hefty.
The trouble with turbos: Why fuel economy can be worse, not better
Graeme Bird:
“And there is no such thing as a Pigouvian subsidy. Pigou suggested taxing negative externalities in some cases. He never came out in favour of subsidies. Only a fool would do so…”
Notorious fool Professor A.C. Pigou, The Economics of Welfare, 1920, Ch. IX:
“§ 13. It is plain that divergences between private and social net product of the kinds we have so far been considering cannot, like divergences due to tenancy laws, be mitigated by a modification of the contractual relation between any two contracting parties, because the divergence arises out of a service or disservice rendered to persons other than the contracting parties. It is, however, possible for the State, if it so chooses, to remove the divergence in any field by “extraordinary encouragements” or “extraordinary restraints” upon investments in that field. The most obvious forms which these encouragements and restraints may assume are, of course, those of bounties and taxes…”
https://oll.libertyfund.org/titles/pigou-the-economics-of-welfare#lf0316_label_231
“The most obvious forms which these encouragements and restraints may assume are, of course, those of bounties and taxes…”
I may have to go to Ren And Stimpy to fully express my frustration here. Because this is exactly what I said. Bounties (subsidies) are indeed the first thing that come to mind. Children think of them. And any fool who thinks about positive externalities for the first time, will think of subsidies, which is what I said. This is inherent i Pigou’s use of the word OBVIOUS. Indeed they are the first solutions that comes to mind. You could only see your quote as a winning argument if we were to agree THAT THE FIRST THING THAT POPS INTO A CHILD OR A FOOLS HEAD IS ALWAYS THE RIGHT ANSWER. You got it now?
Now taxing negative externalities can make sense. Such as in Harry’s idea of beefing up the gasoline tax. What should we tax? 1. Non-renewable resources 2. Items containing economic rent 3. Negative externalities sometimes 4. Sometimes we can create an artificial crisis or scarcity ahead of the real crisis barrelling down on us, in order to give us all more time to adapt. Pretty much all of this may be found when we contemplate a tax on gasoline.
If the Americans had taxed gasoline more than anyone else from about 1960 onward everything would have worked so much better. But it turns out that when we put some thought into it bounties/subsidies never work, regardless of whether we think we have found a positive externality. Why is this so?
Because progress in quality and cost-effectiveness takes time and it requires the renovation of the entirety of the domestic production chain. Not the renovation of one factory or one company. But of every networked part of the production process. So we are talking about current earnings being ploughed back into improving ones business for the future, and not some made race, for the here and now, in aid of quickly producing more units. In the case of electric cars and solar panels the value of any such bounties heads immediately overseas. So its a wasted opportunity for our domestic guys to get tooled up. Tooled up and trained up with more employment created.
This stupidity can be terminal such as when the Rudd government had subsidies for roof insulation. The gold rush started apace and four kids were killed because of this stupidity. No perceivable gains in productivity improvement could be ascertained and of course cost-effectiveness was out the window. Everyone was getting calls from the call-rooms whether they owned a house or merely rented.
Whereas if any real person who happened to own a house could apply for an interest free loan to get roof insulation anytime in the next 50 years …. and any stand-alone roof insulation installer found that his retained earnings were not taxable, then productivity growth would definitely follow at a brisk yet steady pace decade in and decade out. And by the third decade we would be the most skilled roof insulation installers in the world.
Like Caesar said: Make haste SLOWLY.
There are several factors contributing to an increase in emissions;
– due to the expanded geography of life we just have to use cars
– we tend to use cars as a convenience, for a carton of milk, take the kids to school
– cars are cheaper than say 40 years ago, families can easily have a car per person
– big inefficient SUVs are incredibly popular
– travel by public transport is out of favour and often much slower
The more efficient the vehicle the further it can be driven. We need to replace the source of propulsion to a less emitting unit and in this (Pigovian or other) regulation can be helpful.
EVs fit the bill as the cost is upfront; there are minimal fuel and maintenance costs and the source of energy can be renewable.
The downside would be loss of govt revenue through excise and taxes.
Sure if people BUY electric vehicles thats fine. But if you subsidise electric vehicles thats a disaster.
“EVs fit the bill as the cost is upfront; there are minimal fuel and maintenance costs and the source of energy can be renewable.”
That makes no sense at all. Its a floating hypothesis unrelated to any conceivable policy.
To GB…
https://johnquiggin.com/2019/10/07/sandpit-142/comment-page-1/#comment-214704
Graeme: You lost.
For me to lose you’d have to change the meaning of the word “obvious” and the basic nature of business reality. Long-term tax exemptions on retained earnings, even if they come with a bunch of strings attached can really do the job. Zero interest loans can kick-start things. But bounties always fail.
You lost the argument James. Because you don’t know anything about business, being a life-long cocktail drinker.
“Bounties always fail”. Exhibit A, Harrison’s chronometer.
While there are significant savings on running an EV the higher purchase price and higher depreciation make it a difficult argument to sustain.
However, both Prius and Tesla have a lower rate of depreciation than ICE vehicles. That’s interesting as when Prius first hit the market it was bagged by all and sundry, you wouldn’t get a real man near one. Then cab drivers saw the light, it saved them money, and the market responded.
I’m sure EVs will go the same way.
They are fine cars and they ought to be family heirlooms in many cases. But if you have a big gasoline taxes, and a few other non-subsidy incentives (50 year tax exemption on retained earnings ((with caveats to protect unjust enrichment)) for these cars made on the Australian mainland …. and a few commie pilot projects to make their use more convenient …. Some allowance to subcontractors making some revenues non-taxable … a modest interest free loan scheme to buy a car if the Australian has no other debts, various incentives James already mentioned)
If you have a few non-Subsidy incentives and these cars don’t take off, then you have to conclude that either you are wrong about your assessment of their excellence, or that we just need to wait another decade. These things take time.
I kind of think of Musk as an oligarchical life-time actor. As a car manufacturer his act doesn’t make sense, He kept losing money as his salary and the share prices for his company kept getting bigger. And quite apart from cheap credit the government has given him billions in subsidies so really he’s a welfare queen. But on the other hand the technology may be suspiciously too good. As if its coming from the military industrial complex.
Almost no moving parts and the potential to become a family heirloom. I love it. I can see how you guys go ga ga for these cars. I am ga ga over these cars. But we have to be humble. And if we put a few non-subsidy incentives on the ground and the market still doesn’t accept them, we need to be patient. The war for energy diversification is not won or lost by one battle alone. So its got to be global non-subsidy incentives. And never get so impatient as to go to the fools gold of full-blown subsidies. They never work and they aren’t ever going to work.
“John Harrison spent more than 40 years perfecting the chronometer. He refined his designs by painstakingly building four different timepieces. Each chronometer, more compact and accurate than the last, took many years to make. His instruments were subjected to rigorous testing by Britain’s Board of Longitude. Harrison’s final design remains the basis for chronometer design more than 200 years later.”
Doesn’t sound like a gold rush inspired by unit subsidies.
“In 1730, Harrison designed a marine clock to compete for the Longitude prize and travelled to London, seeking financial assistance. He presented his ideas to Edmond Halley, the Astronomer Royal, who in turn referred him to George Graham, the country’s foremost clockmaker. Graham must have been impressed by Harrison’s ideas, for he loaned him money to build a model of his “Sea clock”. As the clock was an attempt to make a seagoing version of his wooden pendulum clocks, which performed exceptionally well, he used wooden wheels, roller pinions and a version of the ‘grasshopper’ escapement. Instead of a pendulum, he used two dumbbell balances, linked together.
It took Harrison five years to build his first sea clock (or H1).[7″
You misunderstand me James. I am not against government grants for proven winners engaged in a labour of love. Perhaps every MP ought to have a 5000-dollars-a-week for five years grant for communist undertakings under his belt.
Remember the novel “The ugly American?” You had this chicken man already engaged in trying to get better breeds of chicken to South East Asia. You had all these worthy causes. We need a system for small communist grants to proven dedicated winners. Like that eye doctor that died of cancer. Fred Hollows. He found a way to restore the eyesight of poor people in the third world for cents on the dollar. He was kicking goals year after year, to a point where a communist grant to help his act ought not have been controversial. So a system of communist grants to people already kicking goals, that would be a good thing.
I’m only talking about per-unit-production subsidies. They are advocated with a mistaken view of the wealth transformation process. They are the one thing that needs to be put on the ash-heap of history. Because everybody jumps to them as the first idea, and the first idea in this case turns out to be the worst idea. But thank you very much for this excellent historical example.
You may have been mistaken as to what I am ruling out. I’m ruling in a great many things. I’m ruling out just a few things as being against economic science.
IIRC the early priduction runs of Harrison’s chronometer were so expensive – similar to the value of the rest of a ship – that only the Royal Navy could afford to buy. This is not unusual: government purchases at a high price have subsidised many trchnologies ever since the Bronze Age.
The market Harrison had opened up was very large, and being financed by the Prize he had no IP in the design. So rival clockmakers soon developed much cheaper and simpler mechanisms of equal accuracy. These were what went into Nelson’s warships.
Graeme’s new, improved doctrine still makes no sense. A flat unit production subsidy leaves incentives for cost reduction intact. This was the case for the German solar and wind FITs in the 2000s, which were accompanied by dramatic falls in prices as volume expanded.
Longitude, by Dava Sobel is a great read, as is The Glass Universe. WIkipedia tells me she’s also written one on Galileo’s daughter, which I will look for.
And, to restate a view I’ve held for a long time, prizes are better than patents, at least for anything really important
“Graeme’s new, improved doctrine still makes no sense. A flat unit production subsidy leaves incentives for cost reduction intact. This was the case for the German solar and wind FITs in the 2000s, which were accompanied by dramatic falls in prices as volume expanded.”
I would have to assume that the subsidies got in the way of cheaper energy more generally. At least as it relates to what better incentives would achieve. Its hard to assess because we are throwing money at foreigners and we don’t get to easily see the results. Ultimately its the cost to the taxpayer plus the cost of electricity that counts. Not some headline cost. Which could have gone down more quickly under other incentives and the money could have been used for the retooling and reskilling of Australians.
“And, to restate a view I’ve held for a long time, prizes are better than patents, at least for anything really important…” Agreed. Patents are a restriction. They are onerous. They get in the way.