The government released a consultation paper yesterday on the Clean Car Standard and Clean Car Discount.  The Clean Car Standard would require importers of new and used vehicles to lower the average emissions of the vehicles they bring into the country.  The Clean Car Discount increases the cost of vehicles that are high emitters and reduces the cost of low emitters.  In this post, I look at the cost of carbon as implied by the Clean Car Discount.

By Greg Sise, 10 July 2019

The Clean Car Discount is proposed to be phased in starting in 2021, and will only apply to vehicles entering the vehicle fleet as either a new or used import.  In 2021, a car that produces between 151 and 180 grams of CO₂ per km (g/km) would see neither an increase nor decrease in cost to buy an import, but by 2028 the ‘zero-band’ emission range would fall to 70 – 120 g/km.

Cars that emit more than the top of the zero-band range would be subject to a levy on import, while cars that emit less than the bottom of the zero-impact range would be paid an amount (a discount) on import.  The largest discount would be $8,000 in 2021 for a new pure EV and at the other end of the range the largest levy would be $3,000 for new cars that emit 251 g/km or more per annum.  Low-emission cars that sell for more than $80,000 would not be eligible for discounts.  The scheme would be revenue-neutral so that total levies would equal total discounts in each year, ignoring adjustments for previous years.

MoT statistics show that the average vehicle travels 11,700 km per year and the Autotrader web site says that on average a car is owned for 6 years, so on these assumptions that equates to 70,200 km for the first owner of an imported car, whether new or used.  At the top end for a new vehicle, the $3,000 levy equates to approximately $155 per tonne of emissions as an implied “carbon price” (sometimes called a shadow price).  Now, of course, if the first owner of an imported car does more km, then the implied carbon price will be proportionately lower, and vice versa.

For new cars, under the same assumptions, the implied rates for the average motorist ranges from $150 to $155 per tonne in 2021, but by 2028 the range is from $55 to $155 per tonne.  For used cars the range is $82 to $77 per tonne in 2021 and $55 to $77 per tonne by 2028.

These implied carbon prices sound like big numbers, for example when compared to Energy Link’s forecasts for carbon prices in the ETS which don’t go much above $38 per tonne, and to the current price of ETS carbon which is $23 per tonne.  But there are two key points to keep in mind:  first, there was always going to be a range of policies aimed at reducing emissions, including home insulation and vehicle fuel efficiency labelling, for example, and the ETS is just one of these.  If prices in the ETS were to go very high, then electricity prices would increase, and the nation actually needs electricity to remain at a lower price to encourage electrification of transport and industry which will reduce emissions overall, as long as our electricity supply has a high percentage of renewable generation.

Second, when you do the same calculations for new and imported pure EVs, but this time calculating the implied carbon price that a motorist avoids paying, the values are much larger:  varying from around $280 per tonne to as high as $1,075 per tonne.  (The additional assumption here is the value of the emissions per km of the car that the motorist would have bought had they not bought a pure EV, and we’ve assumed a car emitting 106 g/km).

So the carbon cost of buying a gas-guzzler is high, but the saving from buying a low-emissions vehicle is much higher.  Now, it just happens that my wife and I have purchased a Nissan Leaf in the last few weeks, and we can attest that the savings are impressive, even without the subsidy (although we don’t pay road user charges until 2022).  The car is also extremely well thought out, and a pleasure to drive.  To be fair, it is our around-town car so we don’t need a big range, and we charge overnight at home (which is actually way more convenient than I was expecting), but over time the range of EVs will increase - the latest Leafs are over 350 km, Hyundai Kona 450 km, Tesla 500 km under normal conditions - and the charging times will reduce.

The savings are not only in energy, but also in the other operating costs:  the motor has very few moving parts, the transmission is one fixed reduction gear, you check the brake and power steering oil periodically, replace tyres, and that’s about it.  A really nice feature is that when it is plugged in at night, we can set the timer on the heating system, including the heated seats and the steering wheel heating, so that when we jump in to go to work, it is nice and warm.

I got side-tracked on our Leaf, but it is such an awesome car!  Oh, I almost forgot to add that it is very polite and says Ohayōgozaimasu (“ohio gozimas”) to us every morning.  The Japanese think of everything!