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Electric vehicle adoption could cause $92bn fuel tax shortfall (FT)

2 June 2018


“Clean fuel initiatives by governments around the world that encourage the use of electric vehicles could lead to a tax shortfall of close to $100bn by 2030, said the world’s top energy watchdog. 

Under the International Energy Agency’s most ambitious scenario, in which 30 per cent of new car and truck sales are electric by 2030, governments are set to forgo $92bn in revenues from duties on road fuels. 

The figure, in the IEA’s electric vehicles outlook, implied electricity displacing almost 4.8m barrels a day of petrol and diesel, even as the IEA forecast that oil’s use in road transport would be eight to ten times this level — underscoring its hold over the sector. 

Under a more conservative outlook that takes into account existing and announced government policies, lost revenue from fuel taxes is expected to reach $47bn in 2030, with electricity displacing just 2.6m b/d of petrol and diesel. 

The estimates came as governments and cities around the world considered the fiscal and environmental implications of urging public adoption of battery vehicles in efforts to reduce carbon emissions and improve air quality. 

The UK and France have pledged to ban sales of purely petrol and diesel-driven cars by 2040, while countries such as Germany and China are also considering outlawing these vehicles. 

Policy support, research and development and investment into charging infrastructure and technology were helping to lower costs and spur usage of electric vehicles, the IEA said. 

“There is a lot of political momentum for electric cars in particular that is translating into investment into building capacity and production of batteries, meaning the unit cost will keep on falling,” Pierpaolo Cazzola, the lead author of the report, told the Financial Times. 

“This is having a positive knock-on effect on two wheelers and buses, meaning there is potential for wider uptake and scaling up beyond cars. This is the key message of the report,” he said. 

Bans by individual cities could also accelerate electric vehicle take-up, and “have the potential to be more aggressive and more readily implemented”, the Paris-based body added. 

Electric vehicle sales remained tiny in comparison with the worldwide car fleet. While 1m electric vehicles were sold globally last year, taking the number on the road worldwide to a record 3.1m, this was only 1 per cent of global car sales. 

The IEA expected sales of electric cars to reach 21.5m, should current policies continue, or around a fifth of global sales. Any grander ambition “requires a rapid scale up and geographical expansion of policy commitments, starting as soon as possible”. 

Still the IEA expected sales of electric buses and two-wheeled vehicles, such as scooters, to accelerate faster than passenger cars. By 2030, 40 per cent of the world’s two-wheelers may be electric, driven by demand in China and India for clean vehicles that can operate in dense urban areas. 

To compensate governments for the income gap from a loss of fuel duties, the IEA said new ways to tax consumers would have to be implemented, such as road tolls and congestion charges. 

“The major increase in the estimate of forgone revenues for the 2030 timeframe suggest that, for governments to retain sufficient income to invest in and maintain infrastructure, as well as to cover externalities from road transport, alternative taxation systems will be needed,” the IEA said.”



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