Cliff Taylor: Stick and carrot – what the move to electric cars will mean for your pocket

For many motorists, buying an electric car is now seen as an option, but not yet a compelling one.

However the target is to have 180,000 electric powered vehicles (EVs) on the road by 2025 – from 41,000 in the middle of this year – and to have over 900,000 by 2030. We have a long way to go.

Purchasing of electric and hybrid vehicles is increasing, but the Department of Transport this week announced that the €2,500 grant for plug-in hybrid vehicles would be cut from the end of this year, to howls of protest from the motoring lobby.

In the drive to cut emissions, it appears doubts are growing over the role of the plug-in hybrid, with surveys internationally showing patterns of use often contributing little to this goal. Plug-ins only cut emissions if you plug them in.

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Environment minister Eamon Ryan is putting his department's money towards fully electric vehicles – and it is one of the most intriguing parts of the transition ahead.

To increase their uptake elective vehicles have to work for consumers both practically and financially. And while the practical aspects are improving – with more charging points and a greater vehicle range – the up-front financial costs remain a barrier.

To change this, both carrot and stick are likely to be deployed. How exactly will be one of the really interesting points of the forthcoming revised Climate Action Plan.

1. Cars and emissions:

Some 2.9 million vehicles drive on Irish roads and are a significant issue in Irish carbon emissions.

There has been an increase in the purchase of electric and hybrid vehicles, which accounted for around one in three cars registered in the first half of this year, compared to one in five in 2020. Taking out “ordinary” hybrids, around 15 per cent off the cars being purchased are now electric or plug-in hybrids, rising but still low by European standards.

Plug-in hybrids had been seen as one of the solutions, a kind of transition step to fully electric vehicles – but a number of international surveys have suggested that many consumers do not plug then in enough and use the traditional engines. And as plug-in hybrids are heavy, they use a lot of fuel when not being powered by battery.

There are also reports that EU regulations may no longer recognise them as a “ sustainable” option, which is putting pressure on carmakers to transition more quickly to fully electric vehicles. This is part of the background to the change in the grant regime. Ryan pointed out that plug-in hybrids were”a compromise in terms of both emissions and air quality.”

2. Testing targets:

The latest figures show around 41,000 electric vehicles are registered here – a step change in the pace of adoption is needed to reach the target of 181,000 vehicles ( 151,000 cars 30,000 vans) and by 2025 set in the previous Government Climate Action Plan published in 2019.

The strategy as set out in 2019 saw the adoption of fully electric vehicles stepping up after 2025, as technology improved, greater choices became available and supply increased.

These targets are due to be updated in a new Climate Action Plan due out shortly – the decision to drop the grant for plug-in hybrids from the end of this year suggests that the new plan may rely less on these to meet target.

A report by The Electric Vehicle Policy Pathway Working Group, a committee of civil servants who recently reported to Minister Ryan, outlined the scale of the challenge, requiring a jump in purchases up to 2025 and then a further sharp acceleration.

It underlined the difficulty of planning policies and incentives, given the rapid development of the EV sector. There are also clear political difficulties as a realistic plan to cut transport emissions will have to discourage the use of polluting cars and increase the use of public transport.

As the Working Group pointed out, Ireland’s dispersed population settlement pattern makes this hard to achieve – as of now many people have little choice but to travel by car.

3. Getting buyers to switch:

The Working Group points out that the high up-front costs of electric cars compared to traditional equivalents are offset over time by lower running costs.

However, as of now, State subsidies are needed to ensure that the total cost of ownership over the life of the electric car can match or better the diesel or petrol alternative. And still, for many motorists this will mean a long pay-back time on the initial investment as lower running costs make up for a significant initial outlay.

The price of electric cars has been falling, but the Government will hope that this continues, so that existing subsidies – justified by lower emissions – will not be needed in the long-term, even if some incentives will remain. The high entry price also means that existing subsidies favour better-off purchases more.

The Working Group looks at the barriers stopping people from buying – which are both financial and psychological.

The most obvious is the up-front cost – and in some cases a lack of consideration, or even proper assessment, of the longer-term cash benefits from lower running costs.In some cases people simply do not have the cash on hand for the initial cost and do not want to add to it by taking out a loan.

A second key issue is “ range anxiety” – a fear that electric cars are not fit for long-journeys. The increasing range of new electric vehicles – up to 400km on one charge – was a reason given for cutting the plug-in hybrid grant.

The document also points out that people often just stick with what they have done before or follow what others are doing – and while electric cars and hybrids are increasingly popular, it is not yet at a “tipping point” where they are considered a natural first choice.

An intriguing suggestion it looks at is a scrappage scheme to incentivise people to scrao their old petrol and diesel cars and buy electric. This is not recommended as an immediate option but is seen as something that might have potential in future.

4.Carrot and Stick:

Ireland has had a relatively generous regime to encourage people to buy electric cars. These include a grant of up to €5,000 on electric vehicles costing up to €60,000 ( the price limit was introduced in July ).

The grant of up to €2,500 for plug-in hybrids will not apply from the end of this year, (bar some transition arrangements for slower delivery due to semi-conductor delays.)

VRT relief is the other big bonus for electric vehicles (special relief for hybrids here ended in 2020). The VRT relief for electric vehicles is worth up to €5,000 – adding to the grant means a €10,000 gain for buyers.This was extended in the budget to the end of 2023.

There is also an incentive offering cheaper tolls for people with electric vehicles and plug-in hybrids – which will continue and can be worth several hundred euro a year for someone using tolls very regularly – and a €600 SEAI grant for a home charger point with a new or second-hand car. ( If you are in an older house there may be other costs here to upgrade your electricity system to allow a charging point).

A key issue for the exchequer is the cost of the reliefs as numbers rise. A 2019 paper by the Department of Public Expenditure and Reform (DPER)calculated that the average subsidy for an EV was between €10,141 and €13,616, meaning a cost of between €1.14 billion and €1.36 billion for every 100,000 cars.

While there have been some adjustment to incentives in the meantime – the working group quotes a figure for around €1 billion for every 100,000 cars – the cost is significant. And on the other side of the ledger, revenues from taxation of cars and fuel will fall sharply as EV take-up increases, potentially cutting annual revenues by up to €500 million by 2030.

This provides another backdrop to the cutting of the plug-in hybrid relief and the continued examination of reliefs in the years ahead. As the DPER paper put it, it is a question of finding the most cost-effective way to cut emissions. Incentives will continue, but the Government will hope to trim then as EVs become cheaper and more efficient.

Meanwhile the stick will also be deployed. We know already that carbon taxes on fuels will continue to rise, aiming to make petrol and diesel more expensive – right now market prices are also rising strongly. The DPER paper also suggests that other measures be considered to push up the cost of more polluting motoring.

The expert group working paper says the Government should “consider the emission saving potential associated with increasing ... usage costs “ of traditional vehicles.

It says these could include exempting electric vehicles from congestion charges introduced in city centres to cut emissions, having lower speed limits on motorways for traditional vehicles or, of course, further increases in fuel costs of VRT above and beyond those already on the cards.

It also examined a Chinese system which limited the number of traditional vehicles which could be registered, but did not recommend that for Ireland as of now.

The Government’s updated Climate Action Plan, due for publication shortly and the targets set for the transport sector in the accompanying carbon budgets will be the next vital indicator on where policy is going. These are expected over the coming weeks. Motorists will be reading carefully.