Electric vehicle adoption could cause $100bn fuel tax shortfall - report

International Energy Agency warns governments of major tax implications from move to electric transport

The IEA said new ways to tax consumers would have to be implemented to fill the income gap, such as road tolls and congestion charges.

The IEA said new ways to tax consumers would have to be implemented to fill the income gap, such as road tolls and congestion charges.

 

Governments across the world face a nearly $100 billion (€86 billion) shortfall in fuel taxes by 2030 if they aggressively pursue policies to encourage electric vehicle usage as part of a global push towards cleaner energies for road transportation, a new report forecasts.

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 $92 billion in revenues from duties on road fuels.

The figure, in the IEA’s annual report on electric vehicles, implies electricity displacing almost 4.8 million barrels a day of petrol and diesel, even though this is only 5 per cent of current global oil demand, meaning the fossil fuel will still retain its role as the global transportation fuel for years to come.

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

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

Diesel and petrol bans

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 in the future.

Bans by individual cities may accelerate electric vehicle take-up, and “have the potential to be more aggressive and more readily implemented,” the report says.

Yet electric vehicle sales so far remain tiny in comparison to the worldwide car fleet. While 1m electric vehicles were sold globally last year, taking the number on the road worldwide to 3m, this was only 1 per cent of global car sales.

Two-wheel electric

Still, the IEA expects 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 by electric, driven by demand in China and India for clean vehicles that can operate in dense urban areas, while the IEA expects sales of electric cars to reach 21.5 million, or around a fifth of global sales.

“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, said.

“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.

The IEA said new ways to tax consumers would have to be implemented to fill the income gap, such as road tolls and congestion charges.

“The major increase in the estimate of foregone 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. - Copyright The Financial Times Limited 2018