2018-05-18
Electric vehicles don’t need a government push

The Union government makes no bones about its intent to promote electric vehicles (EVs). However, it would do well to learn a few lessons from what happened to smartphones before making grand technology bets.

A number of incentives for EVs are on the table. Last week, the Union minister for road transport and highways, Nitin Gadkari, announced that the government is considering exemption from permits, concessional toll, a rate of depreciation of 50% as against the prevailing 15% for conventional vehicles, lowering of the goods and services tax on batteries and a rule mandating taxi aggregators to have a certain percentage of EVs in their fleet. This week, there are noises of incentives of up to Rs2.5 lakh for cars, and car chargers at every few kilometres. On the public transport front, Union minister for heavy industries Anant Geete has spoken about making the public transport system fully electric through the second phase of Faster Adoption and Manufacturing of Hybrid and Electric vehicles in India (FAME India) scheme. It’s possible that some of these plans will not materialize, but the government’s intent is clear.

Amid all the excitement, however, the smartphones story should give the government reason for caution. EVs are superior to internal combustion engines, but also expensive. Just like early smartphones, rather than rushing to purchase the early iterations, a better idea would be to wait until the rich nations buy sufficient volumes of the products on offer, and bring prices down. Therefore, incentives to purchase EVs, as well as procurement of EVs for public transport, could be fiscally expensive, and we might end up with an overpriced fleet of early-generation vehicles.

The primary reason for the EV push is controlling carbon emissions. But something like an all-electric fleet of buses is an expensive solution to the problem. A World Bank study on the cost effectiveness of electric and hybrid buses in developing countries concluded that in order to tackle air pollution, the policy goal should be to incentivise more people to leave their cars at home. In Mexico, for example, an average commuter would emit 8kg of carbon dioxide if he takes his trip in a car. The emissions decrease to 1.5kg if he takes a diesel bus, 1kg in a hybrid bus and zero in an electric bus. It is, therefore, clear that many of the gains against air pollution can be derived by enabling the modal shift, through improvements in the quality of public transport.

Lastly, we should remember that EVs are a paradigm shift much in the same way that smartphones were. The thing about these transitions is that we cannot know which parts of the previous paradigm will be borrowed, and which left behind. For example, feature phones had physical keys but, notwithstanding BlackBerry’s resistance, keyboards had to give way to screens. If we still used the battery technology of feature phones, there might have been government tenders for public phone charging infrastructure. In hindsight, continuing to plan through the paradigm of the feature phone would have led us astray, and it is good the government did not subsidize the iPhone 2 or build public phone charging infrastructure.

Similarly, the government should avoid regulating the supply of infrastructure with arbitrary prescriptions and subsidies. While everyone agrees that charging infrastructure is essential to the success of EVs, whether there should be a charging station at every five kilometres or 10 cannot be known in advance. Factors such as the driving range of vehicles, private charging capabilities of users and charging speed will determine the number and location of charging stations. Similarly, shifts in technology—such as wireless charging, solid state batteries or a transition to hydrogen fuel cells—will have to be anticipated as these might render existing infrastructure obsolete.

Given the amount of uncertainty, private players in a competitive framework will have the right incentives—the skin in the game—to acquire the necessary knowledge, and pursue their competing visions on how to meet future challenges. In such a scenario, agility will be crucial and well-intentioned prescriptions that favour a certain technology/location, or subsidies that lead to malinvestment, could create friction.

The government’s role is to make polluters pay. Owners of cars should pay a carbon tax, congestion tax and market-prices for parking. EVs should pay for charging; and private companies, perhaps car companies themselves, should set up public charging stations. Meanwhile, the government needs to focus on the less appealing, but more effective, solution—providing quality mass transit so that people have the option of leaving their cars at home.

Source- Mint