Tuesday 24 April 2018

Why a €1,200-a-year road tax bill could be introduced in the near future

In focus: Electric cars

Electric car charging
Electric car charging
Charging an electric car
Sean McBrien

Sean McBrien

Our 'electric future' could mean paying annual road tax of €1,200 to make up for the lower amounts of VRT and VAT from greener cars to the Exchequer.

THE questions posed by a future of electric cars run far and deep.

They will affect us in a profound way, not least because they could mean paying €1,200 a year on road tax.

That is just one of many possibilities - and questions - raised by the much-vaunted new era.

Among some of the questions are:

  • Will we have to build more power stations to fuel the surge in anticipated demand for electric vehicles (EVs)?
  • How will the network of traditional fuel forecourts here be impacted?
  • Will there be an adverse effect on employment in the motor industry, one of the biggest sectors of the economy?

Such issues may appear academic now considering that, with all the incentives available, so few people are buying electric cars.

But we're told there will be a take-off in purchases relatively soon.

Yet before that can happen, problems perceived to be holding back sales need to be addressed.

There are a variety of reasons for our low take-up but 'range anxiety' is still a prime concern for many.

Tens of thousands commute to Dublin and our larger cities every day. Why don't they use electric cars? They're clearly spending a fortune on petrol and diesel, tax and insurance.

An electric car would be much cheaper to run.

And it would be much better for the environment and our shared air quality.

Importantly, 'range anxiety' isn't just about whether an electric car can make it from A to B. It is heavily influenced by the perception that it can take a long time to charge an EV.

And time, for most working people, is of the essence.

By contrast, a commuter's (typically) 2-litre diesel/petrol engine is a sturdy, easily fuelled workhorse. When you need fuel, you fill up in a matter of minutes.

But if you have to wait to charge your car, midway between Cork and Dublin, it's a big addition of time. Not to mention the delay if there are cars in the queue before you at a charging point.

While there may be a network of 1,200 charge points around the country, if we had a mass adoption of EVs would that be enough to meet demand?

And then there is that thorny issue of motoring taxation.

The average road tax on a combustion-engined car is €600. The road tax on EVs is just €120. In the first half of the year the Exchequer took €961.7m in car-sale taxes.

So where would the government recoup such revenues if tens of thousands of people suddenly bought EVs?

Not to mention replacing the considerable revenues from excise duties on fuel.

In 2016, close to €3bn was collected from this source. The huge amount of motor-related revenue and the difficulties in replacing it could go a long way towards explaining our apparent lack of progress on EVs.

Replacing lost fuel excise alone (if you are recharging an EV at home, you won't be able to distinguish at the socket whether electricity was for EV or 'normal' domestic use) would require annual motor tax of €1,200 a year (based on the current fuel tax take of €3bn and a vehicle fleet of 2.5 million).

Some see a strong argument for opting for road congestion pricing as an alternative to an increase in motor tax.

Essentially, we'd be charged for using EVs in urban locations during peak periods. But rural road users would not be charged, or charged less, for distances travelled.

However, a move towards congestion pricing would likely be unpopular, I believe.

The government would have to work hard to sell the benefits and fairness of this approach.

What can we conclude?

We seem set to embark on a second motoring revolution, with EVs playing a leading role.

How quickly other types of car are displaced by EVs will depend on several factors, not least environmental considerations and how quickly diesel engines, in particular, are phased out in response to concerns over NOx levels.

Recent research from leading investment bank, UBS, suggests that the cost of owning an electric car will fall to the same level as petrol-powered motors by 2018.

By 2025, manufacturers are predicted to make 5pc margins on EVs (the same as they make from conventional vehicles today) with electric vehicles accounting for 14pc of global sales.

But even this may be too conservative, given widely announced plans by China and India, both with fast growing car fleets, to pursue an EV-based future.

Governments may also experiment with tougher measures to wean motorists off dependence on the internal combustion engine: France and the UK plan to ban new petrol and diesel cars from 2040.

But as I've outlined, we face a big challenge. Finding a way of substituting new revenue from EVs - a significant €3bn a year at least - will require a radically new approach. Are we ready for the reality checks of an 'electric future'?

Only time will tell but at least we should be aware of what could lie in store.

Sean McBrien is Head of Motors at Bank of Ireland

Indo Motoring

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