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EVs supercharged incentives

If governments want more EVs, they’ll have to pay consumers to buy them and manufacturers to make them—at least for now

Electric vehicles (EVs) can't yet compete with internal-combustion-engine (Ice) rivals. So, if their market share is to keep growing, governments will have to support the trend.

Making EVs cheap enough that buyers ditch their gasoline or diesel engine will be key. But manufacturers will probably need some incentives to get mass development under way too.

"Possibly the most significant [contributors] are regulatory policies on the auto sector that aren't consumer-facing," says Scott Shepard, an analyst at Navigant Research, a consultancy specialising in green tech. "For example, fuel-efficiency regulations, or credit-trading schemes among auto companies."

"If you're in compliance, you have a benefit that comes to you from selling credits to-out-of-compliance auto-makers," he said. "That's an underlying thing that's not often part of the conversation but it's an incredible driver of vehicles sales. For companies like Tesla it's part of their bottom line. This ensures availability of EVs on the market."

Governments have tended to set limits for fuel economy in cars, relying on mileage improvements to reduce emissions. Since 2010, the EU also demands that auto-makers meet stringent carbon dioxide emissions limits that cover their entire fleet of models.

Since 2015, EU fleets can belch out a maximum level of emissions per vehicle of 130 grams of CO2 per kilometre. From 2021, the limit drops to 95 gCO2/km. Every gram above that limit incurs a penalty. The EU thinks this drives efficiency but also pushes manufacturers towards zero-carbon vehicles.

In the US, the Department of Transport's Corporate Average Fuel Economy rules prevail. Separately, the Environmental Protection Agency regulates vehicle emissions including CO2, nitrous oxide, methane and air-conditioning refrigerants.

The two agencies have combined their work over time and together produce greenhouse-gas emissions standards together with fuel economy targets. Donald Trump's administration wants to review the latest set of standards, applying to models built between 2022 and 2025, but the existing standards apply until then.

"If we didn't have fuel-efficiency regulations in the EU, the US, Japan and China, then these models probably wouldn't be available in the first place," Navigant's Scott Shepard said.

The International Energy Agency's 2016 EV Outlook notes that of 16 countries with significant EV fleets, all but three have nationwide vehicle-emissions standards. The remaining three have more general fuel-economy standards.

Consumer incentives range from simple rebates on the list price of EVs, to tax exemptions or credits, to lower electricity rates for charging them at home, and even day-to-day incentives—like being able to use bus or commuter lanes, or exemptions from congestion charges.

Norway, which has the highest per capita fleet of EVs in the world, combines both manufacturer-facing regulations with a range of consumer incentives. EV buyers don't pay VAT and vehicle taxes, they can often park for free and get a pass on toll and ferry fees, and owners sail along the commuter lanes at will.

Market makers

Market size makes a difference, naturally, in absolute sales numbers. According to the IEA, the US is the biggest market, with an EV fleet of 400,000 vehicles. China is second with 312,000.

China's EV growth rate should soon mean it trumps the US. Its fleet more than trebled from 2014 to 2015, according to the IEA data. The US' grew by 28%.

"China is leading the EV market," Yoann le Petit, an analyst at Transport and Environment, a European environmental group, says. "While it's still a niche market (2% in total passenger-vehicle sales), the development of EVs is very dynamic.

"China also has many different manufacturers which provide variety in choice and vehicle segment. For example, China is the world leader in electric-bus sales, with 98% of world sales," Le Petit added.

Efforts to clean up Chinese cities' air quality are one reason for the growth. But the government also wants the country to be a leading manufacturer of units too. A third reason it wants to beef up EVs' market share is to reduce petroleum imports.

Subsidising EV buyers can only last so long-rebates and tax exemptions are costly. Norway has achieved world leadership because it dips into a healthy fund built up with years of bumper oil and gas receipts. Oslo's subsidies often make EVs the cheapest cars to buy. "But that sort of interest that we see in Norway wouldn't exist without fuel-efficiency regulations that are widely adopted across the world, that have made those vehicles available," says Shepard.

This article is part of a report series on Electric vehicles.

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