Are Electric Vehicle Subsidies a Good Idea For Australia?

As personified by the rise to fame of Tesla CEO Elon Musk as an entrepreneurial messianic figure in popular culture, Electric Vehicle (EV) Technology has gained much public attention as an area of significant progress in the global effort to reduce carbon emissions and mitigate climate change. EV manufacturers have so far met such enthusiasm with numerous technological breakthroughs enabling a significant upscaling of production, as reflected in the current market trajectory which suggests that EVs are expected to become cost-effective in Australia by 2030. In line with this trend, the Australian government has the capability to subsidise the purchase of EVs to accelerate their cost-competitiveness.

This opportunity has been greatly contested in the political scene in recent years. The Labour party went into the 2019 federal election with an ambitious goal of EVs comprising 50% of new car purchases by 2030. This plan was contentiously criticised by the coalition, with Scott Morrison himself casting the policy as marking a “war on the weekend”- indicative of his party’s underlying view that such a goal would be both unrealistic and expensive[i]. As is the case with many issues debated by our two major political parties, it is difficult to separate the merits of their respective views with all the bells and whistles that go along with the political spectacle. To improve decision-making in this area, policymakers should be careful to evaluate the benefits EV subsidies would bring with the opportunity cost of investment in other areas to mitigate climate change.

As a signatory to the 2015 International Paris Agreement, Australia has committed to reduce total greenhouse gas emissions by 26-28% from 2005 levels by 2030[ii]. A key component of this goal is reducing vehicle emissions, which make up 17.5% of the total. If the vehicles sector is to have a proportional reduction in emissions of 26% on 2005 levels by 2030, the fuels used in this sector will have to change. Although a move to some lower emissions internal-combustion fuels may help to achieve this reduction by 2030, a move to electric vehicles, assuming electricity emissions are falling, would enable us to achieve the 2030 goals, while also setting a foundation for zero emissions in this sector for the future.

In addition to their climate change mitigation benefits, the uptake of EVs would also eliminate exhaust emissions and thus reduce air pollution. Given that air-pollution from motor vehicles is estimated to contribute 40% more premature deaths than vehicle fatalities in Australia each year[iii], and a large proportion of such deaths arise from respiratory illnesses in young children and the elderly, greater adoption of EVs would clearly also bring substantial advantages from a public health standpoint.

While the benefits of greater adoption of EVs are clear, the more ambiguous and pressing question for policymakers is how the government can support their uptake. Subsidising consumers for their purchase of EVs has been a common approach by Governments in the US and Europe, as a means of reducing the relative price and ‘green premium’ compared to internal combustion cars and encourage greater demand. Norway is the global leader in this drive, where the government has implemented substantial tax-savings for EV owners. Such measures have been met with enviable results, as EVs now comprise 60% of new car sales in the small Scandinavian country[iv].

Stemming from the enormous global investment in EVs from governments and the private sector alike, passenger EVs are expected to become cost-competitive in the Australian market between 2025 and 2035, according to recent figures published by the CSIRO[v].  Given this trend is largely due to decisions made by multinational vehicle manufacturers and incentives from foreign governments, subsidies by the Australian Government would likely have a negligible impact on the underlying outcomes for the sector. As such, the significant investment required for subsidies seems unlikely to be cost-effective. Additionally, the potential stimulus effect of EV subsidies has led to regressive outcomes in many countries such as Norway, as those receiving tax-concessions for purchasing an EV often have higher incomes. Given these limitations of the cost-effectiveness of EV subsidies to buyers, Australian policymakers should ensure that investment in the EV sector is more targeted towards charging infrastructure upgrades and regulation for the energy grid.


[i] ABC. Federal election 2019: Labor Pledges Millions For Electric Vehicle Industry Growth. (2019). Retrieved April 30 2021, from

https://www.abc.net.au/news/2019-05-09/federal-election-labor-australian-electric-car-manufacturing/11093672

[ii] Department of Environment and Energy, Australia’s Emissions Projections. V1.0 19. (2017).

[iii] Schofield, R., Walter, C., Silver, J., Brear, M., Rayner, P., Bush, M. (2017), ‘Submission on the “Better fuel for cleaner air” discussion paper’. Melbourne: Clean Air and Urban Landscapes Hub/Melbourne Energy Institute.

[iv]Nikel, D. Electric Cars: Why Little Norway Leads The World In EV Usage. (2019). Retrieved April 30 2021, from

https://www.forbes.com/sites/davidnikel/2019/06/18/electric-cars-why-little-norway-leads-the-world-in-ev-usage/?sh=3217577e13e3

[v] Graham, P., Wang, D., Braslavsky, J., and Reedman, L. (2018). Projections for small-scale embedded technologies. (2018). Retrieved April 30 2021, from https://protect-au.mimecast.com/s/wYQRCD1jmrSY35glCWXUlB?domain=aemo.com.au