Future Fuels Strategy will enable an electric vehicle future for Australia

Australia is fresh off the commitment to net-zero by 2050, and significant investment will need to go into the transport industry which is our third-largest source of greenhouse gas emissions; approximately 17% or 96 MtCO2e per year according to the Climate Council of Australia. As a result, an electric vehicle strategy was announced this week by the Morrison Government to almost universal condemnation. 

 

The A$250m Future Fuels Strategy (FFS) hopes to see 1.7 million electric vehicles on the road by 2030, an increase from the ~20,000 sold in Australia by the end of 2020. According to the government media release, it’s a “technology-led strategy” that will focus its investment on battery and hydrogen refuelling infrastructure, long-distance technology, commercial fleets, and household smart charging. 

Contrary to popular opinion, I think the strategy is sound and is the best approach for stimulating demand. It is important to appreciate, I have a free market mindset and dislike direct subsidies as that rarely encourages innovation. Direct subsidies are a very expensive approach and don’t address the underlying issue which is the under-development of the electric vehicle ecosystem. 

 

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“I think the biggest hurdle to the widespread adoption of battery and hydrogen-electric vehicles is a lack of infrastructure to support their use.”

Jack Colreavy, Corporate Finance Associate 

 

Tesla is a great case study of how to build widespread adoption for new technology. Tesla’s strategy wasn’t to build the cheapest possible electric vehicle, they instead built a luxury product but invested heavily in a coast-to-coast US supercharging network to alleviate the biggest fear for battery EV owners; range anxiety. Likewise, the story is similar for hydrogen FCEVs where adoption is lagging as consumers wait for reliable hydrogen refuelling options.

Noteworthy, Australian road users pay for their usage through the Fuel Excise Tax levied on petrol and diesel purchased at the bowser at a current rate of 42.7 cents per litre. EVs don’t need to refuel, therefore they avoid the fuel excise tax and their road usage is being subsidised by ICE owners. At this stage, there are no plans to levy a tax on EVs to account for this usage and it is forecasted to cost the Australian government ~A$2 billion each year by 2030. While a long-term solution will need to be found on this issue, for now, this provides an unreported subsidy to EV owners and should continue to incentivise early adoption.  

The government doesn’t need to ban ICE vehicles being sold in Australia or subsidise the cost of EVs. The cost of batteries and fuel cells are dropping rapidly, and traditional car companies are responding to market demand by committing to phasing out ICE vehicles themselves - Jaguar (2025), Alfa Romeo (2027), Mini (2030), Volvo (2030) etc. 

Through their investment into infrastructure, the federal government is putting the choice in the hands of Australian citizens to decide the vehicle that best suits their needs and I believe this is the right approach.  

 

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