AIDE MEMOIRE: CABINET PAPER SEEKING AGREEMENT TO AN ELECTRIC
VEHICLES PACKAGE
Title
Electric vehicles: package of measures to encourage uptake
Committee
Cabinet Economic Growth and Infrastructure Committee (EGI)
Issues
EGI is expected to consider this Cabinet paper at its meeting of 16
March 2016. The paper seeks agreement to a package of measures
to encourage the uptake of electric vehicles.
Ministerial
Minister of Finance
Consultation
Minister of Revenue
Associate Minister for Economic Development
Minister for ACC
Minister for Climate Change Issues
Minister for the Environment
Talking points
Transport accounts for around 17 percent of New Zealand’s greenhouse gas
emissions. It was the second largest consumer of energy in 2014 and more than 99
percent of transport energy is oil-based.
Electric vehicles (EVs) are part of a response that looks to adopt new technologies
as a means to transition to a low carbon economy without compromising individual
mobility or economic growth. EVs are a technology that is well suited to New
Zealand. They represent an opportunity to leverage New Zealand’s abundance of
renewable electricity to reduce transport emissions.
However, a number of barriers stand in the way of New Zealand realising the
benefits from EVs. Officials have worked with key business leaders and local
government to develop a joint package of measures to address these barriers and
speed the uptake of EVs.
The proposals in this paper represent central government’s contribution to this
package.
I propose that the Energy Efficiency and Conservation Authority deliver an EVs
information campaign to build awareness and dispel myths about EVs
The campaign would target businesses and household consumers over a period of
five or more years.
The campaign would aim to increase the purchase of EVs by addressing
information problems. These problems include a lack of awareness of EVs,
uncertainty about the total costs of ownership, expectancy of battery life, what, if
any impact to the environment disposing of batteries may cause, and other
misconceptions about EVs.
To enable the campaign to begin, I propose that the Energy Efficiency and
Conservation Authority commence work in 2015/16 using reprioritised funding, and
that from 2016/17 it reprioritise $1 million per year from its existing baseline for an
initial period of five years 2016/17-2020/21.
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I propose that the Ministry of Business, Innovation and Employment investigate
the feasibility of joint procurement across the government and also across private
sector fleets to help overcome supply problems
Stakeholders involved in developing the government-industry package of
measures to speed the uptake of EVs identified joint procurement as a potential
way to reduce the relatively higher purchase prices of EVs and the limited variety of
models available in New Zealand.
The Ministry of Business, Innovation and Employment would investigate the
feasibility of having joint public and private sector fleet procurement, and report
back to the Ministers of Transport and Economic Development by 30 June 2016.
The costs of the investigation into the feasibility of joint procurement would be
funded by the two departments’ existing baseline funding.
To maximise the efforts of industry and government in addressing the barriers to
EV uptake, and to encourage innovation, I propose establishing a contestable
fund of $6 million per annum
The fund would be invested in projects that accelerate the uptake of EVs, and for
innovations to encourage EV uptake that would not otherwise be funded.
Projects could be developed by businesses, local communities, or government, but
to be funded, projects would be required to commit co-funding.
I propose the contestable fund of up to $6 million per year will also cover the costs
of establishing and administering the fund. It is expected that at least $1.5 million of
the fund for 2016/17, and $1 million each year thereafter would be invested in the
procurement measures that I will touch on in a moment.
The contestable fund will initially be created through a mixture of reserves and
reprioritised existing baseline from the Energy Efficiency and Conservation
Authority of up to $4 million through to the end of 2016/17.
For years beyond 2016/17, I am considering options to recover the cost of the fund
through a levy on consumers. Two possible levies are the levy on electricity
industry participants (the Electricity Levy), and the levy on petrol and diesel
consumers (the Petroleum Fuels Levy).
Primary legislation changes would be required to use either of these levies for the
new EV contestable fund.
Further work, including formal public consultation, is needed to determine the most
appropriate existing levy for the contestable fund, including principles for funding
allocation.
I seek agreement to report back by 30 May 2016 with policy decisions on the
establishment of the fund. This report back will also provide advice on other
funding options for the contestable fund and the financial implications of any direct
or indirect subsidies.
I also propose that the criteria for allocating the fund, and co-funding requirements
be approved jointly by the Ministers of Transport and Energy and Resources,
based on the guiding principles Cabinet is to agree.
Once established, I propose that the Energy Efficiency and Conservation Authority
administers the fund, with oversight from the Ministry of Business, Innovation and
Employment.
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This contestable fund will be developed as a tool to promote EVs as they are
already available and are a proven technology. However, I am aware that there are
other technologies, including hydrogen, that may also have an important role to
reduce emissions in New Zealand. I will ask my officials to consider how the scope
of the fund might be expanded in subsequent years to include activities to promote
other low and zero emissions technologies.
Meaningful procurement measures are needed to tackle the supply and demand
issues facing EVs. These include an EVs demonstration, a financial ‘kickstarter’
for government agencies, and uptake targets
A demonstration of EVs in government fleets
To build demand and to show commitment to EVs, I propose that the Ministry of
Business, Innovation and Employment administer an EVs demonstration
programme across the government fleets.
The trial is initially intended to have 24 vehicles in four government fleet locations.
Subject to funding being available, the demonstration could begin in the 2016/17
financial year and run from one to three years.
In the first year, 2016/17, the demonstration would require one-off funding of
approximately $500,000 to cover the incremental costs of the demonstration
vehicles along with the costs of administration, monitoring and the production of
case studies for public sector fleet managers. Future costs would depend on the
outcomes achieved. I propose that this funding be sourced from the contestable
fund outlined above.
Depending on the outcomes achieved, the demonstration could be scaled up. I
propose that the Ministry of Business, Innovation and Employment report to the
Ministers of Transport and Economic Development on the potential for the
demonstration to be expanded, within six months of the trial commencing.
A financial ‘kickstarter’ for the purchase of EVs in government fleets
Given the current constrained funding environment, it is likely that government
agencies will favour cheaper conventional vehicles over an EV equivalent.
To overcome this resourcing barrier, I propose that a financial ‘kickstarter’ be
available to government organisations that are eligible to purchase from the All-of-
Government vehicle catalogue.
The ‘kickstarter’ would provide funding to cover the price differential between a
conventional vehicle and an EV equivalent. This is designed to achieve a critical
mass of EVs into government fleets.
To do this, I propose that funding of $1 million per year be made available. This
funding would come from the contestable fund outlined above.
Committing with industry and local government to a ‘New Zealand Inc’ uptake target
Stakeholder consultation indicated that the private sector in particular wanted a
target for EV uptake and one that demonstrated the Government’s commitment to
reducing transport emissions via EVs.
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Based on the stakeholder feedback, I propose a target of EVs making up two
percent of the vehicle fleet by the end of 2021. To achieve the target, new EV
registrations would need to double each year until 2021. That means increasing
annual registrations of EVs from about 500 in 2015, to 32,000 in 2021 (e.g. 1,000
in 2016, 2,000 in 2017, 4,000 in 2018, and so on).
To help ensure that the growing network of charging stations is safe and
cohesive, I have asked the NZ Transport Agency to support private sector
development of public charging infrastructure
Using its existing funding, the NZ Transport Agency will clarify the regulatory
framework for charging infrastructure, and provide national information and
guidance for public charging infrastructure.
Development of charging infrastructure needs to be supported in a way that is
complementary to and does not compete with private investment. Therefore, I do
not propose direct government funding or ownership of public charging
infrastructure.
Information about public charging infrastructure will also be covered by the
proposed campaign to be delivered by the Energy Efficiency and Conservation
Authority.
The Energy Efficiency and Conservation Authority and the New Zealand Transport
Agency will coordinate their EV activities.
As well, officials from the Ministry of Transport and the Ministry of Business,
Innovation and Employment will continue to monitor how the charging infrastructure
develops, including the impact of EVs on national and local electricity
infrastructure.
As a financial incentive for uptake, I propose extending the road user charges
exemption for light EVs from 30 June 2020 to 31 December 2021, and introducing
a road user charges exemption for heavy electric vehicles until 31 December 2025
Exemption for light EVs
Light EVs are currently exempt from road user charges until 30 June 2020.
Exempting EVs from road user charges is a transparent and efficient way of
providing a financial incentive to encourage consumers and businesses to opt for
EVs over equivalent conventional vehicles.
The current exemption, provides an owner with a subsidy of around $2,500
between now and 2020 when it is set to expire.
I propose to amend the existing road user charges exemption for light EVs until 30
December 2021, which is when I expect the two percent uptake target to be met.
This is an 18 month extension from the existing end of the exemption.
Officials will carry out a review in 2019 as to whether the two percent target is likely
to be met by then. They will recommend adjustments to the end date if needed at
that time.
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At this threshold, the maximum foregone revenue would be in the order of $35.7
million per year, based on current road user charges rates.
Exemption for heavy EVs
I propose that additional amendments are made to enable an exemption for heavy
EVs (i.e. trucks and buses) from road user charges, as the current exemption only
applies to light vehicles.
This exemption will initially last until 2025, rather than 2021 as for the light vehicle
RUC exemption, as it is likely it will take longer for them to reach two percent of the
heavy vehicle fleet (3,000 vehicles). The end date would also be reviewed in 2019.
A two percent uptake of EVs across the heavy vehicle fleet by 2025 would result in
foregone revenue of about $24 million per year, once the threshold is reached. A
two percent uptake of EVs across the heavy vehicle fleet by 2030 would result in
foregone revenue of about $29 million per year.
Foregone revenue risk
A loss of foregone revenue in the order of up to $40 million might be experienced
by the end of 2021. This would be followed by a maximum of $29 million per year
foregone revenue by 2030, assuming two percent of the heavy fleet is electric by
that time.
The risk of foregone revenue would be managed as existing revenue and
expenditure pressures currently are. The New Zealand Transport Agency Board
would decide on the projects to be prioritised for funding in the National Land
Transport Programme. These decisions would be made in line with the
Government’s priorities articulated in the Government Policy Statement on land
transport.
I propose that Inland Revenue, in consultation with industry stakeholder groups,
review the depreciation rate and the method used to calculate fringe benefit tax as
they relate to EVs to ensure that EVs are not being disadvantaged by tax rules
Industry representatives have raised concerns that these two areas of tax law may
be discouraging the purchase of EVs by companies.
Inland Revenue will review the depreciation rate and the method used to calculate
fringe benefit tax as they relate to EVs, and report on the results to the Minister of
Revenue and subsequently to the Minister of Transport by 31 March 2017.
If there is evidence that shows that the current tax rules are overtaxing EVs then
this would provide a strong case for change.
Relevant industry groups, for example, Drive Electric, electric vehicle
manufacturers and the Sustainable Business Council, are likely to be well placed to
provide the evidence base to assist with these reviews.
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I propose that my officials work with the Ministry of Business, Innovation and
Employment and the ACC to investigate how the ACC levy overcharge on plug-in
hybrid EVs might be addressed
Currently the owners of petrol plug-in hybrid EVs pay an estimated $15 to $40
more per year in ACC levies than equivalent diesel or pure EV owners1 because of
the way they are classified by the NZ Transport Agency, and the way in which ACC
levies are charged.
I propose that my officials report back to Cabinet by 1 October 2016 on the results
of this investigation. It is possible that changes would require amendments to
legislation and these can be considered as part of the proposed package of
legislative amendments presented in this paper.
As a non-financial incentive, I propose to remove the regulatory barriers that
prevent Road Controlling Authorities from allowing electric vehicles into bus and
transit lanes
Allowing EVs access to bus and high occupancy vehicle lanes is the non-financial
measure reported to have the highest value as an incentive to the owners.
Enabling EVs to use special vehicle lanes would require amending land transport
Rules2. It would also require a minor amendment to the Land Transport Act 1998 to
empower road controlling authorities to make bylaws for that purpose.
Under this option, road controlling authorities would maintain the flexibility to
choose which special vehicle lanes EVs could access, allowing them to manage
transport priorities along a corridor, including balancing EV promotion with network
efficiency.
To provide ongoing leadership and coordination for the total government-industry
package, I propose establishing a coordinating group convened by central
government
I propose that Cabinet invite me, as the Minister of Transport, to decide on the
terms of reference, membership and administrative arrangements for the EVs
group.
Next steps
If the Committee agrees to the proposed package, a public announcement will be
made about the EVs package, potentially at a launch event.
I will also publicly consult on a range of options to expand an existing levy so that
one may be used to fund transport energy initiatives such as the EV package.
1 The issue does not arise if a plug-in hybrid also uses diesel power, as it would not pay the ACC levy as
part of the fuel costs. At present there are no diesel plug-in hybrid electric vehicles.
2 The Land Transport (Road User) Rule 2004, and related provisions in Land Transport Rule: Traffic
Control Devices 2004.
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Speaking points to address Treasury’s comments
Contestable fund
I propose to report back with recommendations for funding options, which include
possible changes to an existing levy, and principles for allocation of the fund, by 30
May 2016 (noting there would be public consultation on the expanded levy options
before then).
I consider that the principles Cabinet is to agree will help ensure that the activities
supported through the contestable fund are of high value.
In the first instance, the contestable fund is a tool to promote EVs. Because
New Zealand’s electricity is largely generated from renewable sources, we can
reduce greenhouse gas emissions from transport by using electric vehicles, more
so than countries that use non-renewable energy sources.
I am aware other low emission technologies may also play a role in reducing
greenhouse gas emissions from transport, such as hydrogen fuel cell vehicles.
However, I see EVs are a ‘here and now’ opportunity. Several models of plug-in
EVs are currently offered in New Zealand, and I expect more will be introduced in
the coming year. For some motorists, the total cost of owning an EV is already
similar to a petrol or diesel vehicle.
For this reason, I think it appropriate that the contestable fund begin as a measure
to encourage the uptake of EVs. However, I will ask my officials to consider how
the fund might be expanded to include activities to promote other low and zero
emissions technologies.
Road user charges exemption
EVs currently make up less than 0.03 percent of the fleet, projected to be 2 percent
by the end of 2021. Exempting EVs from road user charges therefore represents a
relatively small amount of forgone revenue, and can be considered an investment
in evolving our land transport system.
I recognise that EVs will need to become subject to road user charges in future
once uptake exceeds the limits proposed in this Cabinet paper.
The road user charges exemption is time bound. The Road User Charges Act 2012
requires that the Order in Council which specifies the period during which road user
charges are not payable by light EVs must specify the date on which the exemption
expires.
The exemption for light EVs is currently in place until 30 June 2020. The proposal
to extend the exemption for light EVs will require amending the period set out in the
Road User Charges (Exemption Period for Light Electric RUC Vehicles) Order
2012 to state that the exemption applies until 31 December 2021. This will give
consumers certainty about the minimum period for which the exemption will last.
Similarly, introducing a road user charges exemption for heavy EVs, will also
require an Order in Council that specifies an end date for this exemption.
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