EV tax will smash electric vehicle sales and lift emissions, UQ study finds

The preliminary findings of a University of Queensland study into the effect of taxing electric vehicles (EVs), without introducing incentives to buy them, finds that EV sales will be hit hard, resulting in a 25 per cent fall in new EVs and much higher emissions.

The UQ study says that sales of EVs out to 2050 could be 25 per cent below the federal government’s “business as usual” scenarios, resulting in up to 10 million fewer EVs on the road.

The news that three Australian states – Victoria, South Australia and New South Wales – would consider an “EV tax” has stirred up huge controversy across relevant sectors, and it has been slammed variously as “backwards“, a “culture war” and “shameful“.

The EV tax in Victoria would mean electric vehicles drivers pay 2.5 cents for every kilometre driven, while plug-in hybrids would pay 2 cents per kilometre, regardless of how many kilometres were driven on electric only power.

“Unfortunately, neither of these State Governments seem to have recognised that higher taxes will lead to lower EV sales,” writes Jake Whitehead, an electric vehicle research at the University of Queensland who also works on the global stage with the International Panel on Climate Change (IPCC) and the International Electric Vehicle Policy Council.

“The reality is that the introduction of these EV taxes risks pushing Australia even further into the wilderness in terms of EV uptake, and is completely incongruent with mid-century Net Zero Emission targets, which appear to easily roll off the tongues of politicians, but are not backed up by concrete actions to bring them to fruition.”

He says that in a recent study of Australian drivers, introducing 2.5 cents per kilometre road tax on electric vehicles would be perceived by drivers as a $4,000 disincentive to buy and electric vehicle, which is already typically $20,000-40,000 more than its petrol or diesel counterparts.

It would mean that, for example in the case of the petrol Hyundai Kona which costs $24,300 before on-road costs, the all-electric version would in effect cost $63,990 instead of its manufacturer recommended $59,990 price.

The new report – which is yet to be peer-reviewed but has been released early in order to highlight the failure introducing such policies without incentives could result in – finds that other measures, such as giving EV buyers a $1,000 credit towards electricity bills or exempting them from all road taxes including registration, stamp duty, GST and road tolls, could encourage uptake.

The first of these would result in a $6,000 perceived reduction in cost bringing the cost of the Kona Electric down to $54,990. Removing road taxes would result in more than $11,000 being slashed from the price, meaning an effective sticker price of $48,990.

In the case of cheaper electric vehicles such as the Hyundai Ioniq, Nissan Leaf and MG ZS EV, all would have a “perceived” sticker price of less than $40,000.

What is the impact of this for states and the climate?

Introducing a 2.5 cents per kilometre tax would result in 5-10 million less electric vehicles driven on Australia roads over the next 30 years, says Whitehead.

Car makers would be less willing to bring in new models, without the certainty that they would be sold. Australia would become the Cuba of the western world.

“EV market supply to Australia is already being limited by a lack of supportive policies, and EV road taxes, without incentives, is likely to further exacerbate this major barrier to uptake,” Whitehead writes.

Horrifyingly, the result for net zero targets could actually be a 40% increase in light vehicle emissions in Australia by 2050.

The issue of road funding, as Whitehead outlines, is not that electric vehicles aren’t paying their way.

As he points out, the adoption of electric vehicles contributes on health costs, emissions costs, fuel costs, tax revenue due to current higher purchase costs, and also by creating jobs and other energy system benefits.

He points out that contrary to state motives for a short-sighted tax grab, introducing an EV tax could have a detrimental cost to states and the wider national economy to the tune of up to $70 billion.

Uptake of electric vehicles would be the reverse, adding up to $200 billion to the economy.

“Rather ironically, our results also suggest that the proposed EV taxes are likely to raise far less road pricing revenue over the next 30 years (~$30B-$70B), as a result of lower EV uptake, compared to the scenarios that include significant EV incentives to drive EV uptake ($170B-$200B),” writes Whiteead.

Instead, he says that reformation of the road tax model is needed.

“The current approach is complicated, inefficient and plainly unfair,” he says.

“It does not support desired policy outcomes in terms of lower emissions, higher efficiency, and lower congestion, and if we do not start planning for a transition today, the economic costs will only continue to get greater – not as a result of EV uptake, but due to low efficiency, high pollution, high costs, and high congestion.

“EV owners already pay a significant amount in road taxes under the current model, and despite some trying to perpetuate a class warfare argument, most EV owners are just average Australians who are trying their best to make a choice that supports better health and environmental outcomes for the community.

“Not everyone can afford an EV today, but the best way to address this is through further incentivising uptake now to ensure Australia is not left behind, and can secure access to affordable, attractive EV models being sold in other parts of the world, that are currently not being brought to Australia due to our lack of EV support.

“A road pricing scheme could be introduced, but it must be in replacement of existing road taxes, and/or paired with other significant incentives that have an equivalent impact (i.e. ~$11,000 reduction in purchase price), in order to achieve the level of EV uptake required in order to meet net zero emission targets by 2050.

“Anything short of this is not a credible solution. Anything short of this will lead to more Australians dying from motor vehicle pollution than necessary; Australian households spending hundreds of billions more on fuel than they should; and Australia being left further behind on the transition to clean transport future,” says Whitehead.