Driven your car lately? The routine grocery shop, drop-offs for after-school activities and road trips have all become noticeably pricier. Driving our modern-day “Herbie” has become considerably more expensive since the famous Volkswagen beetle graced our screens in the 1968 classic ‘The Love Bug’.
The start of 2022 has seen Australians empty their wallets and pay record prices for petrol – a symptom of the fluctuating imbalance in the supply and demand of oil, and further exacerbated by the recent geopolitical developments in Ukraine and the Middle East.
However, what if Herbie could be reloaded and made more affordable? Currently, the transition to electrification and minimising the impact of excessive fuel prices in Australia is facing a number of barriers. While the previous Federal Government stepped in briefly to ease some of the pricing pressures of filling up a tank, our gradually increasing reliance on imported fuel remains problematic. The Australia Institute delved into the Australian fuel market in their fuel reliance report in April and uncovered Australia’s hefty dependence on imported oil.
The report showed that Australia currently relies on overseas imports for around 91% of petrol. Although hardly surprising, it is alarming to think that we are a singular global event or emergency away from a fuel crisis. While we have established a firm commitment to return to compliance with the International Energy Agency’s 90-day minimum stock requirement, as of January 2022, Australia only has 68 days’ worth of liquid fuel stored.
Domestically, just two local oil refineries are still in operation – Ampol in Brisbane and Viva Energy in Geelong. A budgeted investment of $2.3 billion in fuel security proved a temporary fix for the oil refineries, but the lack of substantive funding for the transition to electric vehicles (EVs) remains a major issue.
To minimise this exposure to overseas volatility, it seems more important than ever for the Government to commit to backing the uptake of EVs in Australia.
Source: Sasfin Content Hub
Are we behind the 8 ball?
In May 2022, 94,483 new cars were sold in Australia,1 but only 925 were all-electric. Despite steady improvement from the prior month, the percentage sold in Australia flailed in comparison to other developed economies in Europe such as Germany, the Netherlands, and Denmark who averaged between 25-85% of new cars sold being all-electric.
To put this into context, as early as 2009, Europe imposed a CO2 emission performance standard. And as of 2020, manufacturing companies are limited to an average emission of 95 grams of carbon dioxide per kilometre.
These standards make EVs cost-competitive in most European countries and other countries such as India, China, Japan, and the US which also have similar standards. However, Australia falls into the 20% of countries where manufacturers are not required to meet such standards, making it difficult for EVs to penetrate the consumer market.2
The benefits of electrification
The benefits of transitioning to electrification are clear. If EV charging can be managed efficiently, specifically outside peak electricity demand periods, it can help create a more consistent electricity network demand profile. This will have a significant impact in helping EV owners avoid higher-cost charging periods and aid the integration of both small and large-scale renewable energy systems into the electricity grid.3
Most Australians recognise the energy security benefits of EV uptake, with 45% of the population stating that one of the biggest benefits of an EV uptake would be the reduced dependence on foreign oil.4 The sudden increase in EV uptake globally over the past 25 years can be attributed to solar becoming the cheapest form of power and lighter lithium-ion batteries becoming affordable, sustainable and practical enough for EV manufacturers to gain a foothold in the market.5 We have already witnessed the potential of electric mobility with e-scooters now commonplace in all the major CBDs in Australia, providing an efficient and convenient commute for short trips.
Calls for a broader zero-emissions transport strategy on a national scale have been anticipated for years, as transport is Australia’s third-largest source of carbon emissions. The transition to EVs will play a major role in raising Australia’s climate ambitions and surpassing our target to cut emissions by 26-28% by 2030. Whilst EVs are more expensive up front in comparison to traditional internal combustion engine (ICE) vehicles, they will save $1,100 per year on average in avoided petrol costs (based on current prices).6 If all vehicles in Australia were EVs, reliance on imported oil would fall by approximately 33%.
Australian consumption of refined petroleum products by sector, petajoules 2019-20
Source: Department of Industry, Science, Energy and Resources (2021) Australian Energy Update 2021, Table H3, https://www.energy.gov.au/publications/australian-energy-update-2021
What are we doing?
So far, much of the shift towards EVs has been done without much government assistance. As it stands, Federal Government policy has been ambitious but has lacked the targeted regulation and incentives needed to foster consumer enthusiasm for the EV market.
States and territories have incentivised the uptake of EVs and tried to make them more attractive to the modern-day buyer. The ACT has incorporated incentive-based benefits to those with wide-ranging incomes to increase the implementation of EVs. The main incentives are stamp duty exemptions for EV purchases, a zero-interest loan of up to A$15,000 for eligible households and two years of free registration.
A University of Canberra study questioned whether such incentives created a significant impact on the consumption of EVs. The study found that with a stamp duty exemption and a base EV price of $50,000, 9% of new vehicles sold in the next 5 years would be electric. Whilst this would only bring the proportion of electric cars on ACT roads to 1.6%, it would indicate a steady increase from the latest known proportion of 0.1% in 2019.7
NSW, QLD, and Victoria also offering incentives such as $3,000 rebates on the purchase prices. Such incentives helped increase EV sales by nearly 200% in 20218 and led to further initiatives to electrify other modes of transport such as buses. Recently, NSW committed to electrify its fleet of 8000 buses and power them with renewables by 2030.
Earlier this month, the NSW Government launched its Electric Vehicle Strategy with an investment of up to $595 million to be outlined in the next state budget to increase EV sales by 52% by 2030-31. Increasing accessibility to chargers, removal of stamp duty for EVs under $78,000 and providing the aforementioned rebates are a good start in driving initiatives to build consumer confidence and interest in EVs. Further collaboration between states and similar funding programs will be critical to furthering the transition towards cleaner transport.
How can we do better?
The Climate of Nation report carried out by the Australia Institute, showed that whilst a large majority of Australians support the further implementation of EV policies and strategies, 68% believe that the Federal Government ought to be doing more to increase EV uptake in Australia. The solution is no easy fix, although there are different implementation schemes which could aid governments’ efforts to improve fuel supplies through the EV sector.
Studies have indicated that incentive-based policies will stimulate more interest in the uptake of EVs in lower-income households than in higher-income households as these were found to be more likely to switch to electrification regardless of incentives. One of the main barriers affecting EV uptake is affordability and a substantial amount of EV uptake success will rely on how quickly it can reach price parity with ICE vehicles. Introducing tax rebates for EVs and their charging stations will help to decrease reliance on foreign fuel. Funding should also be directed towards reducing Australia’s petrol demand and creating fuel standards which have been successful overseas, particularly in Europe.
Australia doesn’t yet have a concrete set of standards. If you have purchased a new car since 2008, you are likely to see a sticker on it indicating the fuel economy and emissions per kilometre. However, this is really the extent of our emissions mitigation efforts, with The Grattan Institute and both local heads of Volkswagen and Nissan voicing frustration with the lack of efforts to incentivize EVs in Australia and the lack of a competitive market in the absence of such standards. Without specific emission standards and no clear financial impetus to choose electric over ICE vehicles, manufacturers have not felt obligated to supply EVs to Australia in the volume required to truly accelerate the transition.
Targeted government policy is also essential. On the campaign trail, the newly elected Labor Government promised a range of strategies to expedite the use of EVs across Australia. Such proposals included discounts to make EVs more affordable and pledging a new $500 million ‘drive the nation’ fund, with the specific purpose of allowing the Commonwealth to co-invest in EV chargers.9 These proposals are a positive first step, and the Federal Government is encouraged to fulfil its promises and to capitalise on the many opportunities that an EV revolution presents.
It is imperative, now more than ever, to focus efforts on transitioning from ICE vehicles and integrating more EVs into our everyday mobility. There’s no better time than now to turn Herbie electric.
For more information, please contact Matt Baumgurtel
Matt Baumgurtel leads the New Energy sector team at Hamilton Locke.
David O’Carroll is an associate in Hamilton Locke’s New Energy sector team.
Rahul Tijoriwala is a paralegal in Hamilton Locke’s New Energy sector team.