Turn on the lights

How Electric Vehicles may change the energy market landscape in Australia

Watched recently the host of a major Australian TV network expressing deep skepticism about the chances for Electric Vehicles in Australia, bringing up multiple obstacles and concluding with a resonating argument: “…20 billion dollars to the state and federal governments is how much money is raised by fuel diesel and (car) registration costs…could you please tell me how the hell are you going to fix the now 20 billion dollar hole this year, next year and every year to come?”.  It is undeniable that vehicle, fuel and energy taxation reforms are required upon the emergence of Electric Vehicles (EV). But can fiscal policy be a stumbling block rather than an enabler of progress?

Back in the 18th and 19th centuries several European countries used to apply a duty on candles. In England, the equivalent to ￡1000 was charged for each million lumen-hours generated. For comparison, that is roughly the quantity of light emitted by a single modern LED lamp continuously on for about 4 weeks. To prevent tax revenue losses, people in England could only use oil lamps with fish oil, a smelly and low-quality grade fuel that only the poorest people would use. With the emergence of new fuels such as kerosene and gas in the 19th century, candle usage faded, hence its tax revenues. Later electricity took over as the predominant energy carrier for illumination technology and so remains for almost 100 years now. All along, taxation kept evolving, adapting to each new technological paradigm and policy objectives. But hardly preventing progress from happening and more often used as an instrument to promote the adoption of newer technologies, e.g. recently favoring LEDs against conventional light bulbs.

Revolution in lighting technology is probably a good example rebutting arguments suggesting that technology and energy efficiency gains can be stopped on grounds of legacy taxation policy

But Australia is not alone in fearing a multi-billion-dollar hole in public budgets caused by the wider adoption of EVs and consequent reduction in tax revenues stemming from fossil fuels’ consumption in transportation. All countries where fuel taxes bring relevant revenues to the state will sooner or later find themselves in a similar situation. Recently, the UK Treasury has acknowledged the potential annual loss of GBP 30bn from conventional fuel and vehicle taxes caused by the significant growth of EVs sales. Such skepticism and concerns grounded on the shortcomings of legacy fuel and vehicle taxation in face of Electric Vehicles emergence will inevitably spark a long-due debate on vehicle related charging. Alternative approaches include road-pricing and congestion charges, though both are somewhat politically sensitive topics. Other approaches include differentiating taxes on electricity depending on the end purpose, by distinguishing between transportation and domestic consumption. With the support of Information Technologies, ensuring such distinction is not as challenging as one might think. Conceptually, this is no different from what some countries have been doing for years, taxing diesel as a function of its usage in either agriculture, heating or transportation.

No question that governments and private sector stakeholders need to understand the full taxation implications of the EV revolution. Nonetheless, Australia has several undeniable competitive advantages with the potential to bring this discussion to a whole new level.  

The country has one of the best insolation indexes for photovoltaic energy production. Once considered a laggard in the adoption of solar photovoltaics energy, Australia has reached in 2019 a PV capacity of 16.3 GW, now leading the PV per capita indicator globally at 600W/cap, overtaking Germany at 580W/cap. Contributing only with some 5% of the total energy market in 2019, the business has been valued at 7.5 bn AUD.

With the country’s energy needs largely met by fossil fuels (coal, oil and gas) and without any nuclear energy power muddying strategic decisions, a decisive switch to cleaner energies seems to make sense. In turn, the combination of solar photovoltaic generation and distributed energy storage enables interesting scenarios for the country, further backing the wider adoption of EVs.

With demand for electric energy storage forecasted to jump nine-fold by 2030, Australia is also home to 90% of the raw elements required in lithium-ion battery chemistry, including nickel and cobalt. Its dominance is clear as the largest lithium producer/exporter with a 55% market share in 2019, keeping around 30% of the global lithium reserves. To ride the wave of the EVs adoption with an open mind, might make a lot of sense for Australia, capitalizing on the combination of expanding photovoltaics, availability of raw elements and the excellent business case for distributed energy generation and storage.

Hence, embracing Electric Vehicles might actually be a huge opportunity for the Australian Energy market to create and develop innovative energy products while allowing faster expansion of "smart grids". In the process, cut drastically the dependence on fossil fuels, becoming a global market player and a leader in enabling cleaner energy for housing and transportation. How much would that be worth for the Australian economy?

Note: this article was developed as part of PhD research work (Antwerp University (Faculty of Business and Economics). Comments and feedback welcome also by email