11 August 2023

Four billion reasons the Government should stick to its guns on electric vehicles

By Benedict McAleenan

Four thousand jobs don’t just drop out of the sky. Nor does £4bn of industrial investment. Certainly not in Britain, certainly not in 2023.

Yet two weeks ago, there was cause to celebrate in Somerset as the Indian conglomerate Tata Group, owner of Jaguar Land Rover, announced plans for a massive battery factory, or ‘gigafactory’ in the county. The plant means four billion invested in Britain, four thousand direct jobs and thousands more indirectly. It will also support the wider UK manufacturing base by reinforcing supply chains and its skills base. (And no doubt it will help four Conservative MPs keep their seats in Somerset, incidentally…)

The result was not a foregone conclusion by any means; Spain had been the frontrunner, nestled in the mega-market of the EU. In the end, Britain won the investment and thousands of jobs because Grant Shapps spent months negotiating for it (as Transport and then Business Secretary), flying to India to intervene when it seemed the deal was lost to Spain, and because he could leverage Britain’s policy framework to demonstrate its commitment to next-generation cars. A change to our policy on EVs would undo all of that.

That policy framework is much debated – and much misunderstood but the Government should stick with it, especially as it yields results like the Somerset investment. The Prime Minister is right to say that just ‘banning things’ will not win people over, which is why the ‘ZEV Mandate’ policy will work: it phases out sales of new petrol and diesel cars over more than a decade, but doesn’t ban anyone from driving them. So it neatly balances the necessity of lowering emissions with the economic realities of day to day life.

The policy works like this: in 2024, 22% of the cars a producer sells in Britain must be ‘Zero-Emission Vehicles’ (ZEVs). The year after, the percentage will be a little higher, and then rise each year until eventually, in 2035, it reaches 100% – ending sales of new petrol and diesel cars.

No doubt there will still be petrol and diesel cars on our roads long after that date, since the policy is focused on sales of new cars, not those that are already out there. The framework also allows flexibility, so that innovators might meet its requirements with new technologies such as zero-carbon e-fuels in combustion engines.

If a car producer cannot meet a given year’s level for EV production, they can buy credits to make up for this. If a producer can exceed the level, they can sell these credits for a profit. It therefore creates a trading system that favours and attracts those able to produce next-generation vehicles, like Tesla. It is no coincidence that Tesla started out in California, the only US state with its own ‘ZEV Mandate’ at the time. Indeed, the credits it earned from this were critical to its early profitability. Do we want a British Tesla, and all the jobs, and the prestige of cutting-edge British-made cars rolling into global markets? If we do, then we must create the investment environment.

Another place with a ZEV Mandate is China, the largest EV market in the world, where new models appear on a weekly basis. If the UK has any hope of competing in the industrial market place, against China’s industrial muscle and the USA’s Inflation Reduction Act, then the ZEV Mandate is crucial. We are the seventh largest car market in the world, but the world’s big producing countries are setting a new direction. We cannot be caught behind by flip-flopping on an industrial policy just weeks after it helped to secure a major new manufacturing plant.

The certainty offered by the ZEV Mandate’s trajectory also creates confidence for large companies to invest, as Tata/JLR has, and that means new car models, or variations on old ones, will come onto the market. So whilst the EV market is already diversifying, consumer choice is likely to increase as firms see the direction of the market, invest and create unique new models to fill all those new market niches.

There are complaints that this is all too fast, and that Britain is not ready to support so many extra electric cars. Yet last year 16.6% of new cars in the UK were electric (22.9% if you also include plug-in hybrids), having risen from just 0.4% in 2016. So to require that 22% must be EVs in 2024 is hardly a steep curve.

There is no doubt that the country must invest much faster in EV charge points. This isn’t the same as replacing all the petrol stations in the UK – with an EV, most people effectively have a petrol station in their own home and many workplaces. But still, chargepoints do need faster deployment. Yet the value of the ZEV Mandate, with its clear trajectory, is that it gives chargepoint companies the confidence to invest at scale.

We also need to ramp up electricity generation to cope with rising electricity demand. EVs are actually an essential tool for grid management, because they contain batteries that can be charged or drained in response to supply and demand through ‘vehicle to grid’ integration. Millions of EVs will be one of the UK’s most important, and highly distributed, energy security assets. Yet there is no secret that we need more energy generation in the UK, and this must keep pace with EVs.

Finally, there is the most obvious reason to do this: the world is getting hotter, this is caused by humans, and we must act now. The ZEV Mandate provides a way to ‘act now’ without wrecking the economy. Transport is the biggest emitter of greenhouse gases, not to mention its contribution to poor air quality in cities and thereby its impact on health. By cutting those emissions through a policy designed to deliver steady investment in alternatives, the UK can slash its contribution to climate change. Britain has been enormously successful in doing this for electricity – we should do it again for transport.

This matters to British voters, including Conservatives. They see holiday destination temperatures reaching the unbearable mid-40s. They see Europe on fire. According to YouGov, the environment is the fourth most important issue for all voters and the sixth most important for Conservative voters. Granted, ‘the environment’ is a broad term, encompassing climate change, air quality, noise pollution and more. Yet this policy targets all those things, and so it reaches sub-groups of voters in ways that other policies don’t.

This policy is not just worth sticking to for its economic, climate and health benefits. It’s important for the next election too – especially if the Conservatives want to keep those four seats in Somerset.

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Benedict McAleenan is Managing Partner at Helmsley Energy.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.