State's capital funding for electric vehicle incentives likely to be exhausted by 2021 according to spending review

Funding set aside in the Government's long-term capital investment plan to encourage a changeover to electric vehicles (EV) will be exhausted in just two years time if the current rate of growth in EV purchases and the system of grants remains the same, a new analysis has found.

Under Project Ireland 2040, €200 million has been set aside to support the achievement of the Government's target of reducing the number of vehicles with internal combustion engines (ICE) and reaching 840,000 passenger electric vehicles (EVs) on the road by 2030.

But according to the study, part of the Government's Spending Review 2019, spending on the Sustainable Energy Authority Electric Vehicle grant has been increasing since 2013.

Growth has been particularly pronounced over the past three years, rising 40% in 2017 and 114% in 2018 and is expected to reach 223% this year, according to the document.

The cost of Vehicle Registration Tax (VRT) relief for EVs has also risen at a fast pace during the period, up 77% in 2017 and 75% in 2018. 

By April of this year, the cost of the relief to the state for the year had already reached the total cost in 2018, reflecting the rapid growth in Electric Vehicle sales this year.

The analysis by Laura Kevany of the Climate Change Unit in the Department of Public Expenditure and Reform, states that if these current supports are continued, every 100,000 new EVs will cost the Exchequer between €1.14 billion and €1.36 billion.

"While the current EV supports have proven effective at increasing EV take-up, at the current growth rates and absent reform, the Project Ireland 2040 allocation will be exhausted by 2021," the report says.

"It is worth considering whether this represents the optimal use of the allocated Project Ireland 2040 funds to reach the target articulated in the Climate Action Plan."

"A schedule of declining supports for EV take-up which would end when the gap between EVs and ICE vehicles is equalised may offer a more sustainable pathway of incentives."
 

The analysis also suggests that the growth in EVs will reduce Exchequer revenues, with €1.5 billion less revenue from motor tax, VAT and fuel oil tax between now and 2030, reaching €500 million in annual losses by 2030, if the Climate Plan targets are reached.

In order to lower the substantial risk to the stability of the state's finances, the achievement of the Climate Action Plan's targets on EV deployment with have to be carefully balanced with the maintenance of revenues and alternative taxation models will need to be considered, it states.

In comparison to the cost of reducing greenhouse gas emissions through other mechanisms, the cost to the Exchequer of the current range of EV supports appears quite high, it adds.

The benefits are also regressive in nature, it says, as they tend to favour the more well-off in society.

The report recognises though that until they become cost competitive with ICE vehicles, Government supports can help boost take-up of EVs.

But it also claims that Ireland has some of the most generous supports anywhere in the world for EV purchases and spending on all of these schemes is rapidly accelerating.

It suggests that  international evidence suggests the countries' that have been most successful at boosting EV adoption rates combined subsidies for EVs with higher taxes on ICE vehicles. 

There may also be a case for reducing incentives for Plug-in Hybrid Electric Vehicles (PHEVs) at a faster rate than Battery Electric Vehicles (BEVs), it says, because the greenhouse gas emissions and air pollution savings are lower in PHEVs than in BEVs.