Feebates – who wins, who loses
Vehicle emissions will keep rising unless we act soon. The Government’s plan is fees for dirty cars, and rebates for clean ones.
There are quite a few problems with New Zealand’s transport system. The Clean Car Discount (often called a ‘‘feebate’’) is meant to solve some of them.
The cars we drive are old – 14.5 years old on average, nearly five years older than the average age of vehicles in Australia. In the case of light passenger vehicles, motorcycles, and heavy trucks, the average age has increased by 4-5 years in the past two decades.
Transport also has an emissions problem. The sector is responsible for 47 per cent of carbon dioxide (CO2) emissions, and 21 per cent of greenhouse gas emissions. Of those CO2 transport emissions, 67 per cent come from the light vehicle fleet – that’s cars, vans and utes.
Those emissions are 7 per cent higher than a decade ago, and the Ministry of Transport forecasts they will keep rising until 2024 unless something is done to reduce them.
The Clean Car Standard and the Clean Car Discount
In 2019, then associate transport minister Julie Anne Genter announced two policies to bring those emissions down.
The first, the Clean Car Standard, would encourage importers to bring in cleaner cars by forcing them to balance imports of high-emission vehicles with imports of lowemissions vehicles.
The other policy was called the Clean Car Discount, but it’s better known as a ‘‘feebate’’ (a portmanteau of ‘‘fee’’ and ‘‘rebate).
It works by giving people who buy a clean car – an electric vehicle (EV), a plug-in hybrid, or a conventional vehicle with low emissions – a rebate depending on its emissions profile.
The cleanest, zero-emissions EVs get a rebate of over $8600, while conventional internal combustion vehicles with low emissions get a lower discount.
Handing over money raised from general taxation to let people buy a new car isn’t a popular idea – not when that spending would have to be traded off against spending on something else, like nurses’ pay.
Instead, the scheme is funded by fees on polluting cars. Like the rebates, the fees depend on whether the vehicle is new or used and its level of emissions: new cars with high emissions attract a maximum fee of $5175, while the highest fee for used vehicles is $2875.
The amount actually paid will depend on the emissions level of the car. Figures provided by the Government expect a Ford Ranger to incur a $2780 fee, while a Mitsubishi ASX would attract a smaller $540 fee.
Those fees go into a pot of money that will be used to pay out the discounts. If the scheme works as intended, people will slowly buy more clean cars, and fewer polluting cars, greening the fleet.
The size of the rebates and fees will slowly change to make sure the scheme is still working, so they’re likely to go up and down in future.
. . . and a couple of details
There are a few important details that affect how the scheme works.
The rebates and fees apply only to imported cars (either new or used) – so you can’t keep collecting rebates as a car is onsold through the New Zealand used car market.
Between 250,000 and 300,000 cars are imported each year. Many will attract a fee or a rebate, but there will be some that are neither clean enough to attract a discount, nor dirty enough to be slapped with a fee, meaning buyers of those cars won’t notice a difference under the scheme.
The person who first registers the imported car, whether it be new or used, will collect the rebate or pay a fee.
The fees and rebates don’t all kick in at once, either. The first rebates apply from July 1 this year, with smaller rebates for the low-emissions internal combustion engine cars kicking in next year. The fees will apply from January 1 next year.
There are a couple of catches, too: cars must have at least a three-star safety rating and cost less than $80,000 to get the discount.
Who gets hurt?
National and ACT have been quick to attack the policies.
ACT leader David Seymour said it would punish ‘‘tradies, farmers and large families’’.
National’s Michael Woodhouse went further, saying it would hurt ‘‘farmers, tradespeople and low-income earners for whom low-emission vehicles will still be too dear or unsuitable for their lifestyle’’.
Supporters of the feebate, including Transport Minister Michael Wood and Genter (who is no longer a minister), argue the scheme won’t punish lowincome earners because it hits only imported vehicles. The MTA reckons there are 5.5 million vehicles already in circulation in New Zealand.
The only change people who buy from this stock will notice is that its composition will change over time to comprise greener vehicles.
Genter argues that the scheme should be looked at more like a ‘‘lever’’ that will be pulled to improve the emissions standards of cars being imported, rather than a blunt rebate/fee mechanism.
Tradies and farmers will likely be stung
Tradies and farmers, who may need larger, more powerful cars, are likely to be hardest hit by the scheme, as they will have no choice but to pay the fee to buy the vehicle they need.
The MTA reckons it could be another five years at least before electric utes are available, and even these are unlikely to be of a standard high enough for some of the tough work required on farms.
Genter acknowledges some people will be stung by those fees, but says ‘‘everyone buying a new car has a role to play in cleaning up the fleet’’.
‘‘You have to look at it as a problem we’re solving together,’’ she says – she pointed out that, compared with other countries, particularly in Europe, the proposed fees on polluting cars are small.
It won’t reduce emissions in the short term
On its own, the policy will not reduce emissions. Transport is included in the Emissions Trading Scheme (ETS). Each time you fill up your car, the person you have bought your fuel from has had to pay a credit
to cover the cost of the emissions attached to burning that fuel.
NZ Initiative economist Eric Crampton says that, because of the new cap on emissions under the ETS, using an approach like a feebate to reduce emissions from vehicles doesn’t do anything to reduce emissions overall, as it simply lets someone else make those emissions.
‘‘It will change where emissions happen, but it won’t change the total number of emissions,’’ Crampton argues.
He says the policy places a burden on people who need large cars to pay for subsidies on cheaper cars; a Treasury paper from the first Clean Car Discount scheme agrees, calling the fees a ‘‘double burden’’, as emitters are charged a fee for buying a polluting car, and for the cost of its pollution through the ETS.
Crampton argues the more effective way to green the fleet is still through the ETS, which would see the cost of emissions rise, forcing people to make better decisions about what sort of vehicle they should buy.
The pushback to this argument is that the cost of those emissions in future is likely to rise to the point where driving a car quickly becomes unaffordable, which would raise similar equity issues to the feebate: the wealthy could pay or adapt, while the poor would simply have to accept less mobility.
Crampton says buyers should get better information on how much it would cost to run a highly polluting vehicle if the cost of emissions rises in the future.
He argues the Government could use the revenue raised from the ETS and other polluting activities (profits it reaps from its stake in power companies, for example) to pay money to all New Zealanders, which could then be used to fund emissionsreduction measures that best suited them.
. . . but it might actually reduce emissions in the long term
It’s also possible the feebate scheme, if successful, could encourage the Climate Change Commission (which itself recommended schemes to encourage EV uptake) to recommend a more ambitious emissions budget to the Government, which would cause it to adopt a lower cap on the ETS.
That would mean the standard did not itself reduce emissions, but it would have encouraged a more ambitious ETS, which would reduce emissions.
Are there even enough cars?
One concern raised by industry is that there may be an initial shortage of used EVs. Greig Epps, MTA’s advocacy and strategy manager, warns there are currently fewer than 200,000 EVs in Japan, where New Zealand sources most of its EVs.
He says the scheme should be more generous to hybrid vehicles as a transitional measure, as there is a far greater supply of these in Japan for New Zealand to draw on.
‘‘Transitions are incremental. Are we being realistic with ourselves about what the cost might be?’’