ICE: The acronym for Internal Combustion Engine
A new report appeared earlier this month, commissioned by the APPG “Fair Fuel” lobby group. I dissected the group’s previous 2021 report in a previous blog[1], focusing particularly on the group’s demonstrably absurd claims that the cost of the additional power generation infrastructure for EVs “would bankrupt UK plc”.
The new report, commissioned from the Centre for Economic and Business Research (CEBR), is superficially a more professional analysis, but similarly lacks balance and objectivity. It makes a series of claims regarding the costs and benefits associated with following current UK government policy, to phase out purchase of internal combustion (ICE) vehicles, and allow only battery only electric cars (BEV) by 2030/2035[2], which it describes as the “alternative case”. This is compared in a cost benefit analysis (CBA) with a “base case”, which corresponds to a much slower movement to full electrification, and achieving quite limited electrification by 2050.
CBA techniques are, in practice, much better suited to looking at comparatively marginal or incremental choices within a relatively self-contained and well-defined context, where most of the parameters are well established or easily estimated. For big policy choices that play out over long periods, and where few of the relevant parameters can be easily estimated with confidence, there is a risk of extreme dependence on unverifiable guesswork, at best, or simply deliberate insertion of numbers that fit the prejudices of what the sponsors want to hear, at worst.
The CEBR report illustrates these problems well. Specifically, the very large numbers assumed on costs do not align with the findings of the highly respected and authoritative Committee on Climate Change.[3] At best they often seem to represent assumptions rather than careful analysis.
The key CBA estimates in the CEBR report, comparing the government’s 2030 policy with the APPG base case, for the full period 2023 to 2050, are (in £ billion):
……………………………………………..
Benefits:
Reduced CO2 emissions in driving 64.7
Health benefits of reduced emissions 11.2
Costs
Extra costs of purchasing BEVs 187.8
Extra fuel costs of EVs 34.9
Cost of extra CO2 emissions in manufacture 32.5
Waiting time costs 46.5
Extra infrastructure costs 98.5
……………………………………………
These assumptions all deserve a few brief comments.
Extra costs of purchasing BEVs. New vehicle prices are set at 2022 levels. The extra cost, and hence the EV price premium for car owners, is therefore assumed to remain unchanged to 2050. This is an outstanding example of the twin intellectual fallacies of assuming no technical progress, and ignoring other factors, notably economies of scale in BEV production, and market or economic pressures and trends.
In contrast a 2021 study by BloombergNEF[4] predicts inter alia that new battery prices will fall by 58% between 2020 and 2030, and that for light vehicles, electric will be cheaper than ICE vehicles by 2027. They add that the growth in EV sales is no longer being driven primarily by policy, but by organic factors, ie consumer preferences. Other analysts have predicted earlier parity with ICE vehicles. Arbitrary assertion of a nearly 200 billion cost penalty is simply perverse, and casts doubt on the quality of the CEBR analysis as a whole. This line item might more realistically appear as a further benefit to current policy rather than a massive cost.
Cost of extra CO2 emissions in manufacture. A recent review[5] of studies on this subject, by the International Council on Clean Transportation (ICCT), provides an excellent summary. It reveals a wide, factor-of-five, range of estimates for emissions in manufacture, reflecting different battery chemistries and other factors. A major factor in this type of lifecycle analysis is the extent to which the power sector has been decarbonised. The ICCT review indicates that emissions in production, as with direct production costs, are expected to fall dramatically, not just with power sector decarbonisation, but with improved battery development and recycling techniques. The CEBR report does not appear to take account of these factors.
Infrastructure costs. This covers additional generation, network infrastructure, and EV charging points, not broken down in the CEBR report, which can challenged on several points. First, National Grid has elsewhere suggested 6 GW additional capacity (with smart charging), not the 19-26 GW (without smart charging) indicated in the CEBR report[6]. This cost will in any case be financed through what drivers pay through their electricity tariff, already implicitly covered in the calculation of running cost saving. Second much of the distribution network infrastructure is already overdue for replacement or upgrading; this is required inter alia to accommodate heat pumps. A typical view of most distribution engineers is that, at the installation stage, the incremental cost of additional network capacity, the number relevant to a CBA, is very small in relation to the total.
That leaves charging infrastructure per se. Another ICCT report[7], based on projections for the 100 most populous metropolitan areas in the USA, suggests infrastructure costs of less than $1000 per new EV, falling as the number rises. While the UK might have higher installation costs, the US figure is dominated by home charging, suggesting lower average costs likely in the UK.
Taken together these arguments suggest the CEBR estimate of additional infrastructure costs is hugely overstated.
Health benefits. A recent Oxford University report[8] estimated current (2018) annual health costs of £ 6 bn per annum, attributable to vehicle emissions (not just CO2). Prima facie this suggests a much higher health benefit than the CEBR estimate of £ 11 billlion for the period to 2050.
Extra fuel costs (excluding CO2 externalities). This appears to have been calculated by looking at cost savings to the motorist and, quite correctly, subtracting the tax element to reflect the fact that this is a transfer payment not a resource cost or societal benefit. However overall the Committee on Climate Change takes a different view[9] on future fuel costs and estimates a real resource saving for the UK[10]. Moreover oil prices have recently risen substantially and may remain high.[11]
An important technical point in a CBA is that the tariff price EV drivers pay per kWh considerably exceeds the true incremental cost of generation, as it includes a very high proportion of shared and fixed network costs. So this too is merely a transfer payment which serves to understate the resource or societal benefit of switching to EVs. Again the implication is that the report is seriously overstating costs.
Waiting time costs. It seems unlikely that waiting times on this scale will persist with improved infrastructure, or as drivers adjust to EV ownership. I am not aware of any other analysis which has considered this to be a major issue. Again this figure seems to be based on hypothesis rather than evidence or analysis.
Using a 2050 cut-off point
A major conceptual flaw in the analysis is the 2050 cut-off point. The base case and the alternative emphatically do not lead to the same state of the world (or UK) in 2050. In the base case the UK continues to have 50 million tonnes per annum of CO2 emissions, shown in the report as reducing very slowly. In the alternative case UK has an (almost) fit for purpose vehicle fleet in 2050, (almost) compatible with net zero objectives. In effect this implies the creation of a valuable capital asset, worth about £ 10 billion per annum for some years after 2050 (using the CEBR’s own estimates). This should be included in any CBA analysis.
The alternative case would also mean the UK was at least making the necessary contribution to the minimum reductions required for global climate objectives. If all countries fell short in this and other sectors to a similar degree, then the prospects for safeguarding future climate health and prosperity would disappear.
[2] 2035 relates to the end date for plug-in hybrid vehicles (PHEV)
[3] https://www.theccc.org.uk/wp-content/uploads/2020/12/The-Sixth-Carbon-Budget-The-UKs-path-to-Net-Zero.pdf
[5] https://theicct.org/sites/default/files/publications/EV-life-cycle-GHG_ICCT-Briefing_09022018_vF.pdf
[6] However the report does not repeat the gross errors other 2021 report which estimated generation infrstrucure at £ 1.5 trillion
[8] https://www.ox.ac.uk/news/2018-06-06-pollution-cars-and-vans-costs-£6billion-year-health-damages
[9] I have not yet been able to check this claim.
[10] Although we should of course note that the real resource cost in Russia or the Middle East may be much lower than that
[11] It’s worth noting that the prices importers pay may be considerably in excess of the real resource costs of extraction in the Middle East or elsewhere. So in a global CBA context, some different conclusions might be drawn.
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