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Energy Economics Weekly Briefings

Electrified Vehicle Sales in the UK

Written by: Ellen Hughes-Cromwick

 

October 2018 data for UK’s new vehicle registrations was just released yesterday.  As we track these sales across the globe, we are learning how important purchase incentives have become.  These policy supports help buyers overcome the unease they may feel with new technologies.  The field of behavioral economics has provided us with important insights about how buyers can be “nudged” toward certain responses in ways other than the price and other market signals.

UK October registrations of new hybrids, plug-in hybrids, and battery electric vehicles (EVs) totaled 10,597 for the month, up nearly 31% over a year ago (see table below).  EVs represented 6.9% of the total market last month.  Some of this strength may be attributed to the fall-off in diesel car demand following the sentiment shift away from this segment.

In 2011, the UK government implemented an incentive of  £4,500 ($6,300) for the purchase of a plug-in hybrid vehicle.  This so-called “grant” helped to defray the cost of buying these vehicles, in essence a purchase credit.  In addition, the government imposed a higher vehicle excise duty on all vehicles except zero emission EVs.  Buyers of internal combustion engine cars (ICEs) need to pay an additional duty of £1,550 over a five year period on all such vehicles priced over £40,000.

These purchase incentives are about to change.  In last month’s release of the 2018 UK Budget, the purchase incentive for BEVs will be reduced from £4,500 to £3,500 as of  9 November while the PHEV grant is eliminated as of this date (see here).  Since the Budget was relased late last month on 21 October, it is not likely that the grant reduction played a major role in fostering robust EV sales.  In other words, there is an underlying trend of growth.

Moreover, even with this policy shift, the UK government is not backing away from its efforts to incentivize clean energy and cleaner mobility.  For example, the government released a target last summer in their “Road to Zero” roadmap, including a 2030 goal of 50-70% of new cars sold to be “ultra-low emissions.”  The Bank of England (BoE), UK’s central bank, is led by Governor Carney who has been issuing appeals to financial institutions to adequately account for climate change risks.  In so doing, the BoE also is developing economic and financial assessments of the costs and a description of mechanisms to mitigate this risk.

As in other markets, notably China and the Nordic countries, governments are weighing the external costs associated with CO2 emissions and surmising that market interventions in the form of policy stimulus may contribute to the reduction in such emissions coming from the mobility sector.  Most economists, especially the newly minted Nobel laureate in Economic Science, William Nordaus, agree that “righting the ship” with regard to unforced errors of a free lunch on CO2 emissions, requires appropriate policy interventions to align incentives.  That is no perfect policy mix.  And that is one of the reasons why we are observing the interplay of policy and responses by consumers and business.  In the course of the next few months, we will be able to watch what happens to EV demand in the UK and policy incentives are shifted closer to neutral.