(DELWP) Victorian Government Department of Environment, Land, Water and Planning

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Victorian Government
    Department of Environment, Land, Water and Planning
                         (DELWP)
     Submission to the Senate Select Committee Inquiry on
                        Electric Vehicles
                                      September 2018
1. Context for this Submission
1.1. Victorian Government Climate Change Action

Global momentum is building for national, sub-national and local governments to take ambitious
action to reduce greenhouse emissions and help communities adapt to the impacts of climate
change. In Paris in 2015, 194 countries committed to enhancing adaptive capacity, strengthening
resilience and reducing vulnerability to climate change as well as emission reduction commitments
and a transition to low-carbon economies.

The Victorian Government is working to restore Victoria as a national and international leader on
climate change action. The government is committed to action to keep global warming below 2
degrees celsius above pre-industrial levels.

This commitment to help Australia meet its obligations under the Paris Agreement was confirmed in the
signing of the Climate Leadership Declaration in Melbourne on 13 July 2017. The Declaration was
signed by the Victorian Minister for Energy, Environment and Climate Change, Queensland Deputy
Premier, South Australian (SA) Minister for Climate Change and Australian Capital Territory (ACT) Minister
for Climate Change and Sustainability.

The Declaration emphasizes the important role of Australia’s States and Territories in climate change
action, and the economic benefits such action will bring.

The Declaration also sets out collaborative actions to be pursued by the parties, including considering
opportunities for multi-state collaboration on the promotion, procurement and use of electric and
zero emission vehicles, and the provision of charging infrastructure.

In November 2017, the Climate Change Act 2017 (the Act) commenced operation. The Act provides
Victoria with a world leading legislative foundation to manage climate change risks, maximising
opportunities that arise from decisive action, and drive Victoria’s transition to a net zero emission,
climate resilient community and economy.

The Act has a long-term emissions reduction target of net zero greenhouse gas emissions by 2050
and it is the duty of the Premier and the responsible minister, the Minister for Energy, Environment
and Climate Change to ensure it is met. This is consistent with the Paris Agreement and with the
steps being taken by comparable jurisdictions including ACT, SA, New South Wales (NSW) and many
other governments internationally.

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The Act requires the Premier and the responsible minister to set five-yearly interim targets to ensure
Victoria remains on track to meet the long-term target. These will commence from the 2021-2025
period.

To meet the interim targets, emissions reduction pledges will be made every five years from 2020 to
reduce emissions from the state and local government’s own operations, as well as from key
emitting sectors of the economy. Such sectors include energy, including stationary energy and
transport. Sector pledges will include policy measures the government will implement to drive
emissions reductions in these sectors.

The Victorian Government has also committed to reduce Victoria’s greenhouse gas emissions by 15-
20 per cent below 2005 levels by 2020, and reduce emissions from government operations by 30 per
cent below 2015 levels by 2020. The Take 2 – Victoria’s Climate Change Pledge program, one of the
most comprehensive climate change pledging programs in the world, will contribute to achieving the
2020 target, and continue to reduce emissions beyond 2020.

1.2. Action in the Energy Sector

There is already a suite of established actions to support the short and long-term greenhouse gas
emission reduction targets in the energy sector which contributes 62.8% of the total greenhouse gas
emissions in Victoria (based on Commonwealth published state and territory inventory data for
2015). The Victorian Government has acted in transitioning to a renewable energy based generation
through initiatives such as:

•   The Victorian Renewable Energy Target (VRET), legislated under the Renewable Energy (Jobs and
    Investment) Act 2017 (Vic), which sets a renewable energy generation target of 25% by 2020 and
    40% by 2025.
•   The Victorian Renewable Energy Auction Scheme (VREAS) to support achievement of the VRET.
•   The Renewable Energy Action Plan which invests $146 million in initiatives across three focus
    areas of: supporting sector growth; empowering communities and consumers; and modernising
    Victoria’s energy system.
•   The New Energy Technologies Sector Strategy, which identifies new energy technologies as one
    of the priority growth sectors.
•   The Energy Efficiency and Productivity Strategy which invests $55 million in energy efficiency
    initiatives and programs that will reduce greenhouse gas emissions by 34 million tonnes (carbon
    dioxide (CO2) equivalent) between now and 2030.

1.3 Transport Sector Emissions

Whilst the energy sector is the major contributor to Victoria’s greenhouse gas emissions, the next
most significant contribution comes from the transport sector at approximately 19% of the state’s
total emissions, with over half from passenger cars and light commercial vehicles. According to the
ClimateWorks 2016 report The Path Forward for Electric Vehicles in Australia, the transport sector is
one of the fastest growing sources of emissions within Australia, increasing by around 50% since
1990 and is currently around 100 million tonnes each year. The sector’s emissions have been
projected to rise by a further 6% by 2020, driven primarily by population and income growth for
passenger travel and economic growth for freight transport.

As such, significant change will be required in this sector over time to ensure it operates in a manner
consistent with the state’s 2050 net zero emissions target.

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The government’s goal is for Victoria to have an effective, integrated and climate-resilient transport
system that provides a wide range of travel choices for all Victorians, including electric and
automated vehicles. The government is already taking action on a number of fronts, including:

    •   supporting two large Victorian solar farms that will power Victoria’s entire tram network;
    •   investing in and enhancing public transport;
    •   introducing 50 new Victorian built hybrid buses into its public bus fleet that will improve
        accessibility, support local jobs, reduce emissions and reduce the impact on the
        environment;
    •   developing an effective and integrated transport system;
    •   supporting walking and cycling through Active Transport Victoria and implementing the
        Cycling Strategy 2016; and
    •   supporting innovation in new technology – including funding to support a commercial
        electric vehicle manufacturing facility.

Further action is necessary to address transport sector emissions, including increasing the uptake of
electric (low and zero emissions) road vehicles, and further changes in the public transport sector in
conjunction with the significant decarbonisation of the electricity grid that is already underway.

It is noted that the Commonwealth Government has identified transport as an area with significant
potential for large-scale and cost-effective greenhouse gas emission reductions over the period to
2030. Recognising that electric vehicle uptake is a major enabler for greenhouse gas emission
reduction in the transport sector, the Commonwealth Government has a significant role to play at
the national level in its policy levers to encourage greater electric vehicle uptake.

2. Environmental, Health and other Benefits of Electric Vehicles
Electrification of the transport sector will provide significant public and private benefits.

2.1. Greenhouse Gas Emissions

Given that the transport sector is the second greatest contributor to greenhouse gas emissions,
electric vehicles have a major role to play in making significant reductions, in tandem with the
continued decarbonisation of the electricity grid.

Recent modelling conducted by Aurecon for Infrastructure Victoria in its report AV/ZEV
Environmental & Health Impact Assessment showed that under a scenario of 100% adoption of
electric vehicles in Victoria by 2046:

    •    23 million tonnes (Mt) of CO2e / year of greenhouse gas emissions will be avoided from road
         vehicles in metropolitan Melbourne, and
    •    27 Mt of CO2e / year of greenhouse gas emissions will be avoided from road vehicles when
         extrapolated to the whole of Victoria.

However, some of this reduction is likely to be offset by an increase in electricity sector emissions,
depending on the emissions intensity of the electricity grid. Notwithstanding this offsetting effect,
the magnitude of the vehicle emissions reductions would equate to:

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•   approximately 25% of Victoria’s greenhouse gas emissions in 2015, or
    •   approximately the amount of emission reduction required to meet Victoria’s 2020
        emissions reduction target.

2.2. Other Pollutant Emissions

Vehicles emit a range of pollutants into the atmosphere that affect human health and ecosystems.
These include particulate matter (PM), oxides of nitrogen (NOx), volatile organic compounds (VOCs)
and carbon monoxide (CO), among other pollutants. In particular, there is strong health evidence
that PM and NOx cause adverse effects to human health, including increasing the risk of
cardiovascular and respiratory diseases, and in some cases, the risk of premature mortality.

The emergence of zero emission vehicles would eliminate all vehicle exhaust emissions in Victoria
(around 27 Mt of CO2e as noted above) by 2046 based on the scenario modelling of a 100% electric
vehicle adoption identified above. This represents a significant benefit to all Victorians through
improved air quality, which would reduce the incidence and severity of health issues caused by high
vehicle exhaust concentrations, and subsequently, reduce health care costs. According to the OECD,
air pollution from road transport cost the Australian economy close to $6 billion in health costs in
2010. In addition, the Australian Institute of Health and Welfare (AIHW 2016, Begg 2007) has
estimated that about 3000 deaths (equivalent to about 28,000 years of life lost) are attributable to
urban air pollution in Australia each year. In a full zero emission electric vehicle uptake scenario
vehicle exhaust emission would be completely removed.

Like all vehicles, electric vehicles will still generate some non-exhaust emissions (particulate matter)
from components such as tyre wear, road wear and braking. However, electric vehicles do not emit
harmful particulate matter in the way traditional petrol and diesel engines currently do, resulting in
a decline in particulate matter emissions of around 1.2 million kilograms a year under a scenario of
100% electric vehicle adoption by 2046.

The benefits of electric vehicles to population health can be illustrated by estimating how many
years of healthy life lost from death or illness are avoided (or the years of healthy life that are
gained) from a given intervention. This measure is called avoided ‘disability-adjusted life years’
(DALYs). DALYs measure the total burden of illness experienced by a population. A life year lost due
to an external health risk (e.g. pollution) represents one DALY. In this case, the intervention is the
emissions reductions resulting from the emergence of zero emission electric vehicles.

With the scenario of 100% electric vehicles by 2046, modelling in the AV/ZEV Environmental &
Health Impact Assessment report suggests 3,632 avoided DALYs in Victoria (3,464 of which are in
metropolitan Melbourne). This translates into an annual economic benefit valued at $706 million in
2046 alone. These benefits would be realised annually for every year the effects of vehicle exhaust
emissions are removed.

The health benefits of reduced emissions are forecast to be greatest in urban areas with high density
populations. This finding is consistent with results of previous studies by EPA Victoria, and the

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former Commonwealth Department of Infrastructure and Transport, and is unsurprising given the
sources and effects of emissions are spread across a greater number of people in a smaller area.

The Victorian Government is taking action that will develop a comprehensive Air Quality Strategy in
2019, to underpin air quality management policies and programs through to 2030. In May 2018, the
Minister for Energy, Environment and Climate Change released the “Clean Air for All Victorians –
Victoria’s Air Quality Statement” encouraging engagement with Victorians about Victoria’s priorities
for future air quality management. This was followed by the Victorian Government Clean Air Summit
held on 27 August 2018, which bought Victorians together to identify actions to improve air quality
over the coming decade. The summit will be followed by consultations at regional locations across
Victoria. The consultation process will inform the development of the Victorian Air Quality Strategy.

2.3. Noise Pollution

Noise pollution is recognised as an issue by environmental agencies and is defined by EPA Victoria as
‘sound at a level which is annoying, distracting or physically harmful’. Exposure to continuous high
levels of noise pollution (85-90 dBA) over a lifetime (particularly in work-related, industrial settings)
is linked with progressive loss of hearing and hearing sensitivity thresholds (Stansfield & Matheson,
2003). Stress induced health impacts are related to annoyance, as well as other effects that can be
induced or exacerbated by exposure to excessive noise such as: cardiovascular disease, sleep
disturbance, immune effects, biochemical effects and other performance related issues.

Most urban noise originates from motor vehicles, exacerbated by ever increasing levels of urban
density. Overall, electric vehicles could reduce traffic noise at low speeds in dense urban areas, or
where high quantities of low speed / start-stop driving are common, with some results indicating
reductions of approximately 3-4 dB in urban areas (Jabben, Verheijen & Potma, 2012; Marbjerg,
2013). This includes high density areas where there are a number of traffic lights / intersections with
high levels of engine braking and acceleration from stoppage – potentially increasing the
attractiveness of residential properties otherwise devalued due to noise pollution.

Reduction in vehicle noise also has the potential to impact road usage patterns. Examples such as
road freight operations, which are typically restricted at night, could potentially increase their
operating timetable and become more efficient / economic as their noise impact on urban areas is
reduced.

However, at higher speeds, electric vehicles and internal combustion engines noise differences are
less distinguishable due to the increase in noise from other sources (aerodynamics and tyre noises).
Therefore, the greatest benefit is in high density, low/medium speed area applications.

2.4. Vehicle Fuelling and Maintenance Costs

Whilst electric vehicle purchase cost is currently at a premium to traditional internal combustion
engine (ICE) vehicles, it has lower ongoing costs, particularly in fuelling and maintenance. Traditional
ICE vehicle fuelling costs typically around $10-$15 per 100 kilometres, depending on the vehicle’s
stated fuel economy. Electric vehicles have cheaper fuelling costs due to the lower cost of electricity,
at around $3.50 per 100 kilometres. So, for a 300-kilometre range for an electric vehicle the cost to
fuel / charge would be approximately $11 compared with around $30 - $45 for the ICE vehicle. In

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KPMG’s report Automated and Zero Emission Vehicle Infrastructure Advice for Infrastructure
Victoria, it was estimated that by 2046, instead of it costing nearly 18 cents per kilometre or $17.60
per 100 kilometres for an ICE vehicle, an electric vehicle on average would cost around 5 cents per
kilometre or $5 per 100 kilometres.

Maintenance costs are also slightly lower for electric vehicles. Electric vehicles have fewer parts than
an ICE vehicle, so there are less parts to service and problems to fix, particularly reduced
maintenance costs for engine and brakes. Research has found that electric vehicles reduce
maintenance costs by 35-46% over time (Arena Wire, 2017).

2.5. Fuel Security

Australia is increasingly reliant on imports for its liquid fuels. Data from the International Energy
Agency’s Energy policies of IEA Countries: Australia 2018 Review states Australia’s domestic crude oil
production declined by 23% in the decade to 2016, by which time Australia imported 67% of its oil,
and 91% of its oil for transport. A June 2015 report, Australia’s transport energy resilience and
sustainability estimates import of oil products is expected to grow by 3.2% a year to 2021-22. Being
heavily reliant on supplies from the Middle East makes Australia vulnerable to potential supply
disruptions and to unexpected changes in demand from other customers in Asia.

Electric vehicle adoption can help address the issue of fuel security. As Australia is vulnerable to a
disruption to transport fuel supplies due to the current and increasingly high oil and fuel import
dependency, local production of electricity as fuel source for electric vehicles will decrease our
international reliance on oil and enhance our fuel security. Analysis developed by ClimateWorks in
its 2016 report, The path forward for electric vehicles in Australia indicates that the increase of
electric vehicles into the Australian fleet, consistent with the pathway to zero net emissions by 2050,
would increase fuel stocks from 18 to 21 days in 2030, and 16 to 20 days in 2050 compared to a
business as usual baseline. Oil/fuel imports would decrease 16% in 2030 and 28% in 2050.

3. Current Australian Electric Vehicle Market and Barriers
3.1. Current Market

Despite the growing market in electric vehicles globally, 2017 sales of electric vehicles (battery
electric vehicles & plug-in hybrid electric vehicles) in the Australian market was approximately 0.2%
(2284 vehicles) of the total annual sales in an Australian market of over a million vehicles.

In the last seven years Victorians have purchased 1324 vehicles (excluding Tesla vehicle numbers –
not publicly available). Whilst this is the highest number of electric vehicles purchased in an
Australian jurisdiction, it is significantly lower than some other international jurisdictions that have
introduced incentives to accelerate uptake. Globally, the number of electric vehicles sold each year
is growing rapidly, with a 40% increase in 2015, 60% in 2016 and 56% in 2017, with annual sales
volume reaching over 1.1 million vehicles. The global electric vehicle stock on the road is now
around 4 million.

Whilst private buyers make up 34% of the Australian electric vehicle market, business is the largest
purchaser of electric vehicles (63% of total sales in 2017, excluding Teslas) with the majority of sales

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from manufacturer fleets and dealer demonstrators. Manufacturers use their own fleet and
demonstrator vehicles for promotion and education.

For the overall ICE vehicle market in Australia, manufacturer fleets and dealer demonstrators make
up only 20% of total sales. This demonstrates the broader business market for electric vehicles is still
immature.

To understand the potential for electric vehicles in Victoria, in February 2017, the Victorian
Parliament directed the Economy and Infrastructure Committee to conduct an inquiry. The terms of
reference included investigating the potential benefits of electric vehicles, options for supporting
their uptake, options for supporting local manufacture, and their applicability for private owners,
public transport and car-share providers.

The Committee received over 200 submissions and conducted three days of public hearings. The
final report was tabled in Parliament on 8 May 2018. Whilst there were no recommendations, the
report included 27 findings and noted the current ‘high upfront cost of electric vehicles compared to
other vehicles in the same class, makes them prohibitively expensive for many Victorians’.

3.2. Current Barriers

Governments in Australia at all levels may need to consider additional policy measures to further
build business and consumer confidence in electric vehicles as a mainstream transport option and to
overcome current barriers to electric vehicle uptake.

The current main barriers include:

•   High upfront purchase price

Globally, whilst the 2017 total electric vehicle new car sales exceeded 1 million for the first time, it is
still in an emergent growth phase when compared with the total global new car sales estimated at
81 and 86 million (76% petrol, 19% diesel, 3% hybrid, 2% electric).

Electric vehicle purchase price is currently at a premium compared with ICE vehicles as it uses new
technology which has high development costs that need to be recovered. Lithium battery technology
is a main driver of this cost but is expected to fall by 8-9% per annum, continuing with the downward
trend observed where battery costs in 2012 was at around $350/kWh, and in 2018 at
around$225/kWh. This is expected to reduce the upfront purchase price over time.

Economies of scale is also a factor in the current purchase price premium due to the relative smaller
volumes. However, as production rates of electric vehicles increase, this will also drive downward
pressure on the upfront purchase price as the development costs can be amortised across more
units produced. Navigant has forecasted the long-term manufacturing cost of electric vehicles to be
20% cheaper than comparable ICE vehicles. This is based on the analysis of the underlying cost to
build, which shows electric vehicles are lower cost to produce on the basis of raw materials, and a
less complex drive-train. Navigant’s view is that these cost savings are likely to occur once
economies of 1 million vehicles are reached by the vehicle manufacturers, by the mid-2020s.

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There are also additional considerations to take into account for the relatively high price of electric
vehicles in Australia. Key influences include costs associated with importing electric vehicles that
must be amortised across current low sales volumes, such as the shipping costs from distant
production facilities, and the fixed costs associated with local market introduction (e.g. Australian
Design Rules compliance / homologation; sales, distribution and service infrastructure costs). The
outcome is a higher risk exposure for Australian vehicle sellers and buyers who are exposed to
higher investment risks than their international counterparts.

•   Lack of Model Choice

International evidence suggests a strong correlation between cumulative electric vehicle sales and
the number of vehicle models being offered, with the greater number of models available increased
consumer choice which can lead to further increases in sales. While most leading car manufacturers
have one or more models in production development, the availability of models is dependent on
geographic location and market demand.

The question of when most Australians will be able to take up electric vehicles is largely dependent
on when models at a comparable price to current ICE vehicles will be available locally. According to
DriveZero, there are 11 different models of electric vehicles in Australia in 2018 out of over 400
vehicle models in total, and most of these models are luxury brands like BMW and Tesla.

However, globally, car manufacturers have announced increases in the number of models to be
introduced into the global market between now and 2025. This includes smaller manufacturers like
Volvo, Land Rover and Jaguar who are rapidly introducing models in the next few years. Volvo have
stated that all of its models will have an electric vehicle variant option by 2019 (including plug-in
hybrid electric vehicles) and a 50% sales target of battery electric vehicles by 2025.

There is expected to be some increase of model choice in Australia with a potential 22 models by
2020, with a smaller number of these being in the more affordable price range. However, in
comparison, this is still trailing oversea markets.

•   Lack of Charging Infrastructure

Infrastructure is a key factor influencing electric vehicle uptake, along with price and model choice.
As technology is developing and improving, the battery range of electric vehicles is increasing, as is
availability of charging infrastructure.

There are currently 783 dedicated electric vehicle public charging stations in Australia, with Victoria
having the highest number of charging stations (216 with 114 in Melbourne and 102 in regional
Victoria), and SA leading on a per capita basis with 4.4 chargers per 100,000 residents.

Charging infrastructure is available with varying power and plug types, reflecting the variety of
models being driven in Australia. Charging can happen at various speeds, from the slow drip feed of
a normal power socket (taking up to 8 hours) to charging as fast as 10 - 15 minutes.

Perceptions around the availability of public charging infrastructure can be crucial to electric vehicle
uptake. While research shows that most electric vehicle charging will occur at home or in the
workplace, widespread and highly visible public infrastructure is needed to mitigate vehicle driving
range anxiety on the part of prospective purchasers. Research has found that the private sector will
develop charging infrastructure at destinations such as shopping centres as there is an economic

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benefit. However, the areas less enticing for private investment are regional areas. A charging
network along key regional routes could unlock tourism and economic development opportunities.

Tourists and residents are more likely to rely on public charging stations in regional and rural areas.
Those living in rural areas travel further to access services than metropolitan residents, including
education and employment precincts, and do not have as many public transport options. Vehicle
ownership is perceived as more of a necessity for those living in regional Victoria. Similarly, tourists
driving through regional Victoria need easy access to public charging infrastructure along popular
tourist routes. Fast charging is particularly beneficial for long trips.

In a 2018 report, Energeia found there is currently no data available in Australia to show the
proportion of drivers who would not have access to charging and would therefore need to rely on
public charging. Energeia predicts that by 2040, assuming a projected uptake under a moderate
intervention scenario, 30,000 direct current fast chargers would need to be deployed (currently
there are around 70 in Australia).

•   Knowledge / Lack of Driver Experience

Whilst awareness of electric vehicles in Australia is high, with a recent survey finding over 90% of
people were aware, only around 50% would consider buying an electric vehicle. This is partly due to
range anxiety, unfamiliarity with the technology and ease of use (particularly for those who haven’t
driven an electric vehicle before).

The experience of the Victorian Government’s 4-year Electric Vehicle Trial commencing in 2010,
found that local knowledge of electric vehicles was very limited, and drivers had almost no exposure
to the driving experience. The lack of knowledge led to a general reluctance in purchasing an electric
vehicle.

Currently, awareness and electric vehicle promotion in Australia is undertaken by industry and
manufacturers, such as Tesla. Tesla has been actively promoting their electric vehicles in shopping
centres to increase consumers’ awareness and understanding of their vehicles. This promotion, in
combination with awareness raising through the Victorian Electric Vehicle Trial, has increased
awareness in Victoria.

The University of Queensland found that consumers are much more likely to purchase an electric
vehicle once they have tried driving one. These findings indicate that although drivers may be aware
of electric vehicles, they do not perceive them as vehicles to purchase.

4. International Electric Vehicle Market Experience
As noted above, Australia currently has a very low electric vehicle uptake and lags behind other
markets on 2017 sales such as the United States at 1.2% (198,400) (California at 3%), China at 3.3%
(579,000), United Kingdom at 1.7% (47,300), New Zealand at 1.1% (3,500), Sweden at 6.3% (20,300)
and Norway at 39.2% (62,300).

International experience has demonstrated that policy can be critical in encouraging the uptake of
electric vehicles. The higher penetration of electric vehicle sales in international markets is driven by
financial incentives for consumers to lower the currently higher upfront purchase cost thereby

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increasing sales, combined with infrastructure deployment to address issues such as vehicle range
anxiety. These types of incentives are not only of benefit to early adopters, but also give car
manufacturers and other consumers confidence to invest in electric vehicles, thereby building
market volumes, increasing economies of scale and further reducing costs.

In comparison to international jurisdictions which have a high penetration of electric vehicle sales,
policy support for electric vehicles in Australia is limited. Australia does not have an overarching
electric vehicle policy framework, which severely limits the capacity for a coordinated national
approach.

International jurisdiction incentives for electric vehicle uptake include a combination of significant
tax exemptions, infrastructure investment and electric vehicle volume targets. For example, China
offers a government subsidy of around $12,000 per vehicle, has set a target of 5 million electric
vehicles or fuel-cell vehicles by 2020, and $4 billion for charging infrastructure and electric vehicle
promotion. The Netherlands has a policy of 100% electric vehicles by 2025, tax reduction of 10-12%
of net investment, and tax deductions of 36% of investment costs for companies. Norway offers
exemptions and deductions on registration and purchase taxes, no congestion or toll road charges,
50% discount on company car tax, and is planning for all new cars, vans and buses to be zero
emissions by 2025.

Given the greater purchasing power of fleets in comparison to individual buyers, governments
around the world are making significant commitments to electric vehicle adoption that reduce
investment risk for providers and accelerate the market adoption. In July 2014, the UK government
provided funding to all its car fleets to support introduction of over 150 plug-in vehicles for the first
wave of deployments. In 2016, Bloomberg reported that China’s fourfold surge in electric vehicle
sales was probably being driven by government purchases, having accounted for almost half of the
185,000 electric vehicles sold in 2015.

Governments in smaller markets such as Sweden and New Zealand have been or are considering
fleet procurement as a means to aggregate purchase volumes and incentivise electric model
introductions.

5. Commonwealth Government Role to Increase Electric Vehicle uptake
All governments have a role to play via various policy levers that could be designed more favourably
to encourage increasing the electric vehicle uptake.

There are some levers which sit exclusively at a commonwealth level:

    •   Emission Standards
    •   Fuel Economy Labelling
    •   Luxury Car Tax
    •   Fringe Benefit Tax
    •   Commonwealth Fleet Purchasing Policy
    •   National Electric Vehicle Policy Framework

5.1. Emission Standards

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Australia is one of the few remaining developed countries without light vehicle CO2 emission
standards in place, with standards covering over 80 percent of the global automotive market
including many developing nations such as China, Brazil, India and Mexico.

Energeia, in its report for the CEFC in 2018, identified vehicle emissions regulations as a key policy
lever driving electric vehicle uptake in leading overseas jurisdictions.

In 2017, the national average CO2 emissions intensity from new passenger vehicles in Australia was
171.5 grams per kilometre. This is compared with European countries of an average of 118.5 grams
per kilometre (45 percent less).

Since 2016, the Commonwealth Government Ministerial Forum on Vehicle Emissions has been
considering adopting the 105 grams per kilometre standard following the release of a draft
Regulation Impact Statement (RIS) that examined a range of 2025 fleet average efficiency targets –
105, 119 and 135 grams CO2 per kilometre. It is noted that a target of 105 grams per kilometre had
the lowest cost of abatement of the three options considered, and would bring Australia into line
with US targets for 2025, and have a $13.9 billion net benefit (Table E1 in the draft RIS).

Energeia expects that the implementation of such a target would underpin a significant increase in
electric vehicles in Australia driven by car manufacturers more aggressively marketing their electric
vehicles in order to meet their compliance targets at least cost.

In early 2017, the Victorian Government made a submission in response to the draft Regulation
Impact Statement. Whilst the Victorian Government supports the broad direction of the proposed
reforms, the response submission encouraged the Commonwealth to take stronger action than the
proposed 105 grams CO2 / kilometre, phased in by 2025, noting that many other countries are
already committed to more ambitious targets. The submission response also noted that state and
local governments across Australia, including the Victorian Government, are already taking action to
support the transition to electric, low emission and smart vehicles. The Victorian Government
recommended in its response for the Commonwealth to use the current Ministerial Forum Review
process to work with the States and Territories on a strategic national approach to complementary
policies that will support the proposed new vehicle emissions and fuel quality standards.

To date, there has been little progress from the Commonwealth Government since the Victorian
Government submission response in early 2017. This is an important policy lever for the
Commonwealth Government to take action as it is a key enabler to encouraging zero emission
electric vehicle uptake.

5.2. Fuel Consumption Labelling

International research suggests that a majority of prospective consumers are not well informed
about the potential fuel savings from replacing their conventional vehicles with electric vehicles.

Providing information to prospective electric vehicle consumers on total cost of ownership and
vehicle fuel-saving benefits on websites and consumer labels is an important basic step.

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Improving the current Australian fuel consumption labelling system is an action that can be taken by
the Commonwealth Government to raise awareness and educate Australian consumers about the
benefits of electric vehicles.

The current Australian fuel consumption label on new vehicles discloses direct fuel consumption and
CO2 emission values. According to the International Energy Agency, a label combining direct
disclosure and an eye catching comparative rating is the most useful to vehicle purchasers. This
combined fuel economy labelling system has been applied in New Zealand. The fuel economy label
for new vehicles in New Zealand displays their fuel economy values in litres per 100 kilometres
alongside a star rating. The label also displays future financial savings. In addition, the United
Kingdom provides an easy to read comparative bar graph that gives an immediate indication of
where the vehicle’s fuel economy fits within the market.

In addition, several countries, including New Zealand and the United Kingdom, mandate the labelling
of fuel economy on new and / or used vehicles. The current Australian labelling system only
mandates it for new vehicles.

5.3. Luxury Car Tax

At present, the Luxury Car Tax (LCT) in Australia imposes a tax on cars with a GST-inclusive value
above the LCT threshold. The Australian Tax Office stipulates the threshold for 2018 -19 as $66,331
(an increase of over $6,000 since the threshold was set in 2009-10). There is a higher threshold for
fuel efficient cars (those with fuel consumption of 7 litres per 100 kilometres or less), for which
electric vehicles are applicable, of $75,526 (an increase of only $526 since the threshold was set in
2009-10). LCT is then imposed on the amount above the threshold at a rate of 33% and is paid by
those who sell or import luxury cars.

Given that there is a higher upfront purchase cost premium for electric vehicles, due to it being an
emerging technology compared with established hybrid and ICE vehicles, it automatically means the
majority of electric vehicles in the Australian market are classified as luxury vehicles. This is
compounded even further given the low comparative indexing of the LCT threshold cap for fuel
efficient vehicles of only $526 in 9 years versus over $6,000 for the non-fuel efficient vehicles during
the same period. This means the threshold differences between the two categories has eroded by
half over the time from nearly $18,000 in 2009-10 to only around $9,000 in 2018-19.

A Commonwealth Government review of the LCT would be viewed as an enabler to address this
barrier to electric vehicle uptake by taking into account the emergent nature of electric vehicles and
its current price disadvantage compared to hybrid and ICE vehicles as it is a significant cost barrier
for uptake. Options for Commonwealth consideration could include:

    •   Indexing the threshold of fuel efficient vehicles with the same formula as used for non-fuel
        efficient vehicles thereby increasing the threshold at which the tax becomes applicable to
        them.
    •   Exempting zero emission electric vehicles from the LCT until the electric vehicles become
        price competitive with ICE vehicles.
    •   Replacing the LCT with an Emissions Tax for Luxury Vehicles as proposed by ClimateWorks in
        its April 2016 report - The path forward for electric vehicles in Australia. This would see zero

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emission vehicles paying no tax, and those with higher fuel consumption receiving higher tax
        on a sliding scale. This approach would not only encourage consumers to consider electric
        vehicle technology, but also encourage the sale of more efficient vehicles in the market by
        manufacturers.

5.4. Fringe Benefits Tax (FBT)

As noted in ClimateWorks’ April 2016 report, a change in the FBT treatment for electric vehicles is
also an enabler for greater uptake. Given the traditional propensity for Australian employers to offer
the private use of a company-owned vehicle to a large number of employees, FBT represents a
major fleet-related operational cost for most organisations. The most commonly-applied FBT
calculation method is based on a “higher capital cost / lower operating cost” model. However, the
current price premium of electric vehicles, due to it being an emerging technology, disadvantages it
in terms of FBT applied in comparison to the more established ICE vehicles.

Under the Australian Taxation Office rules, an electric vehicle does not qualify as being exempt from
FBT – the employer, or employee, will therefore bear any FBT liability should the vehicle be available
for ‘private use’ and must therefore calculate and pay the FBT liability in full based on the vehicle’s
taxable value.

Modelling by ClimateWorks showed that if there is an FBT-exempt status applied on electric
vehicles, the vehicle cost to business would approach parity and alleviate the current disadvantage
of electric vehicles due to its current upfront costs. The resulting expectation is that with the
removal of the financial impost posed on electric vehicles by FBT, organisations in the Public and
Private sector would be more likely to consider the use of such vehicles in their fleets.

A Commonwealth Government review of the FBT to ensure it does not disadvantage the current
emergent nature of electric vehicles would be seen as a beneficial enabler to address this barrier.
This could include measures such as an exemption for electric vehicles for a period until electric
vehicles achieve price parity with ICE vehicles.

As noted in the ClimateWorks report, arguments in favour of an FBT exemption include:

    •   The marginal contribution of electric vehicles to current FBT revenue streams – given their
        low level of sales, an exemption will have negligible impact on tax revenue.
    •   FBT is a tax liability that currently impacts both the private and fleet buyer, such that an FBT
        exemption for electric vehicles would be broad-based and not just seen as a tax break for
        business.
    •   The clear and positive message this move would send to car manufacturers who may not be
        considering the Australian market as a viable proposition for future electric vehicle models.
    •   The positive long-term impact the move would have on the second-hand market values of
        current electric vehicles already operating in the Australian market, that currently have high
        depreciation rates due to low volumes and therefore uncertainty in residual value.
    •   The positive message this would send to Leasing and Fleet Management companies who
        currently set extremely conservative (and therefore uncompetitive and unrealistic) residual
        values on existing electric vehicles in the Australian market.

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5.5. Commonwealth Fleet Purchasing Policy

As noted in the 2016 ClimateWorks report, various governments around the world are making
significant commitments in relation to adoption of electric vehicles into their fleets. This sends a
strong message of the broader societal benefits and the economic rationale behind support for
emerging technology to reduce investment risk for providers and accelerate market adoption.

In July 2018, as part of its extensive 46-point plan for the transportation market to be all electric by
2040, the United Kingdom government has committed to 25% of its central government car fleet to
be ultra-low emissions by 2022 and all new government fleet car purchases to be ultra-low
emissions by default. It is also committing to 100% of its fleet to be ultra-low emissions by 2030.

Governments in smaller markets such as Sweden and New Zealand are considering fleet
procurement as a means to aggregate purchase volumes and incentivise electric vehicle model
introductions. In December 2016, the New Zealand Government made available an additional fifteen
new electric vehicle models for purchase to its government vehicle fleet to support the uptake. In
contrast, there are no reports of any electric vehicles being deployed into the Commonwealth
Government fleet of over 12,000 vehicles. While the Commonwealth vehicle fleet policy does
recognise environmental considerations, stating that: “as a means of differentiating functionally
similar vehicles, entities should prioritise vehicles with low CO2 emissions”. However, this is a
comparative measure and “low” is not definitively defined in absolute terms or relative to “higher”
emissions.

Energeia’s analysis, in the Clean Energy Finance Corporation’s report, has identified that government
fleet purchase targets are a key policy lever as government fleets represent significant volume. It
found that government bulk buying can be used to negotiate the availability of targeted electric
vehicle models that vehicle manufacturers may not otherwise bring into the market. Based on
interviews with vehicle manufacturers, Energeia concluded that government or private fleet bulk
buying amounting to 200-500 vehicles per year would be sufficient to access overseas right-hand
drive models not yet made available in Australia.

This is an opportunity for the Commonwealth Government to start ‘leading by example’ through
fleet policies designed to promote adoption of electric vehicles.

5.6. National Electric Vehicle Policy Framework (Roadmap)

As noted in the 2016 ClimateWorks report, there is limited coordination of electric vehicle
deployment within Australia. Establishing an overarching roadmap to assist in driving uptake of
electric vehicles to help meet Australia’s emission reduction, energy productivity and energy security
targets can help ensure strategic deployment of electric vehicles to provide maximum benefits to
consumers by facilitating improved market coordination. This will send positive signals to overseas
vehicle manufacturers, who identify market opportunities in the first instance at a country level
basis.

The outcomes resulting from actions taken by the Scottish Government of increased awareness of
electric vehicle technology and benefits, vastly improved coordination across the market that de-
risks investment for all participants, and a portfolio of initiatives conceived and deployed in line with

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the Roadmap clearly demonstrates the need for a strong, coordinated approach at the national
level.

The Victorian Government has tasked its own agency, Infrastructure Victoria, to investigate future
infrastructure needs for zero emission vehicles and automated vehicles under different scenarios
and potential impacts in a 2046 timeframe. Infrastructure Victoria is currently undergoing an
extensive public consultation process and is due to hand down its report in October.

The Commonwealth Government could initiate establishing a national, coordinated approach for the
transition to the electrification of the transport sector by working with the state and territory
governments to maximise the significant benefits to consumers. Options for consideration in a
National roadmap could include:

        •   The establishment of a national electric vehicle uptake target.
        •   The identification of key priorities and actions to drive uptake including infrastructure to
            support the uptake.
        •   Mechanisms to facilitate and consult with industry, consumer and government
            stakeholders.

In conjunction with the forward-looking studies underway by the Victorian Government, a National
roadmap would be a cooperative opportunity to capture and coordinate agreed actions and roles
and responsibilities at a state and national level.

6. Concluding Remarks
The Victorian Government welcomes this Senate Select Inquiry in Electric Vehicles as an important
first step to promote action at a national level and looks forward to positive recommendations
arising from the Inquiry that will encourage Commonwealth action to bring Australia in line with
other international jurisdictions.

This submission demonstrates the significant environmental, health and other benefits that the
electrification of the transport sector will provide and the role that the Commonwealth could play in
more favourable design of its policy levers to assist this emergent technology and by providing
leadership for a national, coordinated approach for this important transition.

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