Delay of fossil fuel car phaseout to 2035 does not create “any substantial benefits” for consumers or UK automotive industry, experts say.
Investors have expressed concern about the “lack of certainty” created by UK Prime Minister Rishi Sunak’s postponement of the petrol and diesel car phaseout, as well as the knock-on effects it could have on electric vehicle (EV) production and the country’s net zero transition.
Last week, Sunak confirmed that a ban on buying petrol and diesel cars had been delayed to 2035 from the 2030 deadline set by previous PM Boris Johnson. During his speech, Sunak said that “at least for now, it should be the consumer that makes that choice, not government forcing you”.
The announcement by the PM was criticised by investors, other politicians and carmakers.
Andy Garraway, Senior Climate Policy Analyst at analytics platform Risilience, told ESG Investor that Sunak’s decision “removes a level of certainty” for investors which poses a “potential jeopardy” for them.
“Don’t pull the rug out from businesses who are already investing in EVs,” he added.
Last year, a report by Centrica Business Solutions found that more than a third of UK businesses were intending to invest in EV charging infrastructure over the next 12 months. It also noted that businesses are set to invest £13.6 billion (US$15.6 billion) this year in purchasing EVs.
“Ambition, commitment and consistency”
Under the UK government’s current plans for Zero Emissions Vehicles (ZEV), from next year car manufacturers must ensure that at least at least 22% of their new car sales and 10% of new vans are zero emissions. This will then rise incrementally each year to 80% for cars and 70% for vans in 2030, and 100% for both by 2035. Vehicle makers that fail to achieve these sales targets will be subject to fines, with a system of proposed flexibilities and credits.
US-based carmaker Ford criticised the government’s delay of the 2030 ban on new petrol and diesel cars.
“This is the biggest industry transformation in over a century and the UK 2030 target is a vital catalyst to accelerate Ford into a cleaner future,” Lisa Brankin, Chair and Managing Director of Ford UK said.
“Our business needs three things from the UK government: ambition, commitment, and consistency,” she added. “A relaxation of 2030 would undermine all three.”
Industry analysts also suggested that Sunak’s decision had “undermined investment certainty” at a time that when British firms are “fighting to attract investors to a relatively small market cut loose from the European Union following Brexit”.
Mike Hawes, Chief Executive of The Society of Motor Manufacturers and Traders (SMMT), told ESG Investor that regulation compelling the sale of EVs is still expected to be published imminently and to take effect in less than 100 days, which he described as the “single most important mechanism” to deliver the UK’s net zero commitment.
“While manufacturers have invested billions to bring a growing choice of models to market, now more than ever consumers must be encouraged to make the switch,” he added.
According to a report in The Times newspaper, government officials met with car manufacturers including BMW, Toyota, Jaguar Land Rover, Ford, and McLaren on Monday to assure them that EV goals would remain and are due to become law by January 2024 at the latest.
Stunting growth and impact
The International Energy Agency’s (IEA) Net Zero Roadmap (NZR) noted that record growth in solar power capacity and EV sales could deliver one-third of the emissions reductions needed between now and 2030.
According to the NZR, EVs and heat pumps drive electrification across the energy system, providing nearly one-fifth of the emissions reductions to 2030 in the net zero emissions scenario. A recent increase in EVs sales has put them on the road to account for two-thirds of new car sales globally by 2030.
A report by global consulting firm Charles River Associates noted that fleet electrification is “central to reducing air pollution at the local level”. It highlighted road transport as being “one of the main sources” of air pollution, with the potential costs to societies reaching up to £5.3 billion by 2035.
“Even the Climate Change Committee and the government’s own independent review on net zero are saying we need these policies,” Garraway said. “It just doesn’t seem to make sense from a perspective of how best to take advantage of the challenges and opportunities that exist as part of the transition.”
Garraway noted that investments have already been made into facilities for car manufacturers to “ramp up production” to a level whereby they can fulfil consumer demand by 2030.
Esin Serin, Policy Fellow at the London School of Economic’s Grantham Research Institute (GRI) on Climate Change and the Environment, said that the PM’s decision to delay the ban on the sale of new petrol and diesel vehicles puts investment in the future of the UK’s automotive industry at risk and “undermines the UK’s ability to capture growth opportunities from the transition to zero emissions transport”.
Despite Sunak’s u-turn, car manufacturer Nissan has stated it will accelerate its electrification plans. The company has committed to solely selling electric vehicles by 2030.
Earlier this month, BMW announced that its Mini plants in both Oxford and Swindon are set to receive a £600 million investment to make them all-electric production sites from 2030, with the company planning to sell EV-only Minis by 2030.
The SMMT recently warned that the end of incentives such as grants for electric cars for private buyers was undermining mass market demand, with the growth in EVs as a share of all new UK car sales slowing to about 16%, with most sales to corporates.
Serin said that Sunak’s u-turn has “created policy uncertainty” that will have long-term impacts on the progress of the UK’s EV supply chains, but that the decision on its own is “unlikely to trigger an overnight shift in well-established investment plans”.
“Government-targeted investment in green industries could potentially be a real growth driver for an economy that is not performing well compared to other industrialised economies,” Garraway said. “From both a political and economic perspective, what’s happening at the moment just doesn’t add up.”
According to Serin, it is hard to see the decision to delay the ban on the sale of new petrol and diesel vehicles delivering “any substantial benefits for either consumers or the UK’s automotive industry”.
Under the new plan unveiled by Sunak there will be a single deadline for all new petrol, diesel, hybrid and plug-in hybrid vehicles of 2035. After that, it will be zero-emission cars only – which currently means battery-powered electric vehicles.
The UK had previously been ahead of the curve in phasing out new fossil-fuel cars and seen as a leader in the introduction of EVs. Serin noted this delay provides an opportunity for other countries to race ahead to develop their own EV industries.
A report from research, data and analysis firm Cornwall Insight and law firm Shoosmiths said that while Sunak’s decision is still in alignment with many European nations, it is “ultimately less ambitious” and could see the UK’s EV transition “lose some urgency in the coming years”, as well as “potentially impacting” demand for EVs.
It also found that EV sales in the UK increased by 31% in the 12 months to July, outstripped by a more than 60% increase in sales of such cars across the 27 EU nations.
Labour has recommitted to keeping the 2030 ban on the sale of new petrol and diesel cars, with Labour’s Shadow Energy Security and Net Zero Secretary Ed Miliband branding Sunak’s decision as an “act of weakness from a desperate, directionless prime minister”.
The green party also described the decision as a “desperate and dangerous u-turn”.
Garraway said that the move leaves investors confused and left wondering whether to prepare for 2030 in case of a Labour victory at next year’s general election or planning for 2035 in the event the Conservative’s get re-elected.
“What businesses are calling out for is clarity and certainty, and one of the best things we’ve had in the UK until recently has been cross-party political consensus on climate change ambition,” he added.
GRI’s Serin said that businesses are very aware of a general election on the horizon and Labour’s pledge to maintain the 2030 deadline means they are likely to take a “wait and see approach” before making any “radical changes” to their investment plans.
Some have suggested the delay is a political move by Sunak, reflected in the polls. Following the announcement, Labour’s lead has fallen from 24 percentage points last week to 16 points.