A point to the pointless?

Roger Partridge
Insights Newsletter
5 May, 2023

This week’s revelation that the Government has spent over $80m in rebates to Tesla owners should cause outrage.

And not simply because subsidising the well-off into new cars fails to pass the sniff test.

The real problem is that the payments have been pointless. Aside, that is, from putting smiles on the faces of new EV owners.

The subsidies were paid as part of the Government’s Clean Car Discount scheme. Introduced in last year’s Budget, the scheme encourages car buyers to purchase EVs to reduce New Zealand’s emissions.

The policy has certainly encouraged the uptake of EVs. So much so that, earlier this week, Transport Minister Michael Wood announced the Government is tweaking the scheme and loaning it an extra $100m to keep it afloat.

There’s just one problem. The policy’s goal is not to subsidise the wealthy into Teslas. It is to help the country meet its net emissions targets.

But, in this, the policy cannot work.

Understanding why requires only a basic grasp of the Emissions Trading Scheme.

Our ETS is one of the world’s most comprehensive. It places a fixed – and reducing – cap on net emissions. Fossil fuels for domestic transport must be offset under the scheme using carbon credits.

As people switch from using petrol/diesel cars to EVs, gross emissions from the transport sector decrease. But this simply frees up carbon credits, facilitating emissions in other sectors of the economy. The EV subsidies simply re-arrange the deck chairs. The ETS cap determines overall net emissions.

All those millions paid to lucky Tesla owners have been spent for nothing.

Worse still, the payments are just a fraction of the $300m already consumed under the Clean Car Discount scheme. Not to mention the cost of the hodgepodge of other initiatives targeting emissions also covered by the ETS. Like requirements that councils consider emissions when approving new housing. Or the millions spent on subsidies for businesses to shift to lower-emitting equipment.

But the wastefulness is symptomatic of an even bigger problem within Government: the failure to apply cost-benefit analysis to spending decisions to discover whether they make sense.

And that is a problem that really matters. A dollar wasted on a pointless policy is a dollar not available to pay teachers’ salaries, fund new pharmaceuticals or rebuild the country’s ailing infrastructure.

If paying $80m to the well-off prompts a call for greater scrutiny of government spending, it may not have been so pointless after all.

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