'Feebate' - The Government's reverse Robin Hood scheme

Matt Burgess
NZ Herald
27 September, 2021

Who could begrudge giving more than $8,000 of public money to every proud owner of brand-new Tesla Model 3 cars? Just look at their smiles.

Life must seem pretty good for these people. A new car in the garage. An exemption from road user charges. And a cheque for $8,625 from the government under its Clean Car Discount policy, known as 'feebate.'

The policy offers subsidies for imports of new and used EVs, hybrids and other low-emissions vehicles. Last week, the government tabled legislation for the policy. Feebate will launch in April next year.

But hold the canapes and champagne. Consider who is most likely to benefit from the lavish subsidies, and who will pay for them.

It is not low-income households who are lining up to spend $60,000 on a new Tesla. For most people, that is an astronomical sum for a car.

No, those subsidies are more likely to end up going to more affluent households, mostly to people who can afford a new low-emissions vehicle.

A different group will fund the subsidies: buyers of petrol and diesel vehicles, many of them used.

From April, feebate will put a new levy on imports of petrol and diesel vehicles according to their emissions. The levy will add up to $5,175 to the cost of a new imported vehicle, and up to $2,875 for used imports.

The money raised by the levies will pay for the subsidies for low-emissions vehicles.

Petrol and diesel vehicles are more affordable than EVs and hybrids on average. So low-income households will be a higher share of the group which pays for subsidies than the group which receives them.

Although feebate’s levies only apply to imported vehicles when they cross the border, the levies will raise prices in secondhand car markets, too. Private sales will not save households from feebate’s costs.

On its face, feebate is egregiously regressive, a reverse Robin Hood policy that takes from the poor and gives to the rich.

It is not clear the government has properly considered the equity effects of its policy.

In their advice to Ministers, officials make only passing references to distribution. Officials accept feebate will be regressive, but imply the policy will not affect secondhand car prices. It will.

Feebate will also keep cars on the road for longer, further ageing our light vehicle fleet and possibly raising transport emissions.

The government’s main selling point for feebate is fuel savings. Driving an EV can save owners up to $7,000 in fuel, it says.

But fuel is only about a third of the cost of owning a petrol or diesel car. Depreciation, repairs and maintenance cost more. Unfortunately, households do not get to ignore two-thirds of the costs of car ownership. All things considered, EVs cost more than conventional vehicles, not less.

Besides, what good are fuel savings for someone who cannot afford an EV in the first place?

Feebate will affect most of the light vehicles coming into the country. Based on data from 2020, more than half (53%) of the 220,000 new and used vehicles imported each year are likely to pay a levy. Only 18% of imports will receive a subsidy. The rest will neither be taxed nor subsidised by feebate.

Cars which emit more than 191 grams of carbon dioxide per kilometre will pay a tax. Cars which emit less than 147 grams receive a subsidy. On average, taxed vehicles will pay around $2,500. Subsidies will average $2,000 per vehicle. Every new emissions-free EV will attract the maximum $8,625 payment.

We estimate feebate will raise around three times more revenue ($300 million per year) than it pays in subsidies ($80 million). Overall, feebate is a new tax on motorists.

So, feebate is regressive and will add thousands of dollars to the cost of new and used vehicles. But at least feebate will deliver environmental benefits. At least it will help in the fight against climate change. Right?

Wrong. Officials estimate feebate will lower transport emissions by 1.6 million tonnes by 2050. Transport emissions between now and 2050 are expected to exceed 400 million tonnes, according to the Climate Change Commission. So feebate will lower emissions from transport by 0.4%.

New Zealand emits about 1.6 million tonnes of greenhouse gases each week.

Worse, feebate will not reduce total emissions at all.

The government has already capped emissions after its reforms of the Emissions Trading Scheme (“ETS”) in 2020. Transport is in the cap. So feebate cannot change overall emissions.

Instead, the policy will merely free up ETS emissions units for somebody else to use. Which means low-income households will not just be subsidising cars they might never afford. They will be subsidising coal imports and oil and gas production.

The bottom line is that gifting thousands of dollars to every buyer of a new Tesla Model 3 and other cars like it will not contribute any progress towards emissions targets.

The government does not need to do feebate. It already has the policies in place to deliver its emissions targets. That was an important finding from the Climate Change Commission earlier this year.

With the best intent, the government should have no difficulty ruling out regressive, expensive and ineffective policies like feebate.

The government will not achieve its ambitious targets by spending its political capital on policies which do not cut emissions. Feebate has already aroused significant public opposition. Protests against the "ute tax" earlier this year were all about feebate.

After declaring a climate emergency, the government seems oddly disinterested in whether its emissions policies work. It is almost as if the government sees climate change not as a problem to be solved but as leverage to do other things.

With a few shining exceptions, the government’s words on climate change bear little relation to its actions. It is not clear how most of the government’s climate change policies will reduce emissions. Some might see that as a problem.

The legendary Robin Hood was an outlaw fighting the government to help the poor.

In contrast, the feebate scheme is a perfectly legal way for the government to spoil the rich.

But it is morally obscene to make the poor pay for it.

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