Xin Guobin, the vice minister of industry and information technology [MIIT], said the government is working with other regulators on a timetable to end production and sales [of fossil-fuel powered vehicles]. The move will have a profound impact on the environment and growth of China’s auto industry, Xin said at an auto forum in Tianjin on Saturday.
This is, no doubt, a major announcement. China is the world's largest market for light-duty vehicles (LDVs; cars and light trucks), so the impact will be greater than that of earlier statements from governments in the UK and France. On the other hand, there's a long road between articulating goals and putting rubber on the road. We can imagine the ways a nascent ban will complicate existing policy issues, and raise new ones. Here, I sketch and phrase a number of these as questions.
There's no doubt that the market dominance of the ICE will end. The relatively low cost of electricity, the higher efficiency of EVs, the continually-dropping cost of batteries, and improvement in other technologies1, will in the long run combine to overcome the obstacles facing alternative powertrains.
Put another way: ICEVs would someday all but disappear, even in the absence of a ban.
How much does China's government want to accelerate this timeline? This is a key indicator of the level of importance assigned to this goal. If we imagine ICEV market share gradually declining to single digits by, say, 2045, then a ban by 2040 does little. The ban will not come about overnight, but at the end of a phase-out period for ICEVs.
LDVs have a useful life of about 10–15 years.2 What will happen to the many LDVs on the road on the day the ban becomes complete? Will they be allowed to continue in use? For how long? These questions point to a wedge between the end date of ICEVs sales and the end of their energy demand and GHG and pollution emissions. We can imagine a scenario where Chinese roads ca. 2060 resemble those of Havana, Cuba, with carefully-preserved, decades-old gasoline cars still in use.
(How) Will the timing align with China's goals within the UN FCCC? Decarbonizing transport will be one of the most costly and difficult aspects of mitigating climate change. Does a ban fit within a complete strategy to achieve an emissions trajectory for stabilization at the targeted level of <2°C?
Who & why?
China's central government had previously announced goal of 8, 10 and 12% EVs in sales in upcoming years, with a credit trading system for firms unable to meet the target. These targets were recently delayed/watered down, after lobbying from both foreign and domestic automakers.
This episode raises all the familiar issues from existing and past efforts at LDV regulation, including the U.S. CAFE standards, biofuel mandates, and tailpipe emissions regulation.
How will the Chinese government determine when, and at what cost, automakers can replace ICEVs in their offerings? Firms face strong incentives to make this transition appear costly and difficult. Even if they see the policy as inevitable, this steering of knowledge used in policymaking can buy them time to find ways to comply.
What opportunities for competitive advantage will firms and countries see in the timing and terms of the ban?
- If China's domestic and JV automakers make a serious push to phase out ICEs on an aggressive timeline, they could develop capacities or technologies that position them well to compete internationally.
- On the other hand, in the near term, foreign manufacturers seem to have the technology advantage, and might benefit from a phase-out that begins in the next few years; unless special consideration is given to domestics.
Cities with vehicle license plate quotas are currently home to more than 100 million Chinese. In some of these systems, EV buyers are exempt from the need to participate in a license plate lottery or auction; an huge implict subsidy of up to USD 15,000, on top of the explicit ones. How would these exemptions—and the quotas themselves—change in the run-up to a ban? With what effects?
What & how?
What's being banned? Cynically, an EV is a “fossil-fuel powered vehicle” if the electricity powering it is generated by burning coal—as may largely be the case in China for many years. A ban on “combustion engine vehicles”—as I've taken the article to mean—is entirely different. The Bloomberg article doesn't contain a direct quote from the vice minister.
How to create policy certainty? It's very easy—as the recent EV quota example shows—to push back dates; a lesson that's also familiar to followers of carbon pricing. A ban can be an effective policy instrument if it follows a timeline that removes, rather than creates, risk for firms that act early to phase out the banned technology; yet there are many handy reasons to delay.
Aside from grandfathering of ‘pure’ ICEVs, what exemptions might exist? The UK announcement was quickly given the caveat that range-extended EVs—like the Chevy Volt—would meet the terms of that ban. Hence the word ‘pure’: internal combustion engines would continue to exist, so long as they weren't the sole component in a drivetrain. Will China offer a similar exemption to cover long-distance driving?
What of trucks and heavy-duty vehicles? The stakeholders and impacts in this market have significant differences and similarities to the LDV market. Road freight vehicles are still a larger component of energy demand and source of GHG and air pollution emissions in China. Policy targeting only ICEVs would leave a huge gap.