SMART Solutions
before electric vehicles
Incentives: Is it enough?
Though a wide-ranging market exists in China for electric bicycles and moped vehicles, the opening of an electric passenger vehicle market faces continued difficulties. Many observers cite government incentives as a marker of growth, but policy often goes unreflected in the actual market share of electric vehicles in China.
Despite offering fiscal incentive policies accounting for 10-30% of a vehicle price, China’s market share for such vehicles barely reached the 0.05% mark in 2013.
Between 2012 and 2013, despite the government initiating a subsidisation plan across five major consumer regions in 2010, new sales of electric passenger vehicles saw 0% growth.[2] In the same timeframe, sales of electric passenger cars in Norway, which were already 33 times higher than those in China, nearly doubled.
The table below compares the most commonly applied EV incentives in China and three other markets. The table suggests a correlation between the degree of implementation and the growth rate of EV penetration. It also shows that incentives can be non-financial – the best example being Norway, where BEVs (non plug-in hybrids) are offered free access to taxi and bus lanes. This is the incentive that could have a large impact if applied in China.
The Central Government has stepped up its incentives policies, leading to a surge in the consumption of electric and hybrid vehicles across China in 2014. Artificially encouraging the creation of an entirely new automobile market in a nation which thirty years ago barely had a petroleum automobile market, the Chinese government’s electric vehicle incentives match those of the US, surpass those of Germany and aspire to those of Sweden. Such financial incentives beg the question: why isn’t it enough?
New Energy Reform in China
February 3, 2015
However, country-specific market characteristics play a vital role in consumer acceptance of EVs.
It is argued that China’s mature market will allow for a higher level of consumer acceptance of EVs, in comparison to more mature and established markets like the US. It is also assumed that the environmental crisis facing Chinese cities will lead to a green tech revolution, starting with EVs. Despite these assumptions, Chinese EVs did not gain the foothold that theory suggested that they could.
Environmental reform in China is prepared to facilitate vast subsidies to ease the financial pressure on consumers purchasing EV products, but is this enough?
The 2014 Boom: Over-Incentivising
In 2014, sales of pure electric EVs leapt a remarkable 210%, and plug-in hybrids a staggering 880% from the previous year. After having stagnated for years at a discouraging 0.01%, the plug-in EV market share reached 0.32% of China’s new car sales in 2014.
However, the trouble with creating more incentives packages, particularly of the financial variety, is that growth shown is not growth earned. As seen in the above table, purchase subsidies are an EV incentive greater implemented in the Chinese market, creating misleading growth figures. The top implemented Chinese incentives are all high-level financial incentives for which domestically-produced EVs are eligible, again creating skewed figures.
The sky-high incentives packages have brought great returns to automotive producers which have entered into joint venture partnerships with their Chinese counterparts, but nationalistic policy applications meant that wholly owned foreign enterprises, such as Tesla, were delayed in reaping the rewards of the 2014 boom. China’s EV troubles are not purely fiscal. Although a lower consumer price has clearly led to a dramatic increase in new EV sales, and although market leaders such as Tesla have invested heavily in infrastructural preparations in certain areas, many of the necessary changes have not yet been made.
Purchasing EVs does not necessarily negate one’s carbon footprint. Without a clean energy source, the electricity powering an EV is barely an improvement on a gas-guzzling 1960s diesel truck.
EVs in Emerging Markets: A Challenge to Sustainability
The auto-industry itself is more than just cars and parts, behind each great auto-manufacturing name is an entire army of suppliers, producers and innovators. It will come as no surprise to most that, in order to create a vehicle, first a vast inter-industry (and often international) supply chain needs to be established. For an electric vehicle producer, however, it is not enough to simply create a supply chain. Electric vehicle manufacturers rely on the creation of an entire supporting infrastructure in order to produce.
Particularly in an emerging market, which has only in the last three decades established an automobile market, it would seem such ambitions are out of reasonable reach.
Already a risk-ridden marketplace, China’s automobile industry has seen a slowdown in recent years, attributable to environmental concerns and the subsequent changes made to car ownership and use policies. Rapid urbanisation and a rising standard of living led to an automobile buying boom spanning several decades, contributing to the current environmental crisis facing almost all Chinese urban regions.
As mentioned above, for many advocates of green growth, electric vehicles seem a ready solution to China’s environmental issues, allowing unhealthy consumption of cars to continue, without the unhealthy environmental impact.
However, nearly 90% of China’s energy is derived from non-renewable sources, with 69% represented by coal consumption alone in 2011, a fact which nearly negates the positive localised impact of converting from petroleum to electric powered cars. The country had previously committed to reduce coal consumption to below 65% by 2017, however local and international pressure over the hazardous state of China’s cities led the central government to move this target to 2014. But again, is this enough?
In order to make the EV market environmentally beneficial, policy makers cannot simply invest in creating an entire supporting infrastructure for EV producers to rely on. The infrastructural needs overtake such a meagre endeavour. To fully facilitate the environmental benefits of electric vehicle conversion, local and national governments need to implement a serious set of reforms in regards to clean energy usage.
In short, it is no longer enough to simply provide a place to plug in.
More Than Reform: Renewable Solutions
There is hope; the political ground for reform is already in motion. China is already the world’s largest environmental technology producer; in 2012, it accounted for a full 30% of total global investment in renewable energy sources following the G-20 Summit.
The market will only develop with the development of recharge stations, increased battery life and a rethink of the business model that is independent of government subsidies.
An Jin, Chairman JAC Motors
China’s clean energy marketplace evolved from a scant $5 billion invested in 2005, to become the largest and most diverse in the world.
The Pew Charitable Trusts, Who’s Winning the Clean Energy Race? (2013)
However, converting to renewable energy sources is far more complex than a process of investment. Nuclear crises, such as the 2011 Fukushima Daiichi disaster, have challenged the popularity of nuclear power across the world. Major renewable world players, such as Germany, have all but abandoned nuclear power and observe with discomfort the building of nuclear plants in neighbouring states close to German national borders.
The nuclear disaster in Fukushima which followed in the wake of the 3/11 Tohoku earthquake and tsunami has given rise to one of the most significant public health crises in modern world history, with profound implications for how nuclear energy is perceived.
Kyle Cleveland, The Asia-Pacific Journal (February, 2014)
Similarly, in the Chinese case, boundary disputes have arisen over the country’s planning of large-scale hydropower plants in Yunnan Province. Home to the world’s largest hydropower station, the Three Gorges Dam, China’s hydroelectricity sector plays a major role in the nation’s renewable energy plans. However, continued discomfort over trans-boundary rivers, ecological concerns and overall environmental detriment have stunted much of the sector's development in one of China's wettest provinces, with good reason.
Other renewable energy sources, such as solar and wind power, have seen a leap in popularity.
By the end of 2015, China aims to more than triple its solar installation capacity compared with the 2012 installation figures, from 6.5 GW to 21 GW. By 2020, it aims to more than double this figure once more, to 50 GW. Similarly, in the wind energy sector, China aims to increase installation by nearly 25% by 2015, from 74 GW to 100 GW. Again, this is predicted to double between 2015 and 2020. In 2013, China increased solar deployment to an astonishing 12.1 GW and its wind power installation increased by more than 10 GW, despite an overall decline in clean energy investment during the year.
Despite the apparent positivity of wind and solar development, even such clean renewable energy faces considerable challenges in the Chinese case.
A prime example is the rapid expansion of Chinese wind power system, which provides enough wasted energy annually to account for half of Germany’s entire wind power production. Despite extensive government tariff incentives, wind power projects across China face a far more basic problem than a lack of funding.
China’s wind farms face a lack of market. Located many miles from the energy-hungry urban centres, China’s rural wind farms lack the necessary infrastructure to transfer generated energy to the cities. In a country that developed an entire electricity and energy infrastructure according to the needs of coal power, renewable energy sources continue to suffer in the absence of a reform policy that extends beyond simple investment.
China’s is perhaps the largest yet most inefficient wind power system in the world.
Michael Davidson, East Winds (August, 2013)
Challenging Conclusions
Despite the best intentions, renewable energy does not alway prove to be clean energy, and many challenges pave the road that precedes even the thought of creating an expansive, and actually environmentally sound, electric vehicle market in China. As accepted by many top leaders, China must develop innovative technological solutions in order to consolidate the needs of both the budding EV production industry, and the swelling renewable energy sector. Before charging stations emerge alongside petrol pumps, and before electric vehicles hit the streets in their hundreds of thousands, rapid and radical energy reform is needed.
Furthermore, the hasty development of China’s renewable energy sector in response to local and international pressure has led to the creation of a wholly inefficient and wasteful industry. Such challenges exemplify the need for localised, and focused, renewable energy approaches. Large-scale national projects contribute to China’s position as the world’s leading investor in renewable energy production, but contribute nothing towards China’s ever-increasing energy needs. If rural electrification projects persevere, alongside continued urbanisation, China’s energy needs will increase exponentially, with no available option for sustainable supply.
Similarly, electric vehicle energy solutions need to be localised, based on product innovation and relevant solutions. As opposed to plugging in and tuning out the guilt of a carbon-footprint, consumers need to be aware of the source of their electricity, and the positivity of its generation.
Environmental sustainability is a multifaceted and complex pursuit, requiring far more planning than many environmentalists give credit for. Localised electric vehicle and renewable energy policies can go some way towards synthesising complications that arise throughout the installation process, but there are no available short cuts.
Note: The content of this article does not reflect the official opinion of any unit of the Chinese government. Responsibility for the views expressed in the article lies entirely with the author.
Image credit: electric-cars.net
Written by Abbey Heffer & Sigvald Harryson
