THE WARSAW INSTITUTE REVIEW

Date: 16 July 2018    Author: Marcin Kraśniewski

The Role of Electromobility in Modern Economies

Electromobility is a new technology for land transport designed to revolutionize the transport model that has been shaped over decades. A system of support for the development of new technology is now visible in the legislation of many countries.

Undoubtedly, Norway has been at the forefront of the development of electromobility since the mid-1990s. The Norwegian support system was based on the assumption that the electrification of passenger cars was a sine qua non for the reduction of greenhouse gas emissions on a large scale.[1] An additional impulse for the activities undertaken was the pursuit of Norway’s economic growth through the creation of a domestic electric vehicle industry.[2] The most important elements of its system are: no indirect purchase tax (high on combustion vehicles); 25% VAT exemption on purchase and leasing; low annual circulation tax; exemption on toll roads, river crossings, ferries, and municipal car parks.

Legislative actions for the development of electromobility are also being taken in Poland. Unlike Norway, the Polish system of support for electromobility is still at an early stage, beginning with the Act on Electromobility and Alternative Fuels of January 11, 2018. The Act is intended to be the first regulation which will comprehensively define the principles governing the alternative fuels market and the system of support for the development of electromobility in Poland.

The strong interest of countries in this technology, which is a novelty to the economy and unknown to the law, raises questions regarding the reasons behind such extensive worldwide interest in electromobility. This paper will outline the importance of electromobility and the barriers to its development, and go on to highlight the role of the state and the law in the innovations in the area of electromobility.

Importance of electromobility

• Geopolitical aspect

The current demand for oil makes it a commodity of strategic political and geopolitical importance. As a result, a significant proportion of the world’s countries consuming fossil fuels do not have adequate resources of their own and are forced to obtain them from other regions of the world. The transport of energy-producing raw materials creates a situation of dependence on their supply inherently related to the efficiency of the means of transportation and the circumstances surrounding their transport.[3] The diversification of energy supplies and the reduction of energy dependency represent some of the priorities of each country in the world. The current transport model has a significant impact on the geopolitical system in the modern world, which results in oil-producing countries gaining important international significance. As a consequence, countries such as the United States of America, Russia, the Gulf countries and the North Sea Region countries today play a significant role in the supply of oil.

The development of electromobility is, therefore, a fundamental geopolitical issue. The increase in the number of electric cars will result in a decrease in the geopolitical significance of the countries extracting crude oil in favor of those extracting metals used for the construction of electric vehicles, in particular: lithium, cobalt, and graphite. Metals are the primary raw material used in the production of batteries; specifically lithium-ion batteries. The electrification of transport will undoubtedly contribute to an increase in demand for these metals – according to statistical data, after 2050, this increase will amount to 2898% (lithium), 1928% (cobalt), and 524% (graphite). The biggest producers, and thus the biggest beneficiaries of electromobility, are Australia, Chile, Argentina (lithium); China, Canada, Congo (cobalt); China, India, Brazil (graphite).[4]

The development of electromobility will result in geopolitical changes by reducing the significance of the states producing crude oil for the benefit of countries extracting metals. The shrinking oil supply chain will make other geographical areas play a more significant role in the future. It should be stressed at this point that the amount of extracted metals and significant technological progress for electro-mobility are bringing China to the forefront.

• Economic and social aspects

The automotive industry is one of the most challenging industries in today’s economy. To justify the above statement, it is necessary to refer, for instance, to takeovers and mergers that took place during the economic crisis between 2007 and 2009.[5] There are huge car companies on the market, created as a result of takeovers and mergers, which resulted in a reduction in production costs and an increase in the ability to acquire new technologies. The largest automotive companies, according to their market share in dollars, include:[6] Toyota (99.8; Japan), Volkswagen Group (70.1; Germany), Honda (52.6; Japan), BMW (42.7; Germany), Daimler (42.3; Germany), Ford (40.4; United States of America), Hyundai (37.7; South Korea), Nissan (37.1; Japan), General Motors (32.0; United States of America), Kia (23.6; South Korea).

Increased interest in electric cars and their distribution has an impact on the automotive industry. Manufacturers of combustion vehicles will face a significant risk of revenue decline, and as a consequence, individual countries will be exposed to declines in budgeted revenues. The beneficiaries of electromobility development will be entities producing batteries, lithium-ion batteries and electric cars on their own. As a result, there will be a notable shift in the value chain between national economies.[7] New players such as Tesla (electric car manufacturer) and Panasonic (lithium-ion battery manufacturer) should, therefore, appear on the market. The transformation of the transport system will mainly affect the competitiveness of the European economies, which are currently the leaders in the production of combustion engines, but in the case of batteries for electric cars are inferior to those from other continents.

These economic changes will also have a social impact. In the first place, these will involve changes in the structure of employment and an increase in unemployment. Such changes will indicate an increased demand on the labor market for qualified engineers who keep up with the latest technologies. The increase in unemployment will result from the reduction in jobs, since the construction of an electric car requires half as many parts as an internal combustion engine car, and therefore requires much less work overall. Furthermore, it should be noted that the development of electromobility requires a change in the awareness of the users themselves. Reliable and comprehensive information on all modes of transport, their combination possibilities and their environmental impact should be made publicly available. This, therefore, requires an adaptation of the legal system, in particular regarding documents and access to relevant information.

• Environmental aspect

One of the pillars of the European Union’s socio-economic policy is sustainable development directed towards a low-carbon economy.[8] The Treaty on the Functioning of the European Union stipulates that environmental protection conditions shall be integrated into policy formulation and implementation as well as into the Union’s other initiatives.[9] The focus on the environmental aspect in the concept of sustainable development is aimed at reducing the negative effects of the dynamic development of transport. Unsustainable modes of transport manifest themselves in the rapid growth of motor vehicles as well as in the uncontrolled and irreversible use of natural resources (in particular oil). This situation destroys global and local ecosystems and poses a risk to human well-being and health.[10]

The adoption of the concept of sustainable development in the European Union’s policies has led to the formation of an increasing number of legal instruments enforcing the integration of environmental aspects into its transport policy. In order to achieve the EU’s policy objective of sustainable development, it is also necessary to take legal action against the transport sector, accounting for a quarter of greenhouse gas emissions in Europe.[11] Vehicle emission standards and the development of alternative fuels are of particular importance for the development of the transport system and the protection of the environment.

The EU EURO standards play an essential role in the production of combustion vehicles and environmental protection, and should be met by combustion-engine vehicles – as they define the level of basic (side) components generated during the combustion process. They are, therefore, a key determinant of exhaust emission standards and, at the same time, an important constraint for car manufacturers. The history of the EURO standards dates back to 1993 when Directive 91/441/EC defined the EURO 1 standards[12]. Over the years, the EURO norms have undergone significant changes to protect the environment, while at the same time forcing the production of cars with new generation engines, i.e. meeting EU standards. However, the practice of applying the EURO norms indicates that the enforcement of the adopted standards is ineffective. According to a study conducted by the European Federation for Transport and Environment, new diesel cars sold in Europe have on average five times the emission limit permitted by the EURO 6 standard.[13] Another step in reducing exhaust emissions from internal combustion vehicles will be the adoption of the EURO 7 standard announced by the European Commission, which envisages a significantly lower limit on CO2 emissions and a strengthening of the system for controlling vehicle emissions.[14] Adoption of the new EURO standard will result in the reduction of the level of emissions into the atmosphere and, at the same time, an increase in the costs of production of combustion engines.

The European Union’s transport policy also emphasizes the development of alternative fuel infrastructure as also being part of the concept of sustainable development. Alternative fuels as such should be understood as fuels or energy sources acting, at least in part, as a substitute for crude oil energy sources used in transport vehicles and with the potential to contribute to the de-carbonization of transport and the improvement of the environmental performance of the transport sector.[15] Directive 2014/94/EU requires the EU member states to develop alternative fuel infrastructure, and to ensure the development of recharging points for electric vehicles, natural gas CNG or LNG refueling points and LNG bunkering points. The Directive also obliges the EU member states to introduce particular technical specifications, harmonized rules for charging electric vehicles and rules on consumer information.

The above Directive corresponds in its entirety with the provisions of the 2011 White Paper on Transport,[16] which addresses the issue of environmentally friendly transport at the EU level. The White Paper stressed the importance of the transport sector for the economy and society but also emphasized the challenges associated with the use of natural resources. The document also proposed a 60% reduction in greenhouse gas emissions from transport by 2050 compared to 1990 levels. Following the analysis of both EU documents, it is necessary to point out that the development of alternative fuels infrastructure and their increased share in the transport market will ensure compliance with the principle of sustainable development and reduce the current societal and economic threats.

The environmental aspect renders electromobility an important economic phenomenon. The development of electromobility is in line with the concept of sustainable development and is also part of, and to a large extent a consequence of, the actions taken by the European Union in the pro-environmental shaping of its transport model. The carbon efficiency requirements of the EU regulations will be reflected in an increase in the price of combustion vehicles, and will thus increase the competitiveness of electric vehicles with regard to their compliance with environmental requirements.

Barriers to the development of electromobility

Electromobility continues to be a technological niche. It should be pointed out, for example, that the number of electric cars sold in Europe in 2016 represents 0.5% of all passenger cars. China accounts for almost 40% of the market for newly-sold electric cars, but even in China, the percentage of electric cars sold is 1.5%.[17] A similar situation prevails in the Polish market where the number of registered electric buses is 250, and electric cars – 1200.

The main obstacles to the development of electromobility can be divided into two main groups: technological barriers and economic barriers.

Technological barriers include the infrastructure of vehicle charging stations (there are too few charging stations for electric vehicles, the number of which has significantly increased in recent years) and battery charging time as well as capacity (charging time is too long and a battery weighs too much; electric vehicle users expect a reasonable charging time, i.e. 15–30 minutes). In addition, the average distance that an electric car can cover is 100–150 km on a single battery charge, and driving a car over this distance requires 15kWh of electricity to recharge the battery – while keeping in mind that the average monthly electricity consumption of a household is about 300 kWh. This requires improving the performance of electric cars in terms of battery charging time and the distance they can cover without charging.

The primary economic barrier to the development of electromobility is the cost of an electric car. The price of an electric car is still higher than the price of a combustion car, which is mainly due to the high cost of batteries.[18] The cost of batteries amounts to between a third and a half of the price of the car. In terms of the economy, electric cars are more advantageous when it comes to their use, as electricity prices and simple car construction result in lower operating costs.

The above-mentioned barriers to the development of electromobility are entirely consistent with the opinions of electric car users and market operators. When asked about the most significant barriers for electric cars, respondents indicated: a lack of a widely available network of fast charging stations (this was indicated as the principal barrier by both users and entrepreneurs); limited distance; high car price; lack of possibility to charge the car at home/at work; lack of tax incentives and program subsidies.[19]

Role of the state and the rule of law in the development of electromobility

Having analyzed the main barriers to the development of electromobility, it should be recognized that legislation is not a sine qua non. Rather, the most important aspects in this regard include the technological parameters of the vehicles, their production costs, the degree of development of the infrastructure of the vehicle charging stations, the charging time and the price to be paid by consumers for the purchase of the vehicle and for the energy to be used to charge it. Electromobility is real and needs to be addressed accordingly. The law should play a servant role in its technological development and should aim to change individual parameters for electromobility such as its price, mileage, range, etc. On the other hand, the member state’s financial and legal support should cover not only the infrastructure market but also the electric car market, so that the public can be encouraged to buy new technology cars, and companies can increase their investments in this sector.

References:

Aber J., Electric Bus Analysis for New York City Transit, (Columbia University, 2016).

Bu Ch., The Norwegian EV Success, (Norwegian EV Association, 2017).

European Federation for Transport and Environment, Don’t Breathe Here. Tackling Air Pollution From Vehicles, (Brussels 2015).

Fearnley N., Pfaffenbichler P., Figenbaum E., Jellinek R., E-Vehicle Policies And Incentives – Assessment And Recommendations, (TØI report, 1421/2015).

Kamiński J., Janusz P., Rola Magazynowania W Zapewnieniu Ciągłości Dostaw Gazu Ziemnego – Kluczowe Wyzwania, in M. Pawełczyk, ed., Współczesne Problemy Bezpieczeństwa Energetycznego – Sektor Gazowy I Energetyczny, (Warsaw 2018).

Norwegian Centre for Transport Research (Institute of Transport Economics), Society’s Costs And Benefits Of Electric Vehicle Incentives, (Oslo: COMPETT Conference, 2015).

OECD, Guidelines Towards Environmentally Sustainable Transport, (OECD, 2002).

Sime A.G., Sivertsen E., An Empirical Analysis Of Toll Road Exemption As A Determinant For Electric Vehicle Adoption: Norway As A Case Study2010–2015, (Bergen 2017).

Tietge U., Mock P., Lutsey N., Campestrini A., Comparison Of Leading Electric Vehicle Policy And Deployment In Europe (International Council On Clean Transportation, 2016).

Wajer J., Rajczyk K., Którym Pasem Zamierzamy Jechać? Samochody Elektryczne, (Warszawa 2018).

Zeniewski P., Electric Vehicle Policy In Norway, (Edinburgh 2017).

 

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