now loading...
Wealth Asia Connect Middle East Treasury & Capital Markets Europe ESG Forum TechTalk
Regulations / Viewpoint
China needs to step on EV growth gas pedal
Despite the rising share of electric vehicle sales in China and elsewhere, it would be a mistake to leave matters to the market. Without more ambitious policy changes, the transition to emissions-free transportation will still be too slow to keep climate change in check
Chris Busch 12 Mar 2023

As a maturing, cost-effective technology, electric vehicles (EVs) are a key part of the solution to planet-heating emissions. When paired with clean electricity, they offer a route to climate-neutral ground transportation. And fortunately, electricity is getting cleaner with each passing year, owing to the rapidly falling costs of solar and wind power.

Global EV sales boomed last year, rising to 13% of all new vehicles sold, up from 8.6% in 2021. Much of this growth came from China, where EV sales doubled in 2022, to 6.9 million (26% of all new car sales), and showed no signs of stopping. China’s Association of Automobile Manufacturers forecasts that the country’s EV sales will grow by 35% in 2023, reaching nine million (33% of total new vehicle sales).

But not even this rate of growth will be enough to uphold China’s or the world’s climate commitments. To bring transportation emissions in line with scientific targets for a safe climate, China’s leaders will need to accelerate the pace even more.

According to the International Council for Clean Transportation, a key element in China’s success so far is its new energy vehicle (NEV) sales standard, a little-known policy that sets sales targets for domestic auto manufacturers. These targets will ramp up over time, allowing for flexible compliance through carbon-credit trading. If a manufacturer sells more than the industry average target, they receive NEV credits that can be sold to a manufacturer that sells less. Since the policy went into effect in 2019, the benchmark has risen from 10% of all sales that year to 18% in 2023. But since sales already far exceeded that threshold last year, China’s Ministry of Industry and Information Technology can – and must – set future targets much higher.

Specifically, Chinese transportation officials should plan for a NEV standard that achieves 75% of all sales by 2030. When paired with other feasible high-ambition measures for heavy-duty commercial vehicles, this would cut auto emissions 70% below 2020 levels by 2050. In contrast, vehicle emissions are forecasted to rise by 63% by mid-century without additional action.

Chinese authorities have no good reason to hold back. After all, getting more clean cars on the road would also save tens of thousands of lives annually by reducing air pollution. Ambitious NEV standards are also essential to align China’s transportation sector with its broader net-zero emissions commitment.

The International Energy Agency’s modelling shows that global EV adoption must surpass 60% of all cars by 2030 to achieve net-zero emissions globally by 2050. In practice, this means that the largest, most advanced car markets must exceed the global average, because many other countries will not have the means to achieve as rapid a transition. A Chinese decision to raise its NEV standard to 75% by 2030 thus would be highly consequential.

A faster transition is both feasible and affordable. Many EV options are already available in major markets, and new ones are steadily being added to manufacturers’ product lines. Growing investment shows that automakers are serious about accelerating the shift to EVs. Prices will keep falling with improvements in battery technology and economies of scale. EVs in China are already cheaper than internal combustion cars over the life of the vehicle (after accounting for the fuel and maintenance savings that EVs offer). These developments have pushed EV sales past a tipping point in China and 18 other countries, including the United States. Major markets have entered a phase of mass EV adoption in which preferences will shift surprisingly quickly.

Still, it would be a mistake to leave matters to the invisible hand of the market. Without policy changes, the transition will be slower than we need, given the lifespan of a typical car and the decades’ worth of investment that has gone into fossil fuel infrastructure. While around 25 million new passenger cars are sold in China annually, more than 200 million vehicles are already on the road, and most will be driven for years to come.

To overcome this inertia, ambitious NEV sales standards must be embedded within a broader set of strategic EV policies. For example, scaling up mass EV adoption will require measures to spur and coordinate investment in charging infrastructure. And to capture the full climate and public health benefits of EVs, greater EV deployment must be paired with an accelerated transition to clean electricity.

The remarkable EV sales growth in recent years is promising for the global fight against climate change. But transportation officials must continue to move quickly to adapt policies to global needs. While too little ambition risks unsustainable climate damage, a swift transition is essential to achieve a safe climate and cleaner air. There is no time for delay. China’s leaders must put the pedal to the metal.

Chris Busch is the director of transportation and senior economist at Energy Innovation.

Copyright: Project Syndicate

Conversation
Alex Escucha (moderator)
Alex Escucha (moderator)
president
Institute for Economic Development and Econometric Analysis (IDEA)
- JOINED THE EVENT -
18th Philippine Summit
Bouncing back better
View Highlights
Conversation
Taie Wang
Taie Wang
chief business development officer
Hang Seng Indexes Company
- JOINED THE EVENT -
Webinar
Developing strategies supporting sustainable investing
View Highlights