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When market forces aren’t enough

Green Daily
Bloomberg

In climate news today...

Akshat Rathi's Net Zero

It's been a strange year, so you'd be forgiven for missing an odd thing that happened in the U.K. last month. When Prime Minister Boris Johnson, leader of the Conservative Party, banned sales of new internal combustion engine cars from 2030, the decision was supported by the likes of oil giant Royal Dutch Shell Plc and the Confederation of British Industry, a powerful business group. 

How did these champions of market-driven policies and fewer regulations become promoters of such a heavy-handed intervention?

Perhaps the ban is simply something any competent government, regardless of its political bent, should be doing. The U.K. has a legally mandated goal to reach net-zero emissions by 2050. That means quickly cutting emissions from all sectors, including transport. Last year, the government's independent advisor, the Climate Change Committee, recommended the 2030 ban as a way of meeting the U.K.'s climate targets. Maybe Johnson just accepted the wise advice.

But there's likely a deeper reason, too. "As long as established sources work well, are readily available, and are profitable, their substitutes, even those with clearly superior attributes, will advance only slowly," writes Vaclav Smil, one of the world's foremost scholars on the energy transition (and one of Bill Gates's favorite authors).

Electric vehicles (EVs) are superior to their ICE cousins. They're quieter, more powerful and more comfortable. They don't clog up the air with tailpipe emissions, and they are vastly more energy efficient. For many people, such as those with daily long-distance commutes, an EV's lifetime cost including upfront purchase price and fuel spend is already lower than ICE cars. The CCC showed that the U.K. banning ICE car sales 10 years earlier than it previously planned would save Britons more money sooner. 

And, yet, their uptake remains low in most countries around the world. Unfortunately, deciding whether to adopt a new technology often isn't just about its pros and cons. People tend to prefer the devil they know, and they need motivation to overcome the inertia to change.  

In his book Energy and Civilization: A History, Smil shows that throughout the European industrial revolution, draft animals and water mills co-existed with steam engines, even though engines were far superior. In the wood-rich U.S., coal surpassed wood as a fuel source only in the 1880s, whereas the U.K. had made that transition in the 1620s. It took until the 1920s for mechanical power to overtake horses and mules in farming, and the U.S. Department of Agriculture only stopped counting "working animals" in 1963.

In that context, this comment from Shell's U.K. Country Chair Sinead Lynch makes complete sense. "The technology is ready… infrastructure is growing, but the speed of the transition needs to accelerate over the next decade," she wrote in a July LinkedIn post calling on the government to set a 2030 ban. Shell is eager for the shift to happen. It's bought a utility company that can provide renewable energy, acquired a startup that builds EV charging stations and set a target to reach net-zero emissions by 2050. 

Projections show just how much more effective the ban is likely to be than waiting for consumers to come around. BloombergNEF's transport team estimates that, without the ban or other incentives, EVs would make up 42% of U.K.'s car market in 2030 and 56% in 2035. Cars in the U.K. typically last 14 years, according to Society of Motor Manufacturers and Traders, and thus simply relying on market forces would mean the country blows past its climate goal. It's also why 13 other countries have set similar targets, with Norway's ban on new fossil fuel cars coming as soon as 2025.

Put another way, the U.K. has left incentivizing clean transport so late that only a ban on ICE car sales may now provide the push needed. Johnson's move is certainly a heavy-handed intervention, but at least it's not going against the tide of technology and economics. It's pushing the transition to go faster in the direction that market forces were already heading.

Akshat Rathi writes the Net Zero newsletter, which examines the world's race to cut emissions through the lens of business, science, and technology. You can email him with feedback.

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