The Fuse

Bans on Internal Combustion Engines May Backfire

by Matt Piotrowski | November 08, 2017

A number of countries have stated their intention to ban the internal combustion engine (ICE) and shift to all electric vehicles in the next couple of decades. These announcements are encouraging on the surface. Governments are in favor of taking serious measures to reduce petroleum dependence and meet environmental goals. But using strong-armed approaches by barring one type of vehicle from consumers could spur a backlash and ironically increase ICE usage—and in turn delay peak oil demand—over the longer term.

Using strong-armed approaches by barring one type of vehicle from consumers could spur a backlash and ironically increase ICE usage—and in turn delay peak oil demand—over the longer term.

Peter Tertzakian, an energy economist for ARC Energy Institute, argued in recent commentary that even with bans put in place by every country in the world and deep penetration of EVs beyond 2030, the number of ICE vehicles in 2050 will be only slightly lower than today’s number.

BanningICECars

He argues that global petroleum demand will be impacted more by the retirement of ICE cars than the penetration of EVs. Another 950 million ICE vehicles will be on the road by the end of next. “ICE vehicles will continue to accumulate into the fleet in the tens-of-millions per year for at least a couple of decades,” Tertzakian writes. “And the accumulation is amplified by the reluctance of them to leave the fleet.”

“ICE vehicles will continue to accumulate into the fleet in the tens-of-millions per year for at least a couple of decades.”

The average lifespan of a vehicle is 13-17 years and cars last on average more than 200,000 miles. Those numbers could rise given that conventional vehicles are becoming more reliable and scrappage rates are declining. This means ICE vehicles bought today and in the next decade will be around for some time, underpinning oil demand.

Moreover, we don’t know how a ban would affect the behavior of owners of ICE vehicles. They may keep their vehicles in the system longer than if no ban is put in place. “Banning ICE vehicles may yield a scarcity backlash,” Tertzakian writes. “People may want used ICE vehicles, raising their values. Scrappage rates would fall, keeping a larger-than-expected number of them around for longer.”

Assuming every country halts the sale of ICE engines by 2040 is already a stretched assumption. Therefore, it makes better sense to continue to promote policies that lower barriers for consumers to purchase EVs. Consumers will respond to financial incentives, such as direct rebates and tax breaks, to entice them to buy EVs. Moreover, building sufficient infrastructure is also imperative, in order to provide motorists with flexibility and certainty about recharging.

Many economists argue that governments ought to provide people with incentives to make choices that will benefit themselves and society, while giving them the opportunity to choose otherwise, since mandates can distort the marketplace and precipitate a backlash. Consider a ban on ICE vehicles in the U.S. and how many consumers might recoil at having to give up the type of cars that they have driven for decades. Consumers’ personal biases may keep them from scrapping their traditional vehicles: Even with the numerous benefits of EVs, some segments of the population may be slow in adapting to them. EVs are competing with incumbent technology that has been around for about a century, making the turnover of the global fleet a staggering task. A mandate to ban ICE vehicles could make that transition more challenging.

EVs are competing with incumbent technology that has been around for about a century, making the turnover of the global fleet a staggering task.

Current incentives to boost EVs sales have worked during the transition period while battery costs are falling, automakers are rolling out new models, and charging infrastructure is being built. EV sales in Norway, the Netherlands, Sweden, France, the United Kingdom, the U.S., and China have performed well as a result of government programs. On the flip side, EVs make up approximately one percent of total global sales, and sales could take a hit if government incentives are nixed.

While government enticements are important for the future of EVs, sales will continue to rise as they become cheaper and consumers fully understand the cost savings. In an aggressive forecast that is widely cited, Bloomberg New Energy Finance (BNEF) sees EVs reaching more than 50 percent of new sales by 2040. However, in middle of next decade, they will still make up less than 10 percent. Any ICE vehicles purchased during the 2020s may still be on the road in the 2040s even as EVs see a rapid increase in market share. As Terkazian points out, even with an entirely different landscape due to EVs becoming a greater part of the fleet, there is essentially no way to avoid the fact that ICE vehicles will be around for a very long time.

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