Cebr Analysis of 2030 Ban

1  Centre for Economics and Business Research Economic impacts of the 2030 – 2040 bans on the sale of fossil fuel vehicles A Cebr report Funded by FairFuelUK, the Alliance of British Drivers, and the Motorcycle Action Group October 2022

2  Centre for Economics and Business Research Disclaimer Whilst every effort has been made to ensure the accuracy of the material in this document, neither Centre for Economics and Business Research Ltd nor the report’s authors will be liable for any loss or damages incurred through the use of this report. Authorship and acknowledgements This proposal has been produced by Cebr, an independent economics and business research consultancy established in 1992. London, October 2022

3  Centre for Economics and Business Research Contents 1. Key Points .............................................................................................................. 4 2. Introduction........................................................................................................... 6 3. The Analytical Approach......................................................................................... 9 4. Methodology ....................................................................................................... 11 4.1. Baseline and Alternative scenarios 11 4.2. The UK’s vehicle fleet in 2022 12 4.3. Future development of the UK’s vehicle fleet 12 4.4. Charging and refuelling times 15 4.5. Driving and production emissions 17 5. Results ................................................................................................................. 19 5.1. Core results 19 Monetised Impacts ................................................................................................................ 19 Monetised Benefits ................................................................................................................ 19 Monetised Costs .................................................................................................................... 21 5.2. Household impacts 27 5.3. Van user impacts 27 5.4. Sensitivity tests 28 Alternative carbon prices ......................................................................................................... 28 TAG fuel consumption projections in both scenarios .............................................................. 29 Low carbon fuel (biofuel) adoption.......................................................................................... 30 Energy price shocks.................................................................................................................. 31 6. Non-monetised impacts ....................................................................................... 36 7. Conclusion.................................................................................................................. 40

4  Centre for Economics and Business Research 1. Key Points • This is a study that uses official government methodology to compare the projected environmental benefits from the proposed bans on the sale of fossil fuel powered vehicles with the likely costs. • The study shows that the environmental benefits from the proposed bans are dwarfed by the additional costs. • The study assesses economic impacts over the period 2022 until 2050. 2022 prices are used as a common baseline and all costs and benefits are discounted to a 2022 base year (with selected values also presented on an annual/undiscounted basis). • Using the government’s values for reduced carbon emissions, the value of the environmental benefits add-up to £76 billion. In contrast, the assessed costs add up to £400 billion. These costs are FIVE times the benefits; even when using the government’s own valuations of the environmental benefits. • The study shows that the major costs from the proposed ban are likely to be additional costs of: I. New vehicle purchases of £188 billion (in extra costs). II. Increased time lost due to waiting whilst recharging EVs, valued at £47 billion. III. Infrastructure for electricity generation and additional charging points of £99 billion. Even the overall environmental benefits are rather lower than might be assumed since approximately 50% of any reductions in emissions from usage are likely to be offset by increased emissions in vehicle production. Furthermore, this analysis does not take account of the likely increased emissions and other social costs from the massive increase in mining likely to be required by EVs. These extra emissions will be transnational in nature, relating to the processing of raw materials and associated shipments across the globe. Finally, there is likely to be a loss of tax revenue of £5.8 billion per annum (£2.7 billion when discounted to 2022 base year terms), on average, in the scenario of a ban in comparison to a no-ban scenario, as fuel duty and VAT dwindle away. The annual revenue loss is £198 million in 2030 (£150 million when discounted to 2022 base year terms), rising to about £16 billion in 2050 (£6 billion when discounted). We assess that replacing this revenue, for example, would require increasing the rate of VAT or the basic income by an increasing amount throughout the period of analysis, peaking at an increase of 0.8% for VAT or 1.1% for the basic rate of income tax in 2050. From the perspective of the average household, these additional costs over the period 2022 to 2050 amount to a total of £14,700 per household in 2022 terms. Using undiscounted values, this is an impact of £27,400 per household, or just under £1,000 per household per year from 2022 until 2050. The study also looks at how sensitive the results are to a range of different assumptions. For instance:

5  Centre for Economics and Business Research • Using a ‘social cost’ valuation of the benefits as proposed in the Stern Report rather than the government’s current valuation approach reduces the assessed NPV by £26 billion. • Assuming that investment could alternatively be made in generating widespread usage of low carbon fuels to replace existing fuels reduces the assessed NPV by £15 billion. It is conventional in policy analysis that where a policy appears to have assessed costs well in excess of the benefits that the policy at the very least needs to be scrutinised extremely closely to see if, on balance, it still makes sense. We strongly recommend that HMG commissions an independent analysis of the costs and benefits of the proposed policy and compare this to other viable options to see whether it should proceed with the proposed bans.

6  Centre for Economics and Business Research 2. Introduction This report examines the costs and benefits associated with the forthcoming bans on internal combustion engine vehicles. This decision represents a major regulatory change as well as implicitly dedicating the government to undertaking high levels of investment to facilitate those changes. One of the main ways the government hopes to achieve Net Zero by 2050 is to decarbonise the transport sector. Transport is now the highest emitting sector of the UK economy, accounting for 22% of total greenhouse gas (GHG) emissions, 113 MtCO2e in 2019. This compares to 21% coming from energy supply, 18% from business, 16% from the residential sector and 11% from agriculture. 1 In particular, cars comprise 13% of UK GHG emissions (and approximately 0.2% of global emissions), vans 4% and HGVs 4%. The level of GHG emissions deriving from the transport sector has remained fairly consistent over time, with improvements in fuel efficiency offset by increased travel. Meanwhile, other major emitters like energy production have decarbonised significantly. A central part of the government’s plans to decarbonise transport involves ending the sale of new: • Petrol and diesel Internal Combustion Engine (ICE) cars, motorbikes, and vans from 2030; • Hybrid Electric Vehicle (HEV) and Plug-in Hybrid Electric Vehicle (PHEV) cars motorbikes, and vans from 2035; • And, subject to consultation, ICE, HEV, and PHEV heavy goods vehicles (HGVs) over 26 tonnes from 2040. As a result, it is expected that the number of EVs, and especially pure EVs (or Battery Electric Vehicles, BEVs) – powered wholly by a battery which is charged from electricity – will in response rise substantially. For instance, the Climate Change Committee’s (CCC)2 Sixth Carbon Budget Balanced Pathway projects that the number of pure EVs on the road could grow to 14 – 18m by 2030 from only half a million in 2021. Furthermore, the CCC envisions a rapid uptake of EVs to 23.2 million by 2032 (55% of all vehicles). FairFuel UK, the Alliance of British Drivers, and the Motorcycle Action Group would like to understand the economic impacts of the Government’s plans. In particular, they would like to ascertain the costs to the economy. The bans on ICE vehicles will affect the UK’s 37m drivers. Whilst using the conventional valuations it is believed there will be benefits in the form of reduced GHG emissions and cleaner air, there will also be negative impacts. This report considers both by means of costbenefit analysis. 1 BEIS - Link 2 Climate Change Committee (CCC) – Link

7  Centre for Economics and Business Research The Current Situation The decarbonisation of vehicles has begun to pick up pace partly as both consumers and industry anticipate the forthcoming bans. For instance, there are already over half a million electric cars on UK roads. Moreover, many manufacturers have already started to re-orient their operations and transition away from the production of conventional petrol and diesel cars towards EV production. The pace of this change has differed by sector. Whilst there has already been a significant application of zero emission technology in the fleet of small commercial vehicles, there has been much less change with respect to larger heavy goods vehicles. Nevertheless, there have been some applications in this area. An example of a HGV zero emission vehicle is that of Leyland Trucks, a PACCAR company and the UK’s largest HGV manufacturer. DAF LF Electric vehicles are entering service with a range of public bodies, including the NHS and Local Authorities.3 There are also significant challenges with respect to the extent to which consumers are prepared to take up new vehicles. Ofgem research has found that consumers find these to be the key blockers of EV uptake: 1. Vehicle prices are too high or up-front costs; 2. Short battery life/short driving range; 3. Nowhere to charge a vehicle close to home. The Department for Transport’s transport technology tracker survey has shown that, when asked about the benefits of electric vehicles, 55% mention anticipated savings on road tax and 40% cite reduced running costs. This, however, does not account for the fuel duty incorporated into fuel prices, which increases the operating cost for petrol or diesel vehicles. A large percentage (81%) also talk about the environmental benefits of electric vehicles. However, the most significant concern limiting uptake was the availability of charge points, given by 73% of people surveyed. Respondents also mentioned the range of vehicles, the time taken to charge, and knowing how to charge. Infrastructure Needs There are significant costs associated with the need to provide sufficient infrastructure to meet the changing demands of so many more drivers of electric vehicles. According to Zap-Map there were approximately 34,000 public charging devices in the UK as of August 2022 and more than 940,000 plug-in cars with approximately 530,000 BEVs and 410,000 PHEVs registered.4 The CCC expect that in order to grow the UK’s EV fleet to an estimated number of 23.2 million by 2032, 325,000 public charging points will be required. Currently, it is estimated that 80% of EV users charge their vehicles at home overnight, while 25% of households do not have off-street parking (e.g., multi-story flats) and need to charge on-street or elsewhere. This means that there is a need for charge points on homes but also in public areas, especially on motorways and major roads, and at destinations like supermarkets. 3 4 Zap map – Link

8  Centre for Economics and Business Research It is possible that the market for charging points will provide the relevant supply. But given the importance of this to the government’s ambitions, it is likely that it will want to play a pivotal role in supporting the private sector in providing the necessary infrastructure due to the high up-front costs and the significant associated financial risks. The government will need to play a central role, as there is a risk that the private sector will only provide charging infrastructure and services where there is sufficient profitability available, rather than for reasons associated with public need.

9  Centre for Economics and Business Research 3. The Analytical Approach The analytical approach of this report is to assess whether or not, from the Government’s perspective, and taking into account their own methodological assumptions, this represents a decision that is ‘good for society’. It is not merely an economic assessment, as it takes into account the Government’s tools of valuing environmental and health impacts, in particular, values for CO2e emissions. The analysis in this report allows the impacts on society to be assessed in a way consistent with other Government assessments. However, the report does not make any judgement as to the validity or robustness of the methodological frameworks and scientific assumptions implied by these appraisal tools and methods. This ensures that the findings of the report can be used to inform Government decision makers about its policy choices; whether to persist with the planned bans or to adjust them. The key measures to summarise the impacts are ways of comparing present value monetised costs and benefits. The Present Value of Benefits (PVB) is the sum of all discounted benefits and dis-benefits and the Present Value of Costs (PVC) similarly measure the discounted costs over the appraisal period. It then gives the value of these impacts in the prices of a given base year (in this case, 2022). The Benefit-Cost Ratio (BCR) is given by PVB / PVC and indicates how much benefit is obtained for each unit of cost, with a BCR greater than one indicating that the benefits outweigh the costs. The Net Present Value (NPV) is a measure of the total economic impacts of a proposal. It is simply the discounted present value of the sum of all benefits and costs. Typically, if a project has a BCR below one (i.e., a negative NPV), it indicates that the costs exceed the benefits over the appraisal period, and hence that given proposal should not proceed unless there are important non quantifiable benefits that have not been taken into account5. In practice, it is desirable to have a BCR above the level of two (where benefits are twice that of costs) for a project or proposal to be sufficiently competitive when compared against a portfolio of potential options or alternative projects. Where costs exceed benefits, the Government will consider that project ‘Poor’ value for money and the BCR will be between zero and one. The methods and techniques used to derive both the BCR and NPV results are consistent with both HMT’s Green Book and the Department for Transport’s Analysis Guidance (TAG)6. Benefit valuation Greenhouse gas emissions values (“carbon values”) are used across government for valuing impacts on GHG emissions resulting from policy interventions. This is the approach used 5 See for example the seminal paper by Nobel Laureate Kenneth Arrow et al presented to the American Association for the Advancement of Science ‘Is There a Role for Benefit-Cost Analysis in Environmental, Health, and Safety Regulation?’ Kenneth J. Arrow, Maureen L. Cropper, George C. Eads, Robert W. Hahn, Lester B. Lave, Roger G. No11, Paul R. Portney, Milton Russell, Richard Schmalensee, V. Kerry Smith, and Robert N. Stavins 6 DfT TAG guidance Link

10  Centre for Economics and Business Research here. This ensures that the report can be used as an effective means of understanding whether the decision is ‘good’ or not, on the basis of the government’s own principles and analytical approach. Carbon values represent a monetary value that society places on one tonne of carbon dioxide equivalent (£/tCO2e). The government uses these values to estimate a monetary value of the greenhouse gas impact of a policy or proposal. The fundamental purpose of assigning a value to the GHG emissions impacts that arise from potential government policies is to allow for an objective and consistent method of determining whether such policies should be implemented. Carbon values are used in the framework of broader cost-benefit analysis to assess whether, taking into account all relevant costs and benefits (including assumed impacts on climate change and the environment), a particular policy may be expected to improve or reduce the overall welfare of society. As such, both Carbon and NOx (air quality) values capture the government’s view of the value of emissions impacts such as associated health impacts. Valuing emissions impacts explicitly when making policy decisions therefore helps the government to: • ensure the climate impacts of policies are fully accounted for • ensure consistency in decision making across policies • improve transparency and scrutiny of decision making The previous approach used within government to value carbon in policy appraisal was the ‘Shadow Price of Carbon’ approach. This was based on estimates of the lifetime damage costs associated with greenhouse gas emissions drawn from the Stern Review7. The current approach, in contrast, is, based on estimates of the abatement costs that will need to be incurred to meet specific emissions reduction targets. The current approach is focused on ensuring that valuations are consistent with the UK’s domestic and international climate targets. In contrast, the previous approach measured social costs directly, rather than focusing on consistency with government targets. The valuations of the previous, more direct, approach tended to be a much lower. For example, in January 2002, a Government Economic Service working paper entitled ‘Estimating the social cost of carbon emissions’ suggested a value of £19/tCO2 within a range of £10 to £38/tCO28. This cost was set to rise at a rate of £0.27/tCO2 per year to reflect the increasing marginal cost of emissions. Accounting for inflation, this means that the values under the current approach are many multiples higher; with this been driven by the need to ensure consistency with climate targets. This also implies that the current, much higher, valuations of environmental and health impacts are derived from the importance of the targets themselves rather being direct measures of health or environmental outcomes. 7 HM Treasury Link 8 UK Government Link

11  Centre for Economics and Business Research 4. Methodology The analysis covers the period from 2022 until 2050 and assesses cars, motorcycles, LGVs and HGVs separately as well as aggregated values covering all vehicle types. 4.1. Baseline and Alternative scenarios Our analysis tests two core scenarios, a baseline case of no ban and an alternative scenario where both of the proposed bans come into operation. The model is run from 2022 to 2050: • In the Baseline, there is no ban on vehicles in any category. Therefore, the law is not changed, and households, businesses, and manufacturers operate with this expectation in mind. • In the Alternative, planned bans9 on the sale of new vehicles go ahead as follows: o In 2030, internal combustion engine (ICE) cars, motorbikes, and LGVs. o In 2035, hybrid electric (HEV) and plug-in hybrid electric (PHEV) cars, motorbikes, and LGVs. o In 2040, ICE, HEV, and PHEV heavy goods vehicles (HGVs). Therefore, in the Alternative scenario only battery electric vehicles (BEVs) can be bought as new from 2040 onwards, as illustrated in Figure 1, which shows the differing time periods of availability of different types of vehicles. Figure 1: Availability of new vehicles by type and propulsion, Alternative scenario 9 Government takes historic step towards net-zero with end of sale of new petrol and diesel cars by 2030, November 2020, Link. UK confirms pledge for zero-emission HGVs by 2040 and unveils new chargepoint design, November 2021, Link. As it stands there is uncertainty around the nature of proposed bans regarding motorbikes, and hybrid cars and vans. We have assumed that motorbikes will be treated the same as cars. The 2030 ban announcement says that ‘Between 2030 and 2035, new cars and vans can be sold if they have the capability to drive a significant distance with zero emissions (for example, plugin hybrids or full hybrids), and this will be defined through consultation.’ Therefore, stricter emissions standards for hybrids may apply in the 2030-2035 period under the ban – but we have not assumed this in our modelling. 2020 2025 2030 2035 2040 2045 2050 ICE Car HEV Car PHEV Car BEV Car ICE Motorbike HEV Motorbike PHEV Motorbike BEV Motorbike ICE LGV HEV LGV PHEV LGV BEV LGV ICE HGV HEV HGV PHEV HGV BEV HGV

12  Centre for Economics and Business Research 4.2. The UK’s vehicle fleet in 2022 The first step in our modelling is to develop a snapshot of the current state of the UK’s vehicle fleet. This captures how many vehicles there are by type, propulsion, and age. To do this, we combine various datasets from the DfT’s vehicle licensing statistics10: • VEH0105: Licensed vehicles by body type (car, LGV, etc.) and fuel (diesel, petrol, other). • VEH0124: Breakdown of licensed vehicles by age. • VEH0133: Licensed ultra-low emission vehicles (ULEVs) by body type and fuel (battery electric, plug-in hybrid electric petrol/diesel, hybrid electric petrol/diesel). • VEH0142: Licensed plug-in vehicles by body type and fuel type. • VEH0171: ULEVs registered for the first time by body type and fuel type. These were brought together to develop a robust view of the fleet not provided in a single data source. 4.3. Future development of the UK’s vehicle fleet By its midyear of 2035, the industry body – the Society of Motor Manufacturers and Traders (SMMT) estimates that 46% of cars on the roads could be zero emission under a central scenario; whilst the percentages for goods vehicles will be lower11. Ofgem estimate that there may be 14m EVs on UK roads by 2030 and the Climate Change Committee (CCC) estimate have an estimate of 14-18 million. The CCC estimate that there will be 23.2 million battery electric or plug-in hybrid cars by 2032 (55% of all vehicles)12. In contrast the Cebr estimate that the share of BEV and other non-ICE vehicles could be 35% by 2032 and 50% by 2035. New purchases Additions of new vehicles to the fleet are calculated by first taking new registrations in 2021, from DfT data discussed above, as a starting point. In the Baseline Scenario, these are then assumed to change in future years due to trend growth13 and own-price elasticities14. In the Alternative, when vehicle classes are banned, additions to the fleet are set to zero and the previous year’s demand is divided between remaining vehicle classes according to their demand that year. For instance, in 2030, demand for ICE cars is divided between HEV, PHEV, 10 Vehicles statistics, July 2022, Link. 11 Transport Decarbonisation plan 12 Climate Change Committee – Briefing Document – The UK’s transition to electric vehicles - Link 13 A trend growth rate, which is set to ensure that by 2050 in the Alternative scenario there are 49 million vehicles total, consistent with the CCC estimate. 14 Own-price elasticity. This is assumed to be -0.18 for all vehicles, i.e., a 1.00% increase in the price of a vehicle class would lead to a 0.18% decline in demand for it and vice-versa. This is based on a recent study by the United States Environmental Protection Agency (EPA) - The demand for new automobiles in Norway – a BIG model analysis, Institute of Transport Economics, Norwegian Centre for Transport Research, 2018, Link. In the Alternative, this elasticity is not applied after ICE bans have been introduced – it only makes sense to use this when drivers have the option of switching between ICE and BEV. For BEVs, an elasticity with respect to petrol and diesel prices of 0.6

13  Centre for Economics and Business Research and BEV cars. In 2035, demand for HEV and PHEV cars goes to BEV cars. Demand is therefore kept consistent. New vehicle prices Prices for brand new vehicles used in the model were based on data from ONS and industry evidence. 15 16 Prices were converted into 2022 values. For the core results, they are assumed to remain constant to 2050. Scrappage Scrappage is the mechanism through which vehicles (mainly older models) are removed from the fleet. There is no hard data on scrappage rates, however it seems reasonable to assume that they increase with vehicle age – older vehicles are more likely to develop mechanical faults that render them ‘write-offs’, i.e., the cost of repair exceeds their value. Moreover, as technology progresses and fuel efficiency improves, the greatest savings in running costs by changing vehicle will be available to those with older models. For subsequent years, scrappage rates change according to developments in prices in the second-hand market.17 Fuel consumption The DfT’s Transport Appraisal Guidance (TAG) data book contains both historical and forecasted values for vehicle fuel consumption: • Fuel consumption parameters, relating litres of liquid fuel or kilowatt hours of electricity consumed per kilometre to speed of travel. These are provided for petrol, diesel, and electric cars and LGVs, and for diesel ordinary goods vehicles (OGVs). • Projected proportions of car and LGV kilometres travelled by petrol, diesel, and electricity. The relative petrol/diesel proportions are used to weight petrol/diesel consumption and emissions figures in calculations for ICE vehicles. These provide a useful starting point for our analysis but needed to be supplemented with further figures from the BEIS Conversion factors for company reporting18. This dataset includes per-kilometre emissions from use of liquid fuels and electricity for various types of vehicle. These are used to estimate: • HEV and PHEV liquid fuel consumption relative to ICE vehicles. • PHEV electricity consumption relative to BEV vehicles. • Motorcycle fuel consumption relative to cars. 15 Average car prices: 2021, ONS, April 2022, Link. 16 Where are the mid-priced electric bikes?, BikeSocial, Link. 17 The EPA study referred to previously estimates an elasticity of -0.21 with respect to used vehicle prices; intuitively, the higher the value of a used vehicle, the less likely that it is uneconomic to repair it. 18 Government conversion factors for company reporting of greenhouse gas emissions,, Link.

14  Centre for Economics and Business Research Figure 2: Fuel consumption projections in Baseline and Alternative scenarios (litres/km) In the Alternative scenario, fuel consumption projections from TAG are used throughout. In these projections, improvements in petrol/diesel consumption efficiency slow down after 2030. In the Baseline, we assume that efficiency continues to improve as it did prior to 2030, up until 2050. This captures the possibility that, in the absence of a ban on ICE vehicles, manufacturers would continue to make fuel efficiency improvements, rather than purely focussing on electric propulsion. Arguably, the TAG assumption is a rather strong one – ultimately the market for cars is a global one, and as long as there is significant demand for new ICE vehicles in other countries, manufacturers will have incentives to improve their efficiency. The UK’s proposed 2030 ban is unusual by international standards. For instance, in the United States, some state-level bans are in place for 2035 onwards, including in large states like California and New York. though a federal ban has not yet been announced19. The EU Parliament recently approved a ban to start five years after the UK’s, for cars, starting in 203520 though the ban covers a wider range of vehicles than that in the UK. Various emerging markets 19 These Are the States Banning New Sales of Gas and Diesel Vehicles, YAA, Link. 20 EU lawmakers back effective ban on new fossil-fuel cars from 2035, Reuters, Link. 0 0.02 0.04 0.06 0.08 0.1 0.12 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 Petrol car - Baseline Diesel car - Baseline Petrol LGV - Baseline Diesel LGV - Baseline Petrol car - Alternative Diesel car - Alternative Petrol LGV - Alternative Diesel LGV - Alternative

15  Centre for Economics and Business Research will form a larger part of overall demand in future, and in some cases, they are targeting much later dates – for instance 2050 in Indonesia, the world’s fourth most populous country21. Figure 2 shows how fuel consumption for petrol and diesel cars and LGVs develops under each scenario22. 4.4. Charging and refuelling times Recharging and refuelling times Typical charging times faced by users of plug-in vehicles (PHEV and BEV) depend on: • The mix of chargers available by speed (slow, fast, rapid, and ultra-rapid) and how they are distributed by charging location – e.g., home, on-street, en-route. • Where each type of vehicle is charged, and therefore the likely charging speed. A Competition & Markets Authority (CMA) report23 into the UK’s electric vehicle charging network provides some useful data to support these estimates: • Typical charging times by charger type: 3-8 hours for slow; 1-3 hours for fast, 20-40 minutes for rapid; 15-30 minutes for ultra-rapid. We take average times from each of these as the respective charging times. • Number of public charge points by type in the UK in 2020 and forecast requirement in 2030. We assume that the number and mix of chargers evolves as set out in this forecast, which we extrapolate beyond 2030. • Qualitative and quantitative information on where charging takes place and types of chargers by location; for example, that the 25% of drivers without off-street parking will rely on kerbside on-street charging, which tends to be slow or fast. On the basis of this information, we project the mix of chargers and therefore average charging times by location type (home, workplace, destination, on-street, en-route), and mix of charging locations by vehicle (i.e., while most charging of cars, motorbikes, and LGVs will take place at home chargers, HGVs will be charged en-route). We then adjust these charging times to account for the proportion or amount of time spent which is additional, i.e., the real time cost of charging to the user rather than simply the raw charging time. For non-public charging, most of this charging is assumed to take place overnight or during the working day, so it represents time spent putting the vehicle on and off charge.24 21 Indonesia aims to sell only electric-powered cars, motorbikes by 2050, Reuters, Link. 22 Diesel OGVs are not shown – their fuel consumption is much higher (0.185 litres/km in 2021) and not suitable for the same scale; however, the impact of these assumptions on their trajectory is similar. 23 Building a comprehensive and competitive electric vehicle charging sector that works for all drivers, Competition & Markets Authority, July 2021, Link. 24 The modelling does not account for the potential for rapid and ultra-rapid charging to cause damage to battery’s when used frequently. This could cause a loss of value for EVs in the second-hand car market.

16  Centre for Economics and Business Research TAG figures do not include motorcycles, but we have made similar assumptions and also for HGVs regarding charging. HGV operators will want to charge at home base as often as possible on bulk electricity rates rather than pay third party profits25. Recharging and refuelling frequencies In order to estimate total time spent recharging or refuelling per vehicle per year, estimates of recharging or refuelling frequency are made. These are based on: • Maximum distance travelled on a typical tank or battery, using available sources on ICE and BEV ranges by vehicle type26. Multiplying these distances by current fuel consumption (litres/km or kWh/km) provides figures for tank or battery capacity. • Future changes in fuel consumption – this means that as vehicles become more efficient, a tank or battery of the same size will allow them to travel further before recharging or refuelling. • Annual kilometres travelled (discussed further under emissions) – this along with fuel consumption determines annual demand for litres of petrol/diesel or kWh of electricity, and therefore number of refills needed. Values of time Table 1: Values of time, 2022 (£/hour/vehicle) Assumed % of journey time, value of time per person Occupancy Value of time Business Commuting Other Car 11% 25% 65% 1.61 £16.83 £25.33 £14.25 £6.50 Motorbike 4% 51% 45% 1.00 £11.26 £25.33 £14.25 £6.50 LGV 90% 10% 0% 1.25 £21.95 £17.93 £14.25 £6.50 HGV 100% 0% 0% 1.00 £20.67 £20.67 £14.25 £6.50 We monetise the time spent recharging or refuelling by vehicle type, drawing on TAG values of time and National Travel Survey (NTS) data on journey purposes. TAG values of time are forecast (growing in line with real GDP/capita) to 2089. These are available for working time by type of vehicle driver/passenger, commuting time, and other (i.e., leisure/personal business). For car and LGV, these are adjusted by assumed occupancies – 1.61 for car (based on TAG) and 1.25 for LGV. 25 4.5 hours driving and 45 minutes charging. A viable solution for electric trucks?,, January 2021, Link. 26 Ranges for: ICE car, BEV car, ICE motorbike, BEV motorbike, ICE LGV, BEV LGV, ICE HGV, BEV LGV.

17  Centre for Economics and Business Research The NTS27 provides distance travelled by car and motorcycle in total and by purpose including business and commuting. We use 2019 values from the NTS – the most recent data, for 2020, is seriously affected by Covid-19. This gives us business/commuting/leisure breakdowns for car and motorcycle travel, and the corresponding values of time are weighted accordingly. These calculations are summarised in Table 1. 4.5. Driving and production emissions One of the core motivations of the Government’s policy is to help reduce the pace of climate change. Under this policy, tackling climate change is primarily achieved through reducing the annual rate of carbon dioxide (CO2) emissions. Like most economies, UK emissions generally come from the both the production and use of energy, including from the electricity sector itself. The extent to which the electricity sector contributes to overall emissions is heavily dependent upon the extent of fossil-fuelled-based electricity generation. Annual kilometres per vehicle The DfT provides annual statistics on road traffic by vehicle type28. Dividing total distances (using 2019 values to avoid impacts of the pandemic) by vehicle numbers gave estimated annual kilometres per vehicle. These are combined with per-kilometre emissions to calculate total driving emissions, and are used elsewhere in the analysis, for example in charging time calculations. Carbon dioxide emissions per kilometre travelled TAG provides figures for carbon dioxide equivalent (CO2e) emissions per litre of petrol or diesel burnt and per kWh of electricity used. Petrol and diesel emissions per litre do not decline after 2020 (i.e., no change in their composition is assumed), whilst emissions associated with electricity consumption continue to decline until 2050, reflecting anticipated changes in the UK’s energy generation mix. These are combined with fuel consumption figures (litres or kWh per km) to estimate emissions per km by vehicle class to 2050. Whilst emissions per litre or kWh are assumed identical in each scenario, the differing fuel consumption assumptions do lead to lower emissions per kilometre for vehicles which use petrol or diesel in the Baseline than in the Alternative. Air quality pollutant emissions per kilometre travelled The National Atmospheric Emissions Inventory (NAEI) provides figures for emissions per kilometre of various air pollutants by vehicle type29. We focus on nitrous oxides (NOx) and particulate matter (PM10 and PM2.5) in our analysis. 27 National Travel Survey,, September 2021. Link. Table NTS0409b Average distance travelled by purpose and main mode: England, from 2002. 28 Road traffic statistics, Department for Transport, Link. 29 Emission factors for transport, National Atmospheric Emissions Inventory, Link. Fleet Weighted Road Transport Emission Factor 2020.

18  Centre for Economics and Business Research Emissions are provided for both exhaust and non-exhaust sources. The former is only relevant for vehicles which use petrol and diesel – they are used as given for ICE vehicles and scaled according to fuel consumption for HEV and PHEV equivalents. The latter, which includes tyre wear, brake wear, and road abrasion, applies to all vehicles; therefore, EV emissions are lower than for ICE equivalents but not zero. Vehicle production emissions There are also CO2e emissions associated with the production of new vehicles, which we apply to new vehicle purchases each year. Whilst electric vehicles have lower per-kilometre emissions, their production emissions are systematically higher. Precise estimates on relative production emissions vary. We combine the findings of a research paper30 which estimates emissions for ICE, HEV, PHEV, and BEV cars and a Volvo study which estimates BEV production emissions at 70% higher than ICE vehicles31. Monetising emissions Total emissions in tonnes of CO2e, NOx, PM10, and PM2.5 have therefore been calculated by scenario, year, and source. These are valued according to TAG, which provides carbon values forecast to 2100 and damage cost values for pollutants32. Low, central, and high values are provided. Our core results use the central values. 30 Lifecycle emissions from cars, Low Carbon Vehicle Partnership. 31 . 32 Pollutant values are assumed by TAG to remain constant in real terms, so future forecasts are not required or provided.

19  Centre for Economics and Business Research 5. Results 5.1. Core results Monetised Impacts There are a range of impacts that can be converted into monetary terms. This allows a comparison of these costs by taking the ratio of or arithmetic difference between total costs and benefits. This provides a measurement of the benefit cost ratio and net present value respectively. All values are converted into present value terms through discounting and prices converted into 2022 terms. The results in this section compare the estimates for the ‘Alternative Case’ where the bans come into effect with the ‘Baseline Case’ where they do not. Monetised Benefits There are a range of assessed benefits associated with the 2030 ban. These form the basis of the arguments for the Government implementing bans on ICE vehicles. Reduced CO2 and air quality emissions during driving The aim of the Government is to play its declared part in the limitation of limit global warming to well below 2°C and to pursue efforts to limiting to 1.5°C means. However, the UK car market accounts for a very small (0.2%) percentage of global emissions. There are fewer CO2e emissions deriving directly from ‘tail-pipes’ in the alternative scenario of the bans going ahead. Emissions impacts are monetised through application of DfT values per tonne of CO2e, with this valuation implicitly economic benefits from CO2e emission reductions. This occurs because of the increasing proportion of EVs in the fleet mix from 2030 onwards. Whilst second hand ICE vehicles continue to be part of the mix for several years, due to natural scrappage rates, after time their presence is expected to decline significantly. Figure 3 below shows how the composition of the total vehicle fleet (cars, motorbikes, LGVs, and HGVs) by propulsion changes under each scenario. In the Baseline, ICE vehicles have gradually fallen to below 70% of the overall fleet by 2050. In the Alternative, however, a rapid decline in their share begins after the ban on most ICE vehicles in 2030, with the result that by 2050 they make up less than 10% of the fleet, and over 80% of vehicles are BEVs (with HEVs/PHEVs making up the remainder).

20  Centre for Economics and Business Research Figure 3: Fleet composition by scenario Figure 4 shows how vehicle traction emissions (i.e. those produced by kilometres driven, not by vehicle manufacture) develop under each scenario – under the Alternative scenario they are dramatically lower by 2050. Figure 4: Total vehicle traction emissions per year (tonnes CO2e) The overall value of reduced CO2e emissions has been calculated to be £64.7 billion, in present value terms (using TAG central values of emissions). The largest portion of this, at £37.7 billion, relates to cars, which make up the largest part of the fleet. There will also be significant assessed benefits generated by reduced NOx, PM10, and PM2.5 emissions. The monetised value of these benefits is significantly lower than the CO2e benefits, with a total beneficial impact of £11.2 billion. 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 ICE Baseline HEV Baseline PHEV Baseline BEV Baseline ICE Alternative HEV Alternative PHEV Alternative BEV Alternative 0 10000000 20000000 30000000 40000000 50000000 60000000 70000000 80000000 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 Baseline Alternative

21  Centre for Economics and Business Research Environmental impacts (£Bn) Total Car Motorbike LGV HGV CO2e, driving emissions 64.7 37.7 0.7 19.8 6.5 Air quality emissions 11.2 4.5 0.1 5.7 0.9 Reduced cost of fuel The difference in fuel costs is significantly driven by the difference in tax applied through Fuel Duty and VAT. The reduced cost to consumers due to a transition to electric vehicles has been calculated below. The total reduction in expenditure related to fuel/charging expenditure has been calculated to be £41.8 billion over the years 2022 to 2050. If, however, we look at resource cost only (excluding Fuel Duty and VAT), results indicate a £34.9 billion cost, since the tax element is merely a transfer and not a resource cost. Household/business spending (£Bn) Total Car Motorbike LGV HGV Fuel 41.8 29.4 0.6 9.2 2.6 Fuel (resource cost only) -34.9 -17.1 -0.3 -13.3 -4.3 Monetised Costs Increased CO2e emissions during vehicle manufacture It is widely recognised that the production of EV vehicles generate more CO2e emissions than during the process of manufacturing ICE vehicles. The impact in terms of the value of increased production emission is calculated to be £32.5 billion Environmental impacts (£Bn) Total Car Motorbike LGV HGV CO2e, vehicle manufacture 32.5 21.5 1.1 8.9 1.1 Increased purchase costs of new vehicles Despite the subsidy provided for the purchase of new EV vehicles, they are still currently generally more expensive than new ICE vehicles. The total additional costs over the period 2022-2050 are estimated to be £187.8 billion. Household/business spending (£Bn) Total Car Motorbike LGV HGV New vehicles 187.8 98.0 7.2 67.2 15.4 Increased time spent refuelling/ recharging A 2016 Department for Transport survey showed concern about recharging was the most significant factor preventing consumers buying an electric vehicle (45%), followed by the distance travelled by one charge (39%). The increased waiting times in a scenario of a faster transition to EVs due to the bans, could be the most visible significant impact. Indeed, if the bans come into effect and the charging system is inadequate, the consequences could be immensely disruptive and could easily mean higher not lower emissions as drivers depend more on an aging fleet of vehicles. This report makes assumptions that are similarly optimistic to those made by government departments and agencies about the likely costs and achievable

22  Centre for Economics and Business Research charging times (i.e., the avoidance of major queuing). In this sense, the estimated costs could prove to be relatively conservative, and the estimated benefits could prove to be optimistic. In a DfT and ‘Britain Thinks’ survey of charging habits, respondents were asked about how often they charge at home during the day and overnight. Overnight charging was more common than daytime charging and the most commonly report charging frequency was 1-2 times per week.33 The survey also found that the public charging locations most used on a regular basis were at work/place of education or in a business or organisation’s car park, with three in 10 respondents indicating that they charged at each of these locations at least once a week (30% at each location). 34 This shows that there are opportunities to save time by charging at times when other activities are being undertaken. However, this will not always be the case. For instance, a quarter of respondents also reported charging at a service station/dedicated EV charging hub at least once a week. Furthermore, there are a significant proportion of drivers that do not and will not have access to off-street parking. The survey found that those persons were also significantly more likely than average to report charging at business or organisation’s car park (51%) at least once a week. A significant additional cost is the extra time taken to re-charge with compared to re-fuelling an ICE vehicle. Whilst this impact will decline over time, as charging times decrease, there are still significant costs in the interim. Moreover, there needs to be significant public and private investment to generate improvements in re-charging times. The estimated scale of this impact is £46.5 billion in total. Value of time impacts (£Bn) Total Car Motorbike LGV HGV Time spent refuelling/recharging 46.5 25.6 0.4 12.9 7.5 The need to upgrade transport and energy infrastructure Costly electricity network upgrades will be required to cater to the demand from a growing electric car and van fleet, and potentially heavy goods vehicles too. The costs and will vary between sites, depending on the location and available capacity. This is not only to accommodate additional demand, but to facilitate a sufficient ‘Smart’ grid, which is deemed necessary to facilitate the significantly increased demand for electricity, potentially at specific times i.e., rush hour. Additional investment will be required whether bans are implemented or not, given the expected increase in EV use in both scenarios. However, it is assumed that the required investment in the case of bans being implemented is much more during the years 2022-20250 33 34 Electric Vehicle Charging Research - Link

23  Centre for Economics and Business Research than with no bans, due to the need to support many more EVs joining the fleet during that period. The National Infrastructure Commission’s analysis suggests that a 100% uptake of electric cars and vans could increase total annual electricity demand by 26% by 2050.35 They have estimated the impact of that the rapid uptake of electric vehicles and hybrid heat pumps could increase total expenditure on distribution networks by up to £50 billion by 2035. This has been used as the basis of estimating the impact of the increase in EVs on the grid. An in-house Cebr model has been used to supplement this estimate by calculating the impact of increased renewables use on the National Grid. This is required to achieve sufficiently clean energy to ensure EVs do not generate substantial emissions through drawing electricity from an unclean electricity grid. A key challenge is that both average capacity and peak capacity will need to increase to a level sufficient to handle extended periods of low wind and sun. A relatively low cost of achieving this has been assumed. The capital cost of new generation has been estimated to be £119 billion over the period 2022-2050. The government will likely need to play a significant role in providing this investment for several reasons. Firstly, there are significant risks to undertaking investment in charging facilities, which is likely to exceed levels that the private sector is willing to bear. Secondly, this represents a key government regulatory policy change, and so there will remain pressure on the government to ensure that sufficient funds are secured to prevent it from failing. Finally, the benefits of the bans are largely ‘externalities’ that the private sector is unlikely take full responsibility for facilitating. Charging infrastructure To meet demand, a large number of new charge points will be required. The CCC forecast a potential 370,000 public charge points will be required by 2035. However, many experts would suggest that this amount and implied rate of roll out would be far too low to provide sufficient capacity. Over the same period, we estimate up to 19 million home charge points may also be required, to meet EV uptake projections. However, this may be a relatively conservative estimate. An example of the type of investment required includes that of Pivot Power, a UK-based energy company, who is working with National Grid to build 45 new charging sites, each with up to 100 charge points, across the country, investing £1.6 billion.36 The government has plans to invest a similar amount to develop charge points. This has been used as a basis of estimating the investment required to per charge point. 35 36