Predictions for EFRU (electricity for road use) duty
by Franck Latrémolière on 3 December 2017
Part of the motoring section of dcmf.co.uk.
The joke
About a week ago, I asked the following on LinkedIn:
Is there any country where there is an excise duty or similar tax on electricity used for road transport, or where electricity to charge an electric car at home attracts higher indirect taxes or levies than electricity for other domestic uses?
That got me some reactions, but no suggestion of any country doing it now.
Then I drew a cartoon about vehicle-to-grid:
At the time, it was a joke, prompted by the apparent absurdity of the idea of investing in vehicle-to-grid technology based on income from a bubble (frequency response) which was already bursting.
But I had done some maths to calibrate the joke (which prompted me to start a collection of constants, conversion factors and basic statistics):
- The UK duty rate on petrol is 57.95 per litre excluding VAT. (It is the same per-litre rate on diesel.)
- I could not find any number that I really trusted for the energy content of petrol, but all were below 10 units per litre so I was confident that petrol duty excluding VAT was well above 5 pence per unit of heat. (Diesel duty excluding VAT is also above 5 pence per unit of heat.)
- The best reported car engine efficiency I could find was 47 per cent for a Formula 1 engine, so a tax on EFRU (electricity for road use) of 10 p/kWh was plainly a subsidy relative to petrol or diesel duty.
The prediction
I would now like to promote my EFRU duty joke to be a serious forecast.
I forecast that from 2024, charging an electric car at home will become either prohibited, socially unacceptable, or subject to a tax rate of the order of 10 pence per unit.
I do not expect public charging points to be taxed at the same time. Running public charging points seems to be an unattractive business: prices are already often more than 10 pence per unit higher than home electricity prices, and the charging point business does not look terribly profitable. Establishing large charging stations could incur very high electricity distribution network reinforcement charges. I expect that public charging points will remain the beneficiary of Government subsidies for longer than home charging.
Subsidies for public charging points would naturally take the form of an exemption from EFRU duty, which would be presented as a fairer way of supporting this struggling sector than the regime of ad hoc local authority support for equipment and connection costs that would have developed in the mean time.
For charging at work, the default position will probably be to apply EFRU duty, but a lot of employers might make a deal with government to get the same favourable treatment as public charging points for a period of time.
Basis for the prediction
My prediction that EFRU (electricity for road use) will be taxed is based on the following forces:
1. Personal mobility is a tax magnet.
2. Taxing at the time of refuelling is less Big Brother-y than the alternatives.
3. EFRU duty will not be a difficult policy to sell. Electric cars are new cars, and therefore often rich people’s toys. Even with EFRU duty at 10 pence per unit, the tax regime will still give EFRU an undue competitive advantage over petrol, when both fuels are now essentially non-polluting at the point of use. It will be easy for supporters of EFRU duty to point to the costs that EFRU imposes on society by increasing electricity demand: EFRU users will get blamed for HV/LV substation reinforcement roadworks and for the non-cancellation of Hinkley Point C.
4. Charging point networks and their backers will be enthusiastic supporters of an EFRU duty from which they would be exempt, as it would enable them to be competitive with charging at home without losing too much money, and help them achieve better utilisation rates for their facilities.
5. Whilst enforcement of EFRU-at-home duty might seem hard, smart metering coupled with threats (similar to those of TV Licensing) and advertising/nudges is likely to be sufficient to keep evasion to a low enough level.
6. I have relied on a model of Government where business subsidies are given (here, to public charging points) on the basis of perceived need rather than on the basis of public value. I do not like it, but it is the best fit for the last several years of Government policy on renewable energy sources.
Why 2024?
The next general election must take place on 5 May 2022 at the latest.
My crystal ball is silent about UK election dates, but my prediction about EFRU duty is consistent with the principle of EFRU duty being a manifesto commitment of the winning party in a 2022 election, and a somewhat ineffective civil service implementation process afterwards.
Either or both serious parties might propose it, as a response to a public opinion backlash against Tesla-driving upper classes (*).
And whilst I might wish that Ofgem’s RIIO price control regime will collapse before then, the chances are still that it will survive for long enough for 2021 and 2022 to be the years in which DNOs (acting collectively e.g. through their Open Networks project) are most incentivised to make inflated claims about alleged future needs to invest in electricity networks, thus fuelling such a backlash.
(*) Presumably the Tesla-driving upper classes will be less dependent on home charging than middle-class commuters who have bought an electric or plug-in hybrid car. That level of irony or absurdity seems fairly typical in policy making.