IEA: Electric Vehicle Boom Set to Continue

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Electric vehicles (EVs) have seen remarkable growth during the Covid-19 pandemic, bucking a wider downward trend in auto sales. The International Energy Agency (IEA) says sales of EVs will remain strong going forward as governments advance decarbonization strategies and the cost of EVs continues to fall. But the agency also notes in its Global EV Outlook 2021 report that this raises questions for governments about how they should respond to declining revenues from fuel taxes. EV registrations increased by 41% in 2020, the report says, with around 3 million vehicles sold, representing 4.6% of the world's vehicle registrations. That surge was achieved even though global car sales fell by 6%. Policy Drivers Even before the pandemic many countries were strengthening key policies such as carbon dioxide emissions standards and zero-emission vehicle mandates. The IEA noted that some governments took additional steps last year to support EV sales during the economic downturn, with some European countries increasing incentives for EV buyers and China delaying the phaseout of subsidies. Subsidies Governments around the world spent $14 billion to support electric car sales last year, up 25% from 2019. That was mostly the result of increased incentives for buyers in Europe (IOD Nov.27'20). Nevertheless, the share of government incentives in total spending on electric cars has decreased over the past five years, suggesting that EVs are becoming increasingly attractive to consumers, the IEA said. Continued Growth There were 10 million electric cars on the world's roads at the end of 2020 and EVs are set to become a more common sight in the 2020s with existing policies around the world pointing to healthy growth in sales during the current decade. Under the IEA's "Stated Policies" scenario, the EV stock reaches 145 million vehicles in 2030, accounting for 7% of the global fleet of road vehicles. But EVs could expand at an even faster rate if governments accelerate efforts to reach their climate goals. Under the IEA's "Sustainable Development" scenario, there could be 230 million EVs on the roads in 2030, for a fleet share of 12%. Tax Revenue Loss The report warns that governments will need to take measures to offset the loss of revenue from fuel taxes as sales of EVs rise. While EV sales have only a limited effect on government tax takes today, by 2030 growth of the global EV fleet could result in a net fuel tax loss of around $40 billion under the Stated Policies scenario and $55 billion under the Sustainable Development scenario. "Governments should anticipate this trend and design mechanisms that enable continued support for EV deployment while limiting the revenue impact," the IEA said. Ronan Kavanagh, London

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