The electric car debacle shows the top-down economics of net zero don’t add up

September 1, 2023

Originally published by The Telegraph. Written by Ben Marlow.

Sadiq Khan’s controversial Ultra-Low Emissions Zone scheme for London was supposed to put the rocket boosters under electric car demand.

With the Mayor pressing ahead with a highly contentious scheme that forces non-compliant petrol and diesel car drivers to pay an eye-watering £12.50 a day to drive into the capital, the expectation was that hundreds of thousands of motorists would rush out to their nearest forecourt and snap up an electric version, triggering an explosion in sales of Nissan Leafs, Teslas and other battery-powered models.

There was a spike in registrations of electric vehicles in July but otherwise the electric car boom that politicians, manufacturers, and campaigners insist is around the corner, remains something of a myth.

True, sales are steadily increasing but not in the vast numbers that proponents of electrification anticipated or would like to see.

In fact, it is becoming increasingly apparent that the car industry has misjudged the scale of demand quite badly. Vertu, which is one of Britain’s biggest car dealerships, has become the latest big name to admit that the sector is already suffering from a dramatic oversupply of battery-powered vehicles.

Indeed supply is outstripping demand to such an extent, that prices are tumbling rapidly.

The warning follows the extraordinary decision of German car titan Volkswagen in July to halt electric vehicle production at its sprawling Emden factory in north-west Germany and lay off a fifth of its 1,500 employees after sales of electric models fell 30pc short of forecasts.

One hopes politicians the world over are paying attention because what we are witnessing is another example of how the top-down economics of net zero increasingly don’t stack up: with the introduction of an entirely arbitrary 2030 ban on petrol and diesel cars, the Government is forcing manufacturers to churn out millions of vehicles, regardless of whether the market actually exists or not.

The deadline should be scrapped without further ado. This “cart before the horse” approach of trying to stimulate demand by creating supply is the wrong way round and almost never works in business.

Start-up Britishvolt tried something similar, promising to build a giant battery factory in Blyth, on the Northumbrian coast that would churn out enough batteries every year to power 300,000 cars.

Yet there was an even bigger flaw at the heart of its plans: it had failed to secure a single order – a situation that hadn’t changed by the time it ran out of money at the start of the year.

It’s hard to fault the intentions of the great net-zero crusade – a greener planet is something everyone should want to see. But far too much of it is built on hope rather than reality.

The Government’s policy on wind energy has proved to be similarly divorced from fact. The Contracts for Difference scheme, which guarantees a fixed price for the electricity that is produced for 15 years, is an effective incentive during more benign times but when overheads are surging, as they are now, it quickly becomes an impediment to progress.

With ministers showing little willingness to bend on prices in the face of rampant cost increases, major projects are being ruthlessly abandoned.

The biggest setback has come off the Norfolk coast after Vattenfall announced it would shut down construction of its Boreas wind farm. The 1.4 gigawatt development was set to power around 1.5m homes but the Swedish energy outfit insists a 40pc surge in costs, driven by inflation, supply issues and rising wages means it is no longer viable.

Without more generous state subsidies others will surely follow suit, shattering Britain’s stated ambitions to nearly quadruple offshore wind capacity from 14GW currently to 50GW by the end of the decade.

Yet perhaps nothing underlines the Alice in Wonderland disconnection of ministers more than the campaign to force the population to green their homes with heat pumps.

Even a ban on the sale of new oil boilers from 2026 has failed to convince people to make the shift largely because the cost of converting your home can be huge, so too the disruption and upheaval from having one installed, while much of the technology suffers from several major flaws.

It might explain why, in spite of a Government scheme that pays bungs of between £5,000 and £6,000 per household, less than 14,000 vouchers have been claimed since it was launched in May last year.

Naïve politicians aren’t the only ones. Virtuous investors have wasted huge sums on other ‘green’ innovations such as fake meat that have turned out to be busts.

Perhaps the venture capital industry has got better at picking winners, though that seems doubtful. At one stage it could hardly have been worse.

A study by the American academic Ben Gaddy in 2016 found that of the $25bn ploughed into so-called “clean-tech” ventures, 90pc were abject failures, and close to all of them could be considered poor investments.

Here in the UK, the problem is compounded by our willingness to remain silent as more productive hi-tech industries that Britain should be building its future on are auctioned off to the highest bidders.

The takeovers in quick succession of Cambridge-based biotech firm Abcam by an American rival and of Staffordshire drug IT specialist Instem by French private equity make a mockery of our ambition to be a life-sciences powerhouse. This country’s help-yourself attitude to opportunistic foreign raiders has to end.

Equally, perhaps the time has come to accept that the economics of net zero are more fantasy than reality.