In a submission to the Ministry of Transport, the Taxpayers’ Union reveals that the cost-benefit analysis prepared by Ministry of Transport and used to advise Ministers on the Government’s Clean Car Standard and ‘Feebate’ policies has serious flaws which undermine justifications for the policies.
More than 90 percent of the Ministry’s estimated benefit is attributable to consumer fuel savings, but even in their most conservative assumptions they incorrectly pegged before-tax fuel prices at 40 to 50 cents per litre more expensive than in reality. This was due to their reliance on 2011/2012 price projections from MBIE which have failed to bear out. In short, they got the price of fuel totally wrong – using previous forecasts, instead of current reality. As a result, the proposed savings calculations do not reflect reality.
But that’s not the only mistake. Even if you ignore the fuel price assumption errors, the Ministry simply assumes consumers are irrational and that the Government needs to intervene to rectify this issue – with no evidence or literature cited to reflect this position.
When preparing the Union’s submission on the clean car policies, we readily found plenty of evidence that consumers do in fact understand the benefits of fuel efficient cars – but none of this evidence is addressed by Ministry officials in their analysis. That’s potentially fatal for the Ministry’s analysis – if almost all the benefits from buying EVs flow through to consumers from fuel savings and consumers understand the value of these savings, there’s no good reason for the Government to intervene.
Finally, officials need to reconsider how they perform cost-benefit analysis. The infamous BERL alcohol paper has become a joke within economic circles in part because they counted all of the costs from alcohol, without taking into account benefits to consumers, like enjoyment. The analysis from Transport similarly counts all of the costs from driving a car which is less efficient than an EV or a Prius, but ignores the benefits to consumers which lead them to make that choice. Consider, for example, a ban on ice cream sales. It would be bizarre to count reduced consumer spending on ice cream as a ‘benefit’ without acknowledging the lost benefits to consumers from ice cream consumption.
The Government’s Clean Car Discount and Standard policies should not proceed until Ministry of Transport officials fix the analysis Ministers relied upon to set the policies.
Email correspondence with the Ministry of Transport: