Grant Shapps’ plan for electric cars will make China a motoring giant

The name of Grant Shapps is not normally associated with the shifting tectonic plates of global economic power, but the transport secretary has reminded us about something that will shift the balance of industrial power: the rise of the electric car.

How will we get there? What will it mean? It will take time, given that only about one or two in every 100 new cars sold are pure electric – that is, battery power only, rather than hybrids such as the Toyota Prius that also feature an internal combustion engine. But the pace of adoption is accelerating for a number of reasons.

First, there is government action on the matter and Shapps’ bright ideas of fitting electric cars with a green number plate, of allowing electric vehicles to use bus lanes, of fitting newly developed homes with electric car charging points, and encouraging councils to permit free parking for alternative fuel vehicles.

The economic flaws with these projects are fairly obvious: once electric car adoption reached some critical point they would merely clog up the bus lanes, albeit without adding to pollution. By the same token they would also rob local authorities of parking revenues. Moreover, they would cost central government billions in lost fuel duties and other taxes on the driver. So some of these ideas will not electrify the market for very long. Electric cars will, to an extent, become victims of their own success. (Autonomous, self-driving cars even more so, given that anyone – driving licence or not – will be able to take to the highway, vastly adding to congestion, but that is another story for another generation.)

Still, the fiscal challenges are perfectly manageable, through switching to a system of road charging, weighted for time and business. This could, using the latest technology, be self-adjusting so that roads that are unexpectedly busy at midnight, say because of an Extinction Rebellion protest, would be unusually expensive to drive on. Even without a widespread switch to electric cars or a massive investment in public transport, that is probably a good idea anyway.

Second is public acceptance of electric cars. Nowadays they will offer a range, on a single charge, of 250 to 300 miles, depending on how you drive. They cost more than their conventional counterparts, but only peanuts to run. They are quiet and smooth. They are at last mainstream, if not yet mass-market. The likes of Greta Thunberg and the less charismatic Shapps are warming public opinion to the new green technology. Many of us would like to have a car with a distinctive green number plate. It would be cool. It is trivial, the colour of a number plate, but its introduction might well change behaviour disproportionately – a fine example of “nudge” economics at its best. Conspicuous consumption can be green, rather than ostentatious and wasteful.

The problem – well, challenge – is how ever-more ambitious targets for going carbon neutral are practically compatible with the widespread desire for personal transportation. We just can’t make enough electric cars now, even with our present modest ambitions.

Currently, our climate neutral target date from 2050 will anyway cost £1 trillion – the best of a whole year’s GDP, by way of illustration. If we want to bring it forward to 2030 or even 2025, as Extinction Rebellion would like (and that is a perfectly good idea), then we will have a problem with cars, because the carmakers are not geared up to meet a greener and healthier world.

It is simply a matter of market failure. Governments can will the end of rapid decarbonisation – but they must then create the means, and if need be actually help the car giants to accelerate their electrification programmes. Even then it would be a push.

Without public support in investment subsidies, the car companies will not be able to make enough electric cars to meet the demand and fulfil increasingly tougher targets for going carbon neutral.

Still less could they do so if there was an aggressive campaign to scrap diesel and petrol vehicles, creating a shortage of cars. Besides, large commercial vehicles do not work well on pure battery power (let alone merchant shipping, aircraft or domestic boilers, by the way). How to meet laudably tough carbon targets has simply not been thought through.

The XR campaigners are obviously right about the imperative of change and action, but there is a legitimate question about the current pace of industrial change. There are some excellent electric vehicles such as the Kia e-Niro that are already sold out. It will take a decade or more for the car companies to write off their gigantic sunk investment in internal combustion technology and to move into electric alternatives. Some of the big automotive groups are only just starting to join the electric party – VW Group, PSA (Peugeot), Ford, Fiat Chrysler and others have been unaccountably reluctant to shift until very recently.

We hear a lot about the advanced US-built Tesla, but it is expensive and rare. The investment in new plants, sourcing batteries, sourcing raw materials and learning new working methods for the western mass-production car groups has a long way to go.

But not in China, which leads the world in battery technology, alternative energy vehicle production and production know-how, with the South Korean and some Japanese groups such as Nissan also making rapid progress. It is in China that the pace of innovation is picking up most quickly, and consumer demand with it. An advantage of running a dictatorship is that the Chinese Communist Party can simply order a national network of fast-car-charging points to be built, a great aid to consumer acceptance, and that is exactly what they are doing. In terms of home-charging units and public fast-chargers, the UK’s record is especially poor. Something for Shapps to divert more of his own renewable energies to, perhaps.

Put simply, the Chinese car industry hopes to leapfrog the west (especially Germany) because it will never be able to catch up on the old petrol and diesel techniques. The big western groups, especially in Germany and the US, may well adapt by moving production and sales to China, as they are already doing via burgeoning joint ventures.

But the investment needed to revamp and update factories in relatively high-cost Europe and North America may be prohibitive. In which case the shift of economic power from west to east will accelerate. No doubt the mighty German car industry will continue to reap a healthy living out of making internal combustion engines vehicles better than most in the world, and maybe for longer than we assume, as they design ever leaner burn engines. But the more their “host” governments impose tougher emissions rules and carbon targets, the more they hasten that shift in geo-economic fortunes, and to the potential detriment of workers and tax revenues in the EU and US.

There is also, by the way, the geopolitical subplot of how oil rich states such as Saudi Arabia and Iran will lose relative power to emerging and developing economies rich in the new resources of lithium and rare earth elements, such as Argentina and Congo.

The west will lose part of its industrial base with the switch to electric propulsion. We will save lives from the improvement in air pollution, and people who live on trunk roads will find life much quieter, but overall the balance of economic power will shift eastwards because of our concern for the environment. It is ironic that the west is about to see a great industry go east because of the clamour about climate change, when it was the Chinese who did do much to hasten global warming with their rapid industrialisation.