First France, then the UK. Now China, it seems. The latter has said it is looking at banning diesels and petrol engine cars by an unspecified date.
“Some countries have made a timeline for when to stop the production and sales of traditional fuel cars,” stated Xin Guobin, Deputy-Minister at the Ministry of Industry and Information Technology (MIIT), in a piece published by Xinhua, China’s official news agency.
He added that “the ministry has also started relevant research and will make such a timeline with relevant departments. Those measures will certainly bring profound changes for our car industry’s development.” No dates were identified, though.
What’s driving this is a concern over poor urban air quality, China’s reliance on imported oil (it is the second biggest producer of oil in the world) and a desire to develop a new electric vehicle industry and supply chain as part of its industrial policy which runs until 2025, and then export that technology globally.
The Chinese firm BYD is already the biggest producer of electric cars in the world, and numerous auto makers are forming joint ventures (JVs) with Chinese firms to develop and sell EVs in China. Renault-Nissan, Ford and Volkswagen have all formed JVs in China to enter the burgeoning EV market and avoid import tariffs.
Tesla is looking at producing in China to achieve economies of scale. Volvo – owned by China’s Geely – has said it will have an electric or hybrid variant of every model by 2019 (it was followed by JLR which set a 2020 target). Geely also own the London Electric Vehicle Company, which is making electric taxi cabs near Coventry.
China has set an ambitious target of selling some 7m ‘New Energy Vehicles’ (NEVs) by 2025. So far it has been encouraging firms to make and sell EVs through generous subsidies worth as much as £6400 per car but these have already been cut by 20% over the last year and will be phased out.
That’s likely to mean something of ‘speed bump’ for the EV industry in China, hence the possibility of an outright ban on petrols and diesels at some point to keep the momentum going.
Instead of hefty subsidies, China will shift onto a tradable permit scheme. That scheme should come into force next year. One version of draft plans in circulation will require a quota of 8% of manufacturers’ car production to be electric or hybrid in 2018, rising to 10% in 2019 and 12% in 2020.
Under the new rules, auto firms will have to hit the quota target for NEVs or buy credits from another firm on a carbon trading market to compensate (the idea being to hit the overall target in the least cost manner possible for the industry).
Different vehicle types will count in different ways towards the target figure. EVs would count more than hybrids, it’s thought.
Domestic firms like BYD and BAIC that already produce sizeable numbers of EVs will likely benefit from the new rules and will probably be able to sell credits to other car makers.
Local governments have also aided the development of the EV market, awarding licence plates to EVs freely while auctioning plates to internal combustion engined cars.
However, according to Reuters earlier this year, there has been opposition to the speed of change from the industry and a disagreement has ensued between China’s Ministry of Industry and Information Technology (MIIT) and the key planning agency, the National Development and Reform Commission (NDRC).
It’s thought that the MIIT wants a more flexible approach more aligned to the demands of automakers while the NDRC wants to see a quicker enforcement of strict quotas. Who wins will in part determine how quickly the targets are enforced.
The cutting of subsidies and shift to a trading system is part of a wider move to force the industry to shoulder the burden of stimulating a new market rather than relying on state support.
The government is also keen to consolidate the industry. The generous subsidies prompted something of a ‘gold rush’ of some 200 prospective firms stating that they will produce and sell EVs in China.
The government has been keen to reduce this number down to few larger players like BYD and Geely that one day could compete with big international players in the EV market like Tesla and Renault-Nissan.
It’s not clear how quickly China will ban petrols and diesels. But if it does go ahead it will be a game changer for the global auto industry. China produces getting on for 30% of the world’s cars and is the biggest auto market in the world.
Professor David Bailey works at the Aston Business School and drives and electric car.