Annals of nudge: British company cars

A small change in UK tax may tip large effects.

This post would be wonky if I could be bothered to do a deep dive into the rococo tax rules for company cars in the UK. Try this. But for once the tl;dr is enough.

For reasons I do not, like Cervantes (footnote), care to go into, the British tax code makes it attractive for employers to offer company cars to middle-rank employees as a perk. The company owns or leases the car and lets the employee use it for private travel and work alike. The employee pays tax (Benefit-in-Kind, or BiK) on the imputed value of the benefit for personal use, on a scale.

The typical split looks like this:

  • Company – ownership; book and residual value of the car; depreciation; insurance; breakdowns; maintenance; road tax; choice of the list of available cars, sorted by status.
  • Employee – fuel; BiK tax; choice of car from the restricted list, according to status.
  • Some employers offer fuel too, which is taxed as a separate BiK.

The result is that 35% of new cars are company ones, about 830,000 of them a year. Add to this the true fleets (rental companies, police, etc), and a remarkable 57% of new cars (pdf) are bought by companies, not individuals.

The story is that the shell-shocked British government has found the time to introduce a reform, from April 2020. This will make the BiK use tax more strongly dependent on emissions. It’s a steep progression now, from 9% to 37%. The rate will now fall to nil for BEVs.

Bank of America /Merrill Lynch have done the math and issued a shiny report with lots of pretty graphs (not public, but they sent it to CleanTechnica). The method is confusing, and the analysts do not provide a summary of costs to the company as opposed to the employee. As far as I can see, the takeaways are:

  • For employees, the BiK changes and cheap electric fuel make for very large savings in choosing a BEV or PHEV – up to 22 times less outlays for a Tesla 3 (£659) against a BMW 3 series petrol (£15,137) over three years, a common life of a company car.
  • For employers, the low maintenance costs of EVs are still outweighed by the higher purchase price, so that the total three-year cost of ownership (TCO) of the BEV or PHEV is still somewhat higher than that of a comparable ICEV for 10K miles a year. The significant savings to the employee mean that the total joint TCO is similar. The TCO becomes significantly lower (12% – 32%) for a high-mileage fleet use of 20K miles, including fuel costs.
  • The employer can now in many cases offer a higher-value package to the employee for less outlay with EVs, appropriating (unless they are dumb or unusually altruistic) a large share of the tax break. (My inference, not BoA’s.)

Here’s the cognitive beauty of this setup, which makes it a great nudge: nobody is acting under sticker price illusion. The employee doesn’t pay any part of the purchase price, and has no reason to consider it. For their employer, the analysis is done by professional HR and finance people who are automatically looking at TCO. (By this I understand purchase price plus all running costs and depreciation; Bank of America confusingly exclude the first.) Their decisions have to be justified by the data. Company secretaries and lawyers will start muttering about “fiduciary responsibility” if the Board does not pursue the cost saving. The effect is supercharged if the employer leases rather than buys the vehicles. Car TCO is just a significant side-issue for most employers. For leasing companies, TCO is the heart of the business. They will very soon be offering EV contracts cheaper.

It’s a pretty safe prediction that the company car market in the UK will shift strongly to electric vehicles from next April. That’s before taking account of competitive new models like the VW ID.3, improvements in the charging network, further moves towards ULEZ zones in city centres, and censorious pressure from teenage children inspired by Greta. The new sales will probably stimulate emulation sales to envious neighbours, some with their own Greta fans.

Does this extend to true fleets? Police have their own use requirements and are culturally conservative. Rental car companies are less so. However, they are in a rather similar position to standard company-car employers, in that it’s the renter, not the owner, who gets the benefit of the low fuel costs. The number of renters who ask for an EV is still, I would guess, quite low from lack of familiarity. But this too will change, more slowly.

The incentives here are specific to the UK and the same effect won’t be seen in the USA. But there are still many US fleet operators who are likely to be more receptive to TCO pitches than Joe Average in the dealer’s lot. That’s how electric buses are taking over, in site of the sticker premium.

Oh, yes, RANGE hiss hiss. The distance from London to Edinburgh is 402 miles: Brits see this as a major two-day expedition calling for a week’s planning with furrowed brows, as historian John Keegan puts it. A 250-mile Tesla 3 Standard meets all reasonable range needs in Britain. Distances in the US West are of course greater – but the population of Wyoming is 577,000, barely more than Sheffield (553,000). It’s absurd to let the needs of a handful of rural Real Western Men determine the framing of transport policy in a country where 80% of the population lives in cities, towns and suburbs and the average commute is 16 miles.

The EV revolution is happening, much faster than most people think. This chart leaves out e-buses, which have 90% of urban sales in China , and e-tuks, which putter below the statistical radar, but are >1.5m in India alone. For cars, the growth in sales in 2018 was a not exceptional 65%. It will be lower in 2019 because of a large hiccup in China, but the trend is unstoppable.

Footnote

The immortal opening sentence of Don Quixote:

En un lugar de La Mancha, de cuyo nombre no quiero acordarme, no ha mucho tiempo que vivía un hidalgo, de los de lanza en astillero, adarga antigua, rocín flaco y galgo corredor.

A bad climate chart

Bad in two senses. From a recent post by Kevin Drum with the scare headline “The World Is Giving Up On Climate Change”, a chart from the reliable FT:

Looks terrible! But Kevin truncated the FT chart – the 2019 bar label has the important subscript “H1”. (FT article, paywalled – trust me, I got a sneak view somehow, and it’s definitely there.) The all-year total won’t be great, but it will be fairly close to last year’s ca. $290 bn.

Why would Drum, normally a thoughtful and careful blogger and a chart maestro, make a silly mistake like this? I suggest it’s motivated reasoning. Drum has locked himself into the untenable positions that the energy transition requires large and very unlikely changes in lifestyles, that existing technologies are too expensive, and that the only hope is massive R&D to find something much cheaper. These three positions are nonsense (see for example Jacobson, Blakers, Breyer (pdf), or for the tl:dr capsule, me). To defend an untenable position, you grasp at straws. Look, the FT says renewable investment is collapsing! Only it isn’t.

The chart does tell us a less dramatic, but still real, bad news story. Renewable investment was growing fast until 2011, then the boom stopped and spending has been stuck on a plateau. The effect has been mitigated by the continuing falls in the prices of wind, solar and storage. Lazards give a 10 year decline to 2019 in the costs of wind in the USA as 70%, of utility solar 89% (13th survey of generation costs, pdf, page 8); they don’t supply a trend for storage, as the use cases are so varied, but do note a fall in costs. Price trends are global. So annual renewable installations have been growing in GW terms, only not as fast as they should.

This is not what Econ 101 would lead us to expect. When a technology steadily gets cheaper than its rivals, the rate of adoption should speed up, as investment shifts from higher-cost incumbents to cheaper newcomers enjoying economies of scale and learning. Following the classic logistic curve, the rate of substitution eventually slows as you near saturation, but renewables are only near that today in a few small countries (Norway, Denmark, Costa Rica).

We have to ask: what happened around 2011 that flipped renewable investment from growth to stagnation?

It certainly wasn’t a halt in technical progress or a global recession
– the GFC was essentially over by then. I can see only one
candidate: the victory of austerity policies over Keynesian ones.

This was driven by ideology over good economics, and supported by some very sloppy analysis (as with Rogoff’s debt limit argument). The austeriacs won because their message was congenial to financial elites, and required cuts in public spending and transfers to the working classes. As in the 1930s, the victory was temporary, and a new wave of populist right-wingers (Trump, Johnson, Abbott) rose to power who don’t care at all about financial orthodoxy. But it was for a while complete enough to secure a rollback in the incentives that had enable the rapid growth in renewables of the 2000s. Germany led the way with the EEG “reform” of 2012, and was followed by Spain and the UK. Renewable investment only restarted in Spain last year, with a socialist minority government and a determined environment minister.

This is not a complete explanation, and does not account for the Chinese  cutbacks, which came as late as 2018. Xi is probably not a fan of Alesina and Rogoff, and Chinese policy firmly supports growth and full employment. However, fears of the unsustainability of renewable subsidies can also arise in a controlled economy. In the USA, the self-blocking design of the Constitution and the spectacular incompetence of the Trump Administration have limited the rollback to largely symbolic changes like the waters regulation.

There is another suspicion, which fully applies to China. The fossil fuel industries are large and effective lobbyists for their businesses, to which the renewable transition is an existential threat. It would be astonishing if their minions did not use the austeriac arguments to hand, with superficial academic credibility, and playing to the prejudices of the policymakers they are dining with. Some fossil fuel tycoons – notably the Kochs – reinforced political lobbying by shoring up congenial academic research, notably the Kochs’ support of the Mercatus Center at George Mason University in, importantly, Washington. And is Harvard squeaky clean here, with its massive investments in fossil fuels and a lax policy on donations?

Don’t forget that the fossil people had and have a large direct interest: the subsidy rollback was specific to renewables, and the old subsidies to fossil fuels, buried deeper in the tax code, escaped unscathed. The change was a reverse Pigovian tax, a public policy in favour of pollution.

Someone joked that there are two theories of history – cockup and conspiracy. Cockup is the default, and works for some major events like the French and American Revolutions and the start of the First World War. But conspiracies are sometimes real and effective, as the careers of such luminaries as Lenin, Hitler, the Kochs, and bin Laden attest: all the way back to John of Procida, the likely mastermind of the Sicilian Vespers in 1282. I have a pet theory that the seizure of Brill by the Dutch Protestant Sea Beggars in 1572, nominally following the closure of Dover to them by the English to placate Spain, was in reality a deniable black op of Francis Walsingham’s.

I can’t prove the hypothesis that the energy transition was kneecapped by a conspiracy of fossil fuel lobbyists using bogus austerity arguments. But it’s worth investigating.

If that’s so, a suitable sanction for the perps could IMHO be life in a gulag, somewhere like here.

Antarctic icecap. Photo credit

Disproportionate you say? What’s proportionate for the crime of procuring genocide for hire?

The two-way street

A standard Israeli till receipt:

The text is on the right, as Hebrew is written right-to-left. The numerals are on the left, written left-to-right, as is standard with Arabic numerals.

Wait a minute. Arabic text is also right-to-left. So why do its numbers go the other way?

Because they were not originally Arabic but Indian. The attribution is not incidentally at all controversial. The two eminent mathematicians who popularised the system in the Muslim world around 830 CE, the Persian Al-Khwarizmi (who gave his name to algorithm) and the Arab Al-Kindi, entitled their treatises respectively On the Calculation with Hindu Numerals and On the Use of the Indian Numerals: no concealed attribution there. The decimal point was the work of an earlier Iraqi Jewish scholar, Sind ibn Ali. A full treatment of zero had arrived quite late in India, in the work of Brahmagupta (628 CE).

India used and still uses a lot of different scripts. But the common ancestor of many is the Brahmi script adopted by the Buddhist emperor Ashoka, reigned 268 to 232 BCE. Brahmi is left-to-right, and so are its numerals.

Brahmi script on Ashoka Pillar (circa 250 BCE), Wikipedia

The first widely used alphabet was the Phoenician, around 1200 BCE. It was right to-left. You have to ask: why would anybody have chosen this unhandy scheme? Unless you are left-handed: a small minority (around 10%) of most populations, but sometimes they get to be kings, high priests, merchant tycoons or tennis champions, in a position to get their way. But both the main earlier non-alphabetic scripts, Mesopotamian cuneiform and Egyptian hieroglyphs, run left-to-right, so it’s an odd choice. The Archaic Greeks switched direction back at the same time as they democratised writing, including for bawdy inscriptions on winecups.

It’s controversial whether Indian alphabets had a Phoenician ancestry – some Indian scholars argue for a purely subcontinental origin – but it’s likely. At all events, early Indian scribes followed or paralleled the majoritarian Greek choice of left-to-right, and Ashoka set it in stone.

For numbers, there is no particular advantage in one direction over the other. To evaluate a positional decimal number, you have to count outwards from the decimal point in both directions. Right-to-left and left-to-right are mirror equivalents. The direction was determined by the non-numerical script it was embedded in.

Yad Vashem and plastic plates

We are back from Israel, where I visited Yad Vashem for the first time. Being me, I have written to the curators with a few thoughts and suggestions. An extract follows.

Dear curators of Yad Vashem:

I was recently privileged to spend a morning at Yad Vashem during a holiday in Israel. Among the many strong emotions aroused by this experience is admiration for the work of the designers and curators of this great memorial. The comments and suggestions below are in no way intended to detract from this admiration. In addition, it is I think psychologically impossible to take in everything during a single short visit; if I have got anything materially wrong in my recollections, I apologise but claim force majeure.

[two pages on other stuff]

Disposable plates

As in the Israel Museum, the cafeteria serves cakes on disposable polystyrene plates. The observation may seem trivial and in the context of Yad Vashem ridiculous. Bear with me: I think it’s important.

First, these two museums are world-class institutions, presenting crucial aspects of Israel’s identity to the rest of humanity. At this level, visitors expect exemplary standards of professionalism, and nearly uniformly get it. Polystyrene plates are a retrograde failure to meet the benchmark. The EU will ban single-use plastic plates and cutlery by 2021, and public opinion in Europe is ahead of it.

Second, the mission of Yad Vashem in particular is memory. You seek to fight off the oblivion of time1 and ensure the Holocaust is no more forgotten than the Exodus or the destruction of the Temples. The architecture of the museum well reflects this aim of permanence in its solidity. The same should, I suggest, hold for minor details like plates. In my visits to the Struthof concentration camp in Alsace, I was struck by the shoddiness and meanness of the Nazi construction, and the unexceptional, but dignified and solid, stone memorials to the camps put up postwar by the French were a welcome contrast.

A final thought flowing from the above. As I understand it, the inmates in slave labour camps, Jews and others, were issued metal plates and cups for their starvation rations. I assume these remained the property of the camp, and were passed on to from one disposable slave to the next. I imagine that they played an important and ambiguous part in the mental world of the inmates: at the same time part of the machinery of destruction, but also a concession by the oppressors to the necessity of maintaining life among their slaves and a twisted recognition of their humanity. The tin plates were not evil things in themselves.

You might consider a small display cabinet in the cafeteria, with relevant testimonies from survivors. An additional possibility would be a comparison of the daily rations in a typical labour camp with those of a Geneva-convention Stalag for Western Allied POWs and of an American GI in Normandy.

Respectfully, Shalom

1Julian Barnes’ short story “Evermore”, in his collection Crossing the Channel, is a good exploration of this topic, set in the Western Front after WWI.

[/end letter]

Note: I have chosen this part of the letter as the most likely to spark a useful and focussed discussion – a general one on the Holocaust would be shapeless. Commenters are free to call me names, but I’d be grateful if you could avoid using the argument “so that’s the one thing you could find to write about?” because, you know, it wasn’t.

Just rewards

The Nobel Prize for Chemistry at last recognizes John Goodenough and his revolutionary battery.

The Nobel Prize committee for chemistry took their time but finally did the right thing:

The Nobel Prize in Chemistry 2019 was awarded jointly to John B. Goodenough, M. Stanley Whittingham and Akira Yoshino “for the development of lithium-ion batteries.”

Yours truly has been agitating for this since 2017. I’m sure far more influential voices than mine have been making the case, though I’m still quite proud of the letter I sent them (reproduced in the post), and repeated last year.

It’s particularly gratifying that John Goodenough is still alive to receive the prize. He is amazingly fit and still working, but at 97 nothing can be taken for granted.

Many chemists, including him, are trying to find a better battery formulation, but so far, your mobile phone (revolution one) and future electric car (revolution two) still run on the battery he and others invented over 30 years ago.

If human civilisation gets through this mess, he and his colleagues will be on the short list of unlikely heroes and heroines who gave us a chance.

Thank you, John, Stanley, and Akira, from all of us.

My climate strike

Joining the striking kids in Malaga

Lu and I joined the children’s climate strike in Malaga yesterday.

Can you spot the odd man out? Photo by Lu

The photo is slightly misleading in that the majority of the protesters were older, with a surprising number of Seniores. A decent if not startling turnout, and all very good-humoured.

Our information-rich poster. Translation at the end. Bus by Playmobil. Hollin is soot – the streaks are the real thing from my wood-burning fireplace. The QR code links to a paper in Nature Communications, but only one other participant took a photo of it. No media in sight.

I did quite well on photos otherwise: several dozen. Very markedly, there was disproportionate interest from middle-aged women. I assume it’s the placenta reference: it doesn’t connect in the same way to young nulliparae.

If I were Francisco de la Torre, the 77-year-old PP mayor of Malaga, would I be worried enough to reconsider my policies? For instance on slow-walking the buying of electric buses? I doubt it: we weren’t enough, nor sufficiently focused. A lot depends on whether Greta’s army, or its parents, will get down to the plank-boring work of political organization. The Occupy Wall Streeters notoriously failed to make this transition. But I might be more worried by the middle-aged women, the kind that go to meetings, who may now be circulating photos of my poster and others on their FB feeds.

Continue reading “My climate strike”

Impeachment open thread

I don’t have anything interesting to say about this, but commenters might like a space for a discussion, so here it is.

As a peg, let me suggest the very practical question whether House Democrats should pursue a broad or a narrow investigation, within the bounds of “high crimes and misdemeanours” not bad policies as on immigration and trade.

For narrow: the record of the Ukraine phone call conclusively proves abuse of office; no serious defence possible; gets it over with quickly.

For broad: impeachment will in any case not lead to removal; the object is to educate the electorate about the unfitness of not only Trump but most of his Cabinet and his enablers in the Senate, so lay out all the dirt; the open-and-shut Ukraine count will help shake loose evidence on other offences like money laundering for Russian mobsters.

There are nuances within the broad approach. Take violation of the oath of office to “faithfully execute the laws.” Trump and his minions have instead done their worst to sabotage both ACA and the Clean Air Act. Very dirty pool, but I suspect most voters will treat these as policy choices (maybe very bad ones) not potential abuses of power. There is quite enough to go on without taking this risk.

PS: “Perhaps the horse will learn to sing”. McConnell is a thug, but his own thug not Trump’s. There are circumstances – very unlikely but not impossible – in which Mitch would conclude that Trump is a net liability to the Congressional GOP. We may reasonably question if VP Pence has the cojones to stick the knife in if necessary. There is no such doubt about McConnell.

PS2: If any of my fellow-bloggers chimes in with something more substantial, commenters please shift the discussion to that thread.

Financing hydrogen iron

A wonkish plan for problem industries in the energy transition.

We know how to make the electricity supply renewable. We know how to make land transport electric. Both are on track. But there are four problem industries where things are not so clear.

These estimates are not all for the same year and not strictly comparable, but they are good enough to make the point that to reach net zero emissions, the four sectors (together 20% of global fossil emissions) cannot be ignored.

The challenges are distinct but they have common features.

  1. Very plausible technological pathways exist to decarbonise. But these are not mature, and for the moment they are far more expensive than BAU.
  2. There is no guarantee or strong expectation that technical progress will ever eliminate the cost barrier, in contrast to electricity and land vehicles.
  3. The industries are typical of modern capitalism: they are international and oligopolistic, with a lot of trade, a handful of large companies, and a myriad of small ones.
  4. Their products and services rarely have plausible substitutes. (We shall see later on why this matters).

Points 1 and 2 mean that the issue for public policy is not R&D (pace all the Democratic presidential hopefuls) but early deployment.

Recall how we got to cheap wind, solar and batteries. It wasn’t a carbon tax, since that does not exist anywhere in the pure form. Partial cap-and-trade exists in the EU, but it has only just started to bite, after giveaway initial allocations. It was done by subsidies for early deployment to create economies of learning and scale:

  • In the USA, tax breaks for wind, solar, and electric cars; renewable obligations at state level.
  • In Europe and China, tax breaks, subsidies, and regulatory privileges for electric cars.
  • FITs and ringfenced auctions for wind and solar generation in Germany, other European countries, China and India.

The costs of FITs have been large in the past, though the cumulative liability (in Germany for instance) has now almost stopped growing as the few surviving FITs are near market rates. Well worth it of course, especially if you aren’t a German consumer.

The same principle holds for our four problem industries. Carbon taxes are politically toxic, and a coordination nightmare in globalised industries. So what’s the workable second-best kludge?

I’d like to float a possible solution. I’ll take steel as the example. The principle extends to the others ceteris paribus.

!

Annals of weird infographics

A Norwegian consultancy comes up with a bafflingly cute one.

This chart, or whatever you want to call it, is from a report on the global energy transition by the big Norwegian consultancy DNV-GL. It’s not wrong or misleading so much as baffling. A new type of Tufte failure, perhaps. For their next effort, I suggest adding animated Teletubbies skiing down the mountaintops.

Dominion backs V2G

A big US utility subsidises school buses as grid batteries.

As a rule I don’t post much on renewable technology. The news is of a steady flow of small, unremarkable, incremental improvements that keep making wind and solar energy ever cheaper. It’s the prices that do it. But every so often, something bigger happens. I think it has here:

Dominion Energy Virginia has published a bullish plan to convert 50 school buses in its territory to electric buses by 2020. That’s just the start, as the company plans to add 200 more per year to hit its target of 1,050 fully electric school buses by 2025.
The company has a request for proposals in the works for electric vehicle manufacturers with plans to open the application to school districts in its Virginia territory this Friday, September 5th, 2019. […]
Dominion is excited to use the buses as vehicle to grid (V2G) batteries, and what’s even better is that the company has stepped up to pay the difference in price between traditional diesel buses and the fully electric buses in order to gain access to this new V2G resource.

V2G – vehicle-to-grid – is the idea of using electric vehicle batteries as storage for the grid. If it works, the potential is vast.
In 2018, there were 5.1 million electric cars on the roads worldwide, and 460,000 buses. (IEA Global EV Outlook 2019 ) Taking 30 kwh as a representative battery capacity for cars (Nissan Leaf) and 320 kwh for a representative electric bus (BYD K9), we have a total EV battery capacity of ~300 Gwh. The global light vehicle stock is about 1 billion, so EVs only represent 0.5% of it. But the growth rate is staggering – over 50% per year. The IEA suggests a global EV stock of 130 million in 2030 in its New Policies scenario (reflecting current policy ambitions), not much more than 10% of the stock allowing for market growth. We would then have a global vehicle battery capacity of ~7,800 Gwh, with plenty of upside.

Suppose we can tap a mere 10% of this for V2G. That’s ~780 Gwh. The Bath County pumped storage dam in Virginia, still the world’s largest (though not for long) has a storage capacity of 24 Gwh. V2G at scale would make a serious dent in the firming problem for very large-scale wind and solar. And it’s a very cheap solution compared to pumped storage or grid batteries: the owners of the vehicles will have bought the batteries anyway, and would not need to be paid much to lend them to the grid with appropriate guarantees and at minimal inconvenience.

A schematic illustration how this would work using Dominion’s school buses (my timetable guesses, not their estimates). On a working day:

  • 0000h – 0630 h: charge bus batteries in garage to 100%
  • 0630h – 0930h: morning school run, buses return to garage with average 33% charge
  • 0930h – 1600h: charge bus batteries in depot to 100%; available for V2G but not used much
  • 1600h – 1900h: afternoon school run, buses return to garage with average 33 % charge
  • 1900h -2400h: interruptible charging; >33% of bus battery capacity available for V2G to meet evening demand peak.

That’s for the 200 school days a year. For the other 165 days, the buses just sit in the garage, working exactly as grid batteries.

The scheme depends on the fact that any bus operator will buy a number of identical buses, but these will follow a mixture of longer and shorter routes. On the shorter ones, the buses don’t exhaust the charge. Given that Dominion is subsidising the purchases, they will be able to insist on as much over-capacity as they want.

There are several takeaways from this news. Continue reading “Dominion backs V2G”