Why Nepal needs to restore EV tax subsidy

Prime Minister K P Oli inaugurating the first electric bus service in 2018 after announcing 20% of vehicles in Nepal would be battery-powered by 2020. The government did not allow those electric buses to go into service, and has now reversed its tax policy favouring battery-operated vehicles. Photo: Bikram Rai

Developing countries are usually late-comers in adapting to advanced technologies, but new innovations like battery-powered cars give countries like Nepal the chance to leapfrog to clean and green energy.

Nepal has been kept back by poor and limited education, low levels of industrialisation and bad governance. However, this actually puts the country in a position to catch up through the adoption of new technologies.

Especially when it comes to energy and the environment, Nepal does not need to reinvent the wheel. It just has to build on past policies that have worked – like the community forestry program, manage hydropower to generate surplus electricity, and restore tax subsidies for electric vehicles.

When Sajha Yatayat introduced five new BYD electric buses in 2018, there was great optimism that Nepal was on the right path. Prime Minister K P Oli himself inaugurated those buses by riding them into Singha Darbar, and announced that 20% of vehicles in country would be electric in two years time. Well, it is now 2020 and instead of promoting EVs, this year’s budget has withdrawn the tax breaks for battery-powered cars.

Nepal needs to foster a new climate for investment in green technologies with a paradigm shift in reducing the technology gap. One such paradigm shift had been the tax concessions on electric vehicles, but Finance Minister Yuvaraj Khatiwada’s budget raised excise tax by 40% with another 60% of custom duty and put a question mark on the government’s commitments to its own sustainability goals.

There are two compelling reasons to support EV growth: controlling air pollution and cutting petroleum imports. An estimated 35,000 people die annually from pollution emitted by fuel-driven vehicles. Nearly 15% of Nepal’s total imports is for petroleum making it Nepal’s number one item of import.

According to Global Green Growth Institute, proposed new 6.8GW of hydropower projects will give Nepal excess electricity supply in next few years. Electrifying the transportation sector will allow proper utilisation of domestic resources, and enable  new innovative business strategies for energy sufficiency.

To benefit from both aspects, the government needs proactive subsidies to encourage the adoption of electric vehicles. This not only helps in low-cost access to electric vehicles, but also create the environment to build an electric mobility ecosystem for sustainable growth.

China provides a good example. Its economic development formula starts with local experimentation of reform initiatives, which then can be replicated at the national level.

Back in 1998, China’s first phase of EV development actually happened on a small scale across 12 major cities.

For the next 10 years, the focus was given to battery production and setting up of necessary infrastructure which then got integrated into the national plan. Subsequently, after 2008, conventional fossil consuming motorcycles were banned across 16 major cities, and government promoted preferential treatment and subsidies including purchase tax waiver, trade barrier removal and infrastructure subsidy that expanded pilot initiative from 12 to 88 major cities.

Since then, 450 new EV manufacturers have been registered in China, including giant  oligopolies like BYD which have taken the global lead in electric vehicles. For the past three decades, EV sales have seen an increasing trend in China and they are projected to reach price parity with petrol and diesel by 2030.

The 87% drop in battery prices worldwide between 2010 to 2019 will also reduce the price of electric vehicles and make them more competitive vis-à-vis fossil cars.

For Nepal, this means electric vehicles will gradually replace petrol and diesel vehicles whether we like it or not. It is better to stay ahead of the curve and actively promote battery-powered cars now so that Nepal gets an early-bird advantage from reduced imports, improved air quality and better public health.

As the Saudi Arabian Oil Minister Seikh Zaki Yamani once said: ‘The stone age did not end for the lack of stones, and the oil age will end long before the world runs out of oil.’

 Despite the global importance of alternative energy, Finance Minister Khatiwada’s  argument that an increase in imports of electric vehicles would drain the economy does not hold much water. Being a one-time import, EVs replace up-front cost of petrol cars, but reduce the long-term running cost by cutting the use of imported fuel.

Similarly, the argument that only high-end vehicles were imported in large numbers fails to take into account that cheaper Indian and Chinese electric cars and e-scooters like Niu and Terra Eco had begun to replace petrol-powered scooters. Instead of raising taxes, Khatiwada should have should have been given incentives for entry-level or mid-range EVs and electric buses which cater to local needs, reduce other costs and promotes sustainability.

Germany subsidised solar power and China subsidised electric vehicles more because they made economic sense, than just because of their ecological benefits. Nepal should also embrace the benefits of electrifying the transportation sector for economic and health reasons, rather than try to convince Nepalis to reduce the country’s carbon footprint to save the planet.

Raunab Singh Khatri is a graduate student in economics at the Yenching Academy of Peking University