Many countries, including Sri Lanka, are waiting till 2025 or even 2040 to impose a ban on Internal Combustion Engine (ICE) vehicles powered by either petrol or diesel. However, some other countries such as Norway, while not banning ICE cars yet, have given incentives and concessions for the import and use of Battery Electric Vehicles (BEVs) to the extent where almost 80 percent of the new cars registered are BEVs.
However, one unlikely country has taken a big leap forward, by banning ICE cars right away, without waiting even till 2025. Ethiopia, whose Government made this groundbreaking decision last week, spent nearly US$ 6 billion to import fossil fuels last year, with more than half of that spending going to power ICE vehicles.
In response, Ethiopia’s Transport and Logistics Ministries have announced that new automobiles cannot enter Ethiopia unless they are electric. In other words, Ethiopia is banning ICE vehicles now. The Government is said to have also implemented exemptions for Value Added Tax (VAT), Excise tax, and surcharge taxes for electric cars, highlighting its readiness and commitment to the policy. Ethiopia already has about 7,200 EVs out of 1.2 million cars plying its roads. Not a big number per se, but a good one.
But this decision should also be viewed from another context. If BEVs are charged using thermal power (coal or diesel), it is as good as using fossil fuels in the first place. Instead, Ethiopia has been investing massive amounts on its energy infrastructure for the past 20 years and 97 percent of its energy already comes from Renewable Energy (RE). It is just about to inaugurate its new Grand Ethiopian Renaissance Dam (GERD) 6,500 MW hydroelectric plant, poised to be the largest in Africa.
Thus this shift towards going fully electric, while partly in response to economic pressures, seems to also be a part of a broader strategy that has been in the works for a couple of decades. In fact, the Ethiopian Government has candidly admitted that it took the decision to go entirely electric mainly in response to the country’s foreign exchange crunch. US$ 6 billion is indeed a lot of money to be spent on oil. While the Ethiopian Government has not given a date for actually phasing out the ICE cars already on the roads, as opposed to banning the import or assembly of new ICE cars, if more electric cars come in it will be possible to reduce the fuel bill gradually over the years.
The parallels with Sri Lanka in this story are quite striking, though it also offers a glimpse of where and why we went wrong. First, Sri Lanka’s fossil fuel import bill is also around US$ 6 billion and Sri Lanka also experienced a foreign exchange crisis. Although foreign reserves have now exceeded US$ 4 billion, we are still not completely out of the woods yet and the Government has decreed that automobile imports cannot resume in full flow until the foreign reserves are beefed up further.
Sri Lanka has also failed miserably in the energy generation sector, having started no new projects for the last decade at least. It is only now that the authorities are hurriedly pursuing plans for starting RE plants. This is inexcusable in a country that receives sunshine and wind 365 days a year. If these plans succeed, Sri Lanka will be able to generate as much as 70 percent of its power requirement from RE sources by 2030. As the saying goes, better late than never.
The other major mistake committed by the authorities was the drastic increase of taxes and duties on electric cars from just 5 percent to more than 100 percent, depending on the battery capacity. This naturally dented the demand for BEVs, since people saw little point in buying a BEV over an ICE vehicle, many of which even cost less with all duties and taxes factored in.
Thus we have only around 2,000 BEVs on our roads, whereas it could have been around at least 15,000 if a favourable duty structure remained in place. Whatever losses the State may have incurred from the lower taxes and duties could have been recouped from the lower fuel bills.
Right now, a few hundred brand new BEVs have come in, thanks to a few special duty free schemes for migrant workers and some other categories. But just like Ethiopia, once the foreign reserves become stable, the Government should ban the entry of new or used ICE cars and only allow the import of BEV cars (of all capacities), keeping an eye on hydrogen powered cars as well.
There should be a reasonable and uniform duty structure that will enable motorists to buy these cars, instead of sending the import taxes and excise duties to the stratosphere. Moreover, duty free permits should not be issued to MPs and other politicians for either ICE or electric vehicles hereafter.
BEVs have other advantages such as the lack of noise pollution and air pollution and the country will also be able to save foreign exchange on motor oils and spare parts. However, the Government must take steps to improve the charging infrastructure and encourage solar chargers. A comprehensive BEV roadmap should be unveiled without delay.
