Electric vehicles provide a great many benefits for Nepal. The policy to encourage the adoption of private electric vehicles through lower import taxes is not one of them. The case of electric vehicles provides an excellent illustration of how efforts to green the economy and reduce emissions are missing the opportunity to fix existing inequities.

In October 2021, Nepal announced an audacious goal to achieve full net zero by 2045. Net zero emissions would mean that Nepal would completely negate its total emissions of greenhouse gases through reductions or other methods to absorb carbon dioxide (CO2) from the atmosphere (such as through increased forestry). For comparison, India seeks to achieve net zero emissions by 2070.

Nepal’s net zero announcements were made in its submission under the United Nations Framework Convention on Climate Change (UNFCCC), the global agreement governing action on climate change. In the long-term strategy, Nepal reports that it has “incorporated the green, resilient, and inclusive development (GRID) agenda into its development policies and plans”. For the record, “inclusive” appears only five times in the 37-page strategy submission to UNFCCC. As with all government announcements in Nepal, a lot is said. Some of them are promptly forgotten. Very little is eventually done. Inclusive policies that benefit the poor and vulnerable must not be allowed to be casually cast aside.

Inclusive growth

The Nepal Country Climate and Development Report, prepared by the World Bank and published in September 2022, highlights how Nepal remains extremely vulnerable to weather events induced by climate change. “Persistent drought could cause food shortages and rising food prices with lasting impacts on farm incomes, nutrition, and poverty,” it states. The impact of flood and heat waves on labour productivity, agriculture and livestock could cause the economy to shrink by 7 percent by 2050, the report estimates.

The poor will be on the front lines of these disasters and climate shocks. “Vulnerable communities, particularly poorer households and those relying on subsistence agriculture, as well as remote, mountainous municipalities, face the highest risks,” Faris Hadad-Zervos, the World Bank Country Director for Maldives, Nepal and Sri Lanka, wrote in November 2022 while describing the importance of inclusive development. In the article, Hadad-Zervos points out that Nepal’s development will be determined by how it addresses the dual challenges of “vulnerability and inequality”. The country’s development path, he argues, must be “inclusive of the poor and vulnerable”.

Nepal’s long-term strategy for net zero emissions estimates that approximately $375 to $485 billion (in current terms) will be required by 2040 to meet its goals. These are staggering requirements, representing approximately 33 to 42 percent of Nepal’s total gross domestic product (GDP) between 2022 and 2040. Responses to the climate challenges offer unprecedented large opportunities to mobilise investment and technologies. This should be an equally unprecedented large opportunity to repair many of the existing historical inequalities. The investments and technologies leveraged for climate must be redirected to benefit the poor, marginalised and vulnerable in equal measure. Inclusive policies are worth fighting for, even if rich people must pay more to drive their shiny, fancy new electric private vehicles.

Inclusive policy

Increasing personal vehicle ownership is not a stated policy goal of Nepal at this time. Shifting vehicles from petrol and diesel towards electric is. Nepal’s long-term strategy for the net zero goals includes significant targets for electric vehicles. By 2030, it aims to have electric vehicles account for 90 percent of all private and 60 percent of all public automobile, including two-wheeler, sales.

The government is primarily using lower taxes to induce the shift to electric vehicles. Petroleum vehicles currently face import and other taxes totalling at least 240 percent on average of the cost of the vehicle. In contrast, private electric vehicles face approximately 10 to 70 percent in customs and excise duties, and receive preferential lower road tax and other benefits. Bigger private electric vehicles, those with above 100 kW of power typically bought by the rich, pay progressively higher taxes within that range. But even then, the relative tax on electricity is significantly lower than on conventional petroleum cars. Tax rebates have also been provided for public electric vehicles and electric two-wheelers.

Electric vehicle imports are soaring on account of these tax rebates, data from the Department of Customs illustrates. In the first eight months of this 2022-23 fiscal year, approximately 2,200 private electric vehicles had been imported, almost a 70 percent increase over the same period last year (there is a reported six-month waiting period for new electric cars). Similarly, approximately 5,800 two-wheelers and 5,000 three-wheelers, representing more than a doubling over last year, have been imported. Approximately 185 large electric buses and micro buses have been imported.

Although tax rebates are increasing the adoption of electric vehicles overall, the benefits are disproportionately enjoyed by private electric vehicle owners. Approximately 80 percent of private vehicle imports are now electric. Electric two-wheelers, which represent almost 75 percent of vehicle registrations in Nepal, still account for less than 15 percent of all two-wheeler imports. It is a similar case with public transport, where approximately 30 percent of imports currently represent electric vehicles.

The relative difference between taxes for electric and petroleum automobiles is quite high for private four-wheelers, making it highly beneficial to switch. It is not so for public transport vehicles and two-wheelers. Conventional petroleum buses face almost the same import tax rate as electric ones, while the tax for petrol two-wheelers is much lower than for four-wheelers. The tax benefits for public vehicles and two-wheeler owners from purchasing an electric vehicle are almost negligible.

While tax incentives have increased the adoption of electric vehicles, the benefits have been borne almost entirely by the rich, who are the most likely to purchase private cars. In eight months of this fiscal year alone, the resulting losses in tax revenues exceeded approximately Rs10 billion. These benefits have been enjoyed by approximately 2,500 happy, and mostly wealthy, car owners who would have been able to pay higher taxes for those vehicles.

Electric vehicles are a good example where we must encourage the government to evaluate whether its policies to green the economy are disproportionately favouring the rich over the poor, and whether we are remaining true to our goals for inclusive growth or not. There are other policies that could increase electric vehicle use without allowing the few already rich beneficiaries to walk away with all the benefits. Over the next two decades, some $350-$450 billion in investments will flow towards clean energy, climate adaptation and the green revolution in Nepal. The rights of Nepal’s poor, marginalised and vulnerable people to benefit from the green revolution must be secured. They can’t be cheated by yet another revolution.