Economics (AS & A Level) · Oct / Nov 2021 · Paper 41 · Question 1

The economic impacts of the increasing use of all-electric cars Some governments have agreed targets to reduce air pollution and, as part of this, are concerned about the social costs caused by the use of petrol and diesel vehicles. In response, car manufacturers are producing all-electric cars. The sales of these are increasing, especially in developed countries. The success of this switch to all-electric cars will depend on improving both battery technology as well as building an infrastructure in which, as drivers reduce their use of fossil fuels, electricity charging points will replace petrol pumps. Fig. 1.1 shows the cumulative number of all-electric cars in the world between 2010 and 2016. 2 1.6 1.2 Number of all-electric cars (millions) 0.8 0.4 0 2010 2012 2014 2016 2011 2013 2015 Fig. 1.1 Fig. 1.2 shows the annual sales of all cars in the world between 2010 and 2016. 50 40 30 All car sales (millions) 20 10 0 2013 2012 2011 2010 2014 2015 2016 60 70 80 58 61 63 69 58 61 63 69 56 56 66 66 66 66 Fig. 1.2 3 Some forecasters predict that about one third of the world’s cars will be all-electric by 2040. Their forecasts are based on the assumption that the costs of batteries to run these cars will have declined steeply from their present levels. Battery costs are dependent on supplies of various metals which are used as component parts. Supplies of these metals are finite and their prices, linked to mining costs, will be crucial in increasing the scale of all-electric car production. In 2016, the cost of the batteries was 49% of the total cost of the car. In 2017 it was stated at a New Energy conference in Shanghai that battery prices would need to drop by more than half before all-electric cars would become competitive with cars powered by petrol and diesel engines. Oil producers claim that growth in sales of all-electric cars will not substantially reduce world demand for oil. The world needs oil for much more than just cars. Cars account for only about a fifth of the 95 million barrels the world consumes every day. Most of the rest is used in industry or to fuel heavy goods vehicles, aircraft and ships, which do not have easy non-oil alternatives. In developing economies, petrol sales are expected to continue rising because these countries do not have the infrastructure or sufficient capital investment to enable the switch to electric vehicles. Source: The Times, 31 July 2017; letters to the Guardian, 8 August 2017; World Motor Vehicle sales of new vehicles 2005–2016 published by OICA, accessed 8 August 2017

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