he recent proposal to place plug-in hybrid electric vehicles (PHEVs) in the same preferential category as battery electric vehicles (BEVs) and range-extended electric vehicles (REEVs) is not a minor technical adjustment. It is a policy contradiction.

A pure electric vehicle runs on electricity; a plug-in hybrid does not. That distinction should have ended the debate. The country urgently needs to lower its dependence on imported oil, improve air quality and transition to a modern automotive ecosystem capable of attracting new investment. The government’s stated ambition of achieving 30 percent clean vehicle penetration by 2030 is both sensible and necessary.

However, good policy intentions do not automatically produce good policy outcomes. Pakistan’s proposed new energy vehicle (NEV) Policy is, in many respects, a welcome step. But buried within the proposed framework is a decision that risks weakening the transition. The policy seeks to place PHEVs, BEV and REEVs together under the newly created NEV category.

The PHEVs are allowed to be eligible if they offer at least 50 kilometers of electric-only driving range and can be externally charged. This may sound reasonable on paper. It is far less convincing in practice. A PHEV remains, fundamentally, a combustion vehicle with battery assistance. It carries an internal combustion engine, burns imported fuel, emits carbon oxides through the tailpipe and reverts to petrol power at a time depending on speed, terrain, battery condition, passenger load and driving behaviour.

In other words, it is not a zero-emission vehicle. That matters because the policy document justifies NEV incentives on the basis of reducing emissions, cutting oil imports and productively consuming Pakistan’s surplus electricity. In most countries, hybrid vehicles do not enjoy the same concessions as pure electric vehicles.

Governments generally favour fully electric vehicles because hybrids still consume fossil fuel and emit carbon dioxide. India for instance favours EVs more than the hybrids. EV benefits in India include the lowest GST (around 5 percent), purchase subsidies under schemes like PM E-Drive, registration fee waivers in some states and lower road tax.

The International Energy Agency treats PHEVs and BEVs as distinct technology categories. Global EV sales crossed 20 million vehicles in 2025. In a few years, EVs are expected to approach one-third of all new car sales worldwide. China is by far the world’s largest EV market and the centre of global EV growth.

Around 12.9 million EVs were sold in China in 2025. China alone accounted for roughly 60-62 percent of global EV sales. Europe is currently the fastest-growing major EV market. Rising fuel prices, strict emission rules and subsidies are accelerating EV demand. European consumers are increasingly buying both local and Chinese EV brands. EV sales in Europe grew by about 33 percent in 2025. Countries leading adoption include Norway, Germany, United Kingdom and the Netherlands. In Norway, most new cars sold are electric.

Hybrids face higher GST (around 28 percent in many cases). Some states offer limited road tax relief, but nothing close to EV benefits. There is intense policy debate because companies like Toyota Motor Corporation and Maruti Suzuki support hybrids, while EV makers oppose equal incentives. India views hybrids mainly as a transition technology, not the final destination.

Europe heavily favours fully electric vehicles, offering large purchase subsidies, tax exemptions and free parking/ toll benefits in some cities. Plug-in hybrids once received major support but now many European governments are reducing hybrid incentives because real-world emissions were higher than expected.

How can subsidising petrol-burning vehicles serve emission concerns? The fiscal implications alone should give policymakers pause. Under Pakistan’s normal automotive tax structure, a conventional imported passenger vehicle attracts substantial customs duty, additional customs duty, sales tax and related levies. Under the proposed NEV structure, materially concessional treatment applies.

For a mid-size imported PHEV SUV, the difference could conservatively amount to Rs 1 million per vehicle in foregone tax revenue, depending on classification and valuation. That is not a rounding error. If 1,000 such vehicles enter under concessional treatment, the exchequer could lose more than Rs 1billion. That is public money being surrendered not to accelerate zero-emission mobility, but to subsidise vehicles that continue consuming imported petrol. At a time when Pakistan remains fiscally constrained, this demands scrutiny.

Then there is the foreign exchange contradiction. Pakistan’s transport sector already accounts for nearly four-fifths of national oil consumption. Reducing the fuel import burden is one of the strongest economic arguments for electrification. Yet each additional PHEV increases that burden. A typical PHEV in real-world mixed driving conditions may consume between 1,000 and 1,400 liters of petrol annually.

At current fuel economics, that translates into roughly $700 to $1,100 per vehicle per year in additional import cost. Ten thousand such vehicles could generate $7 million to $11 million in recurring foreign exchange outflow. A pure EV does not. If the policy objective is reducing Pakistan’s oil dependence, this approach moves in the opposite direction.

Then there is the environmental case. Each liter of petrol burned emits approximately 2.3 kilograms of carbon dioxide. A single PHEV consuming 1,200 liters annually would therefore emit nearly 2.7 tons of CO² every year.

At scale, the numbers become significant. Ten thousand vehicles would emit roughly 27,000 tonnes annually. Fifty thousand would emit 135,000 tonnes. This comes at a time when Pakistan is battling worsening urban smog, mounting climate vulnerability and rising public health costs linked to vehicular emissions.

Can a policy claim environmental credibility while extending green incentives to tailpipe-emitting vehicles? Globally, policymakers are becoming increasingly sceptical. European regulators have already found that real-world PHEV emissions often far exceed laboratory certification values because owners frequently undercharge vehicles and rely more heavily on combustion mode.

India currently dominates electric two-wheelers and three-wheelers. Southeast Asia is seeing rapid EV penetration due to affordable Chinese imports. EV sales in emerging markets outside China grew nearly 80 percent in 2025.

Even where plug-in hybrids have received temporary incentives, the global policy trajectory is increasingly clear: support is shifting toward true zero-emission transport. Pakistan should not move in reverse. The commercial consequences may be even more serious. Consumers are rational. Faced with two similarly incentivised choices, one requiring charging discipline and the other offering unlimited petrol backup, many buyers will choose convenience.

That means the PHEVs could crowd out genuine EV adoption. Once EV adoption slows, the ecosystem suffers. Charging infrastructure investors need sufficient vehicle throughput to make the projects viable. Battery ecosystem investors require predictable market growth.

OEMs evaluating EV assembly depend on policy certainty. If the market shifts toward hybrids enjoying EV-level incentives, the economics of pure electric investment weaken. That is how industry confidence is damaged.

Several industry players advocating inclusion of PHEVs under the NEV umbrella are not new entrants taking first-mover risk. Many have already benefited from Greenfield incentives under the existing automotive policy framework for setting up assembly operations around hybrid and plug-in hybrid products. The policy rationale behind such incentives was clear: temporary support to encourage investment, technology transfer and eventual localisation.

If the same beneficiaries now seek another cycle of preferential treatment under a newly created NEV category despite dealing in vehicles that still depend on combustion technology, the purpose of industrial policy becomes blurred. Instead of encouraging deeper localisation, technology development and domestic value addition, repeated incentive extensions risk rewarding dependency on imported kits. That carries serious consequences for Pakistan’s auto parts industry.

Hundreds of local vendors and parts manufacturers have invested over decades in building production capability, employment and industrial know-how around the automotive supply chain. A policy that disproportionately incentivises imported or lightly assembled plug-in hybrid kits over genuine localisation risks weakening these enterprises.

Why would assemblers aggressively localise expensive components if repeated concessional imports remain commercially more attractive? Why would existing parts entrepreneurs invest further in tooling, expansion and capability upgrades if policy signals favour import dependence over domestic manufacturing?

Pakistan is not merely trying to sell cleaner cars. It is also trying to build a future automotive ecosystem. Policy ambiguity at this stage sends the wrong message. This is not an argument against plug-in hybrids as a consumer product. They may serve a transitional role for certain buyers. But transitional technologies should not receive the same strategic treatment as destination technologies. Public incentives must reflect public priorities.

If the goal is cleaner air, lower oil imports, stronger energy security and genuine electrification, then policy support should remain aligned with vehicles that actually deliver those outcomes.

The writer is a senior economic reporter