Time to pull the plug on electric vehicle handouts for the rich

By Nicolas Loris and David Grogan | The Daily Signal

Earlier this year, Congress passed an irresponsible budget bill that included handouts for electric vehicle owners and alternative fuels.

Eager to frivolously waste more taxpayer dollars, some legislators are now pushing to extend the electric vehicle tax credit and lift the cap on the number of vehicles that qualify for the credit by each manufacturer.

Doing so would reward special interests and only benefit the wealthiest Americans. Congress should instead eliminate the subsidies for electric vehicles.

Michael Bielawski/TNR

Rather than picking favorites, policymakers should eliminate targeted tax credits for all transportation fuels and technologies.

Promoted as a way to wean Americans off their alleged addiction to oil, both federal and state governments have generous handouts for electric vehicles. Consumers can use up to $7,500 of other peoples’ money to buy an electric vehicle.

Add in-state and local incentives and that number can easily top $10,000. In Colorado, for instance, a buyer can use up to $12,500 in federal and state tax credits to buy an electric vehicle, not to mention enjoy other perks like subsidized charging stations, preferred parking, HOV lane access, and exemption from emissions testing.

The federal tax credit applies to the first 200,000 electric vehicles per manufacturer, and then a phaseout of the credit begins. Tesla is in the phaseout period now and General Motors Co. is close to hitting the 200,000 mark.

Both the House and Senate introduced legislation to lift the per manufacturer cap and extend the subsidy another decade. In a press release, sponsors of the Senate bill urged that “federal action is needed to ensure a competitive electric vehicle market that continues to provide the choice and ability for consumers to purchase electric vehicles.”

Competition is not built on the foundation of government dependence. If federal action is necessary to ensure competition, it is more indicative of how uncompetitive the technology is. Subsidies may increase electric vehicle purchases in the short-term, but they counterproductively stifle innovation by encouraging reliance on preferential treatment from Washington.

When subject to the marketplace, manufacturers will understand the true price point at which consumers value an electric vehicle. Without the government picking winners and losers, the companies would have properly aligned incentives to provide a better product at a competitive price.

This holds true for not only electric vehicle subsidies, but subsidies for all energy sources and technologies.

Importantly, the fuel for electric vehicles is not free. As demand for electric vehicles increases as a result of the lower up-front subsidized price, so does the demand for electricity.

New research from the National Economic Research Associates shows that American households would, in fact, be worse off both as taxpayers and electricity consumers. The study projects that between 2020 and 2035, the average U.S. household would lose about $610 in personal income if the subsidy cap is removed. Cumulatively, total personal income of all American households would decrease by more than $7 billion over the 2020-2035 time frame.

If market-driven forces drove electricity prices higher as demand for electric vehicles increased, that would be one thing. But this is a cost borne as a result of the government pulling policy levers.

The indirect costs are particularly burdensome on lower- and fixed-income families who can’t afford electric vehicles and take advantage of the subsidies. Instead, the benefits of these subsidies accrue to America’s wealthiest households, which can also afford an electric vehicle without the subsidy.

This is borne out by data. The Pacific Research Institute found that in 2014, 79 percent of electric vehicle tax credits went to households making over $100,000, while 99 percent of them went to households making at least $50,000.

For these reasons, Congress should reject all attempts to extend the federal electric vehicle tax credit, and seek to lift the per manufacturer cap. A coalition of free-market organizations, including Heritage Action for America, has already sent a letter to House Ways and Means Committee Chairman Rep. Kevin Brady, R-Texas, asking his committee to refrain from expanding the electric vehicle tax credit in any form.

Rather than picking favorites, policymakers should eliminate targeted tax credits for all transportation fuels and technologies. By eliminating the tax credit, the onus is on automotive companies to make electric vehicles competitive with gasoline-fueled cars.

By encouraging free and open competition in the electric vehicle industry, we will see companies bring innovations in their products and marketing that will make the electric vehicle market viable on its own—without the expensive, prohibitive, and stifling federal subsidies and mandates that exist today.

Images courtesy of Bruce Parker/TNR and Michael Bielawski/TNR

3 thoughts on “Time to pull the plug on electric vehicle handouts for the rich

  1. Electric vehicles are wonderful, they are a great way for libs to feel smart and morally superior.

  2. The VT Public Utilities Commission, PUC, working together with self-styled transportation gurus, and RE activists, such as the Conservation Law Foundation CLF, want to SUBSIDIZE LOW INCOME Vermonters to drive electric vehicles.

    The same folks pushing for unilateral carbon taxes also are pushing for subsidies for plug-in EVs and plug-in hybrids, including $350,000 electric school buses, which turned out to be a flop in Massachusetts. Just google.
    Never mind the plug-in buses and trucks are still in their infancy.
    Vermont, with chronic budget deficits, must have money to burn on various follies.

    Because of their short electric range, plug-in EVs are next to useless in Vermont, especially in winter, on cold days, with snow and ice and no 4-wheel drive. My personal physician parks her Nissan Leaf in the barn in winter, because it is a dog.
    If they had larger batteries, 60 – 100 kWh, and 4-wheel drive, such as a Tesla Model S, they would have ample range, but would be MUCH more expensive.

    The only approach that makes any sense in New England is plug-in hybrids with 10 – 15 kWh batteries. They would have an electric range of about 30 – 45 miles, and then automatically switch to gas for another 500 miles.
    Public charging stations would NOT be required; owners would charge at home.

    Market Penetration:
    Here are some facts on plug-ins (EVs and plug-in hybrids)

    The number of plug-ins on US roads has increased during the past 6 years.
    Plug-in sales are expected to be about 250,000, or 1.4% of all light duty vehicle sales at end 2018.
    About 47% of ALL plug-in sales in 2017 were in California.

    Vermont’s plug-in EVs and plug-in hybrids are rarities. At end 2018, there may be about 2100.
    EVs have been about 22% total plug-ins for the past 5 years.
    That will not be changing until LOW-COST EVs appear (with big batteries), which are SUVs with 4-wheel drive.
    Those SUVs will use much more kWh/mile than compact plug-ins.

    Plug-in registration was about 409/41000 = 1.0% of all NEW vehicle registrations in Vermont in 2017.
    The Comprehensive Energy Plan goal is 4700 NEW plug-in registrations in 2025. See page 164 of CEP.

    Plug-in Driving in VT:
    People favor hybrids over EVs, because EVs just do not have the range and are terrible performers under Vermont winter conditions.

    Plug-in EV:
    Driving an EV in winter, with snow and ice, and hills, and dirt roads, and mud season, and at low temperature, say – 10 C, with the heat pumps heating the battery and the passenger cabin, would be very sluggish going, unless the EV had a large capacity, kWh, battery. The additional stress would cause increased battery aging and capacity loss.

    There are EVs, such as the Tesla Model 3, $60,000-$100,000, with 60 – 100 kWh batteries, which offer road-clearance adjustment and all-wheel drive as options, but they are out of reach of almost all Vermonters.

    Plug-in Hybrid:
    Driving a plug-in hybrid in winter, such as a Toyota Prius Prime, 54 mpg, would be much better, but it does not have 4-wheel/all-wheel drive, a major drawback. The styling is an abomination.
    I drive a Subaru Outback, which costs about $27000, has all-wheel drive and gets about 30 mpg.

  3. RE proponents claim EVs would be charged at night, and that it would “flatten the demand” curve. In reality, peak demands would occur at night, instead of during the day.

    – VT monthly average travel is about 6.252/12 = 0.521 billion miles; summer monthly maximum about 0.521 x 1.14 = 0.594 b miles, winter monthly minimum about 0.521/1.14 = 0.457 b miles. Daily averages, such as for a holiday weekend, likely would vary more than 14% from the annual average.

    – If the EVs were charged 24 hours/d, the NE grid load increase during that peak month would be an average of 344 MW. VT fed to grid electricity would need to be 2.646 billion kWh/y to charge the EVs.

    – If the EVs were charged 8 hours/d, the NE grid load increase during that peak month would be an average of 1032 MW.

    – That would be a significant increase of the normal nighttime demand of about 400 MW. The normal daytime peak demand is about 700 MW, and about 900 MW during the late afternoons of hot summer days.

    Future Heat Pumps: Future heat pumps would impose very significant ADDITIONAL demand increases of daytime demand during hot days in summer (likely already with peak demands), and additional increases of demand during cold days in winter.

    VT Grid Completely Inadequate: The winter demand increases due to EVs + heat pumps, would severely stress the NE grid. In fact, almost all VT high voltage and distribution grids would be completely inadequate.

    Electricity Storage Systems: It would be financially unfeasible to use storage to cover the daily, weekly, and seasonal variation of wind and solar, as the turnkey capital cost of one TWh of storage systems (as delivered to the HV grid) would cost about 1 billion kWh x $400/kWh = $400 billion. Even as future battery costs would decrease, the rest of the turnkey system costs likely would not. See Appendix and URLs.

    Wind And Solar are Much Less than Meets the Eye: In 2017, the entire load on the VT grid was about 6.030 TWh. To feed to the grid an additional 2.646 TWh for charging EVs with highly subsidized, expensive, unreliable, variable, intermittent wind and solar would be a huge physical challenge, especially during summer when wind is minimal for months (just look out the window), and during winter when solar is minimal for months. See Appendix.

    RE Proponents Have Plans for Our Energy Future: RE proponents in Massachusetts and New York are adamantly opposing additional gas lines to provide additional low-cost gas from Pennsylvania. They want to wean us off gas and nuclear to save the world. They say NE state governments have plans to temporarily import Russian and Middle East LNG at 3 times the price of domestic gas, until they build out wind and solar.

    They do not say it would take a temporary period of at least 2 or 3 decades to actually implement:

    – The planned wind and solar expansion
    – Replacing nuclear plants with LNG-fired gas turbine plants
    – Replacing gasoline light duty vehicles with EVs charging at night
    – Replacing traditional building heating systems with heat pump systems.
    – About doubling the capacity of the NE grid for the increased demand and load.

    NOTE: The capital cost would be much greater, if all the replacement electricity were from wind and solar, because TWh-scale energy storage systems would be required, as there would not be enough remaining gas turbine capacity to provide the peaking, filling-in and balancing services for the large quantities of variable/intermittent wind and solar.


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