Time to End Electric Vehicle Tax Credits?
Across the country, electric car buyers are benefiting from generous tax subsidies. These include up to $7,500 in federal tax credits and thousands of dollars more in state tax credits, not to mention various initiatives to subsidize home, business, and public recharging stations. However, recent moves in several states to end electric vehicle subsidies and tax credits have left some totally dumbstruck.
In 2015, Georgia repealed its state electric vehicle tax credits, and a recent New York Times article cites nine other states that may soon allow their current state tax credits to expire or be repealed. Where repeal is being considered, some states report that the taxpayer savings would be redeployed to pay for infrastructure improvements. Along with efforts to repeal, several other states are considering the imposition of small fees on electric vehicles. In addition, there is speculation that federal tax credits could dry up soon.
Why would public policy turn its back on affordable and clean and green vehicles? Well, truth be told, electric vehicles are not clean, not necessarily green, and far from affordable for most consumers. Policymakers are right to reevaluate these subsidies in light of the facts.
In terms of toxicity, electric vehicles are not “cleaner” than their gas guzzling counterparts. This is because electric batteries require the mining of metals such as nickel, graphite, and cobalt and electricity that is generally fossil-fuel based. A study by Arthur D. Little (ADL) compared 20 years of vehicle operations and found the average conventional vehicle produced six days of lost life or disability, while the average electric vehicle produced 20 days — roughly 3.3 time more. Impacts on terrestrial animal and plant life, as well freshwater plants and animal life, were also estimated to be substantially worse for electric vehicles compared to their gas counterparts. These adverse effects are consistent with findings from a National Bureau of Economic Research study.
While consumers should feel good about helping the planet, the environmental benefits of electric vehicles are not as green as commonly thought. The energy needed to produce electric batteries and battery packs are quite significant, and electric batteries require frequent recharging, which typically relies on the electrical grid. For instance, mid-sized electric vehicles save only 19 percent on CO2 emissions, compared to their counterparts (assuming that the vehicle could be driven over 150,000 miles and operated over the next 20 years).
Considering that only 9 percent of vehicles survive after 20 years of use, the goal of fully utilizing an electric vehicle may be a challenging one. Because electric vehicles are most suitable and primarily used for commuting, they also substitute away from public transportation and carpooling, which means that they may contribute more to greenhouse gas emissions than their commuting alternatives. According to one estimate, even if every vehicle in the world were electric and could achieve these modest savings, the total reduction in carbon emissions would fall by only 1.8 percent. In other words, meaningful reduction in greenhouse gases from electrical vehicle use is a longshot at best.
What about affordability? Electric vehicles are significantly higher in price and more costly over their useful lives. Compared to gas-fueled vehicles, the ADL study estimates that compact electric vehicles cost 44 percent more, and mid-size electric vehicles cost 60 percent more. That explains why, historically, some policymakers have supported subsidizes for these vehicles.
But these subsidies are not well spent. Empirical evidence shows that electric vehicle owners tend to have much higher incomes than other consumers. One study that looked at the distribution of subsidies found $6 of every $10 of electric vehicle subsidies went to households in the top 20 percent for income — those earning over $200,000 — and only 10 percent of electric vehicles subsidies went to households earning less than $75,000 per year. Effectively, electric-vehicle subsidies are welfare for the rich.
So when fully utilized, electric vehicles have higher levels of toxicity and only modest benefits in reducing emissions, compared to their gas-powered counterparts. They also cost more, and the subsidies used to reduce the cost go to households with the highest incomes. In short, electric vehicles are not cleaner, greener, or more affordable. They may be some day, but they aren’t now.
With all of this in mind, tax credits designed to encourage electric vehicle ownership may be having more adverse than beneficial consequences for consumers and the environment. It’s a good time for policymakers begin thinking about better ways to use taxpayer dollars.
Steve Pociask is president of the American Consumer Institute, a nonprofit educational and research organization. For more information, visit www.theamericanconsumer.org or follow me on Twitter @ConsumerPal.