CBO Says Electric Vehicle Subsidies to Cost $7.5 Billion With Little Benefit

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Akerson and VoltI recently came across a report written by the Congressional Budget Office (CBO) which estimated the cost to taxpayers for "federal policies to promote (aka subsidize) the manufacture and purchase of electric vehicles (EVs)." The piece also predicts the short-term benefits of the subsidies and includes the effects of rising federal requirements for fuel economy (known as CAFE) standards. The outlook is that federal subsidies will cost taxpayers $7.5 billion over the next few years for little or no benefit (even when including the impact of CAFE) to total gas consumption or emissions.

The CBO is a non-partisan federal agency that is relied upon by Congress to provide unbiased economic data. Unfortunately, Congress does not seem to listen to what the statistics are telling them. In the case of green subsidies, it seems that no logical data on how little the country benefits from the politically-popular handouts and how many billions of dollars are spent, few members of Congress are willing to appear to be anti-green by suggesting limiting the subsidies. Congressman Mike Kelly once introduced a bill to cut back on the wasteful EV subsidies, but seemed to receive little support; even from fellow Republicans.

Regarding federal tax credits for electric vehicles, the CBO report analyzes the short term effects stating they "Will have little or no impact on the total gasoline use and greenhouse gas emissions of the nation's vehicle fleet over the next several years." Longer term they "Can affect gasoline consumption and emissions if future revisions to the CAFE standards are influenced by current sales of electric vehicles and expectations about future sales." The longer term scenario seems to be predicting an improvement in overall gas consumption and emissions only if CAFE standards are raised even further, thus requiring motorists to buy more expensive, more fuel-efficient vehicles.

The cost to Americans for the government's green madness that has put an all-in focus on plug-in vehicles at any cost goes far beyond the $7.5 billion estimated by the CBO. There are state subsidies that are not included as well as ancillary subsidies, such as for EV chargers and battery development. Then there is the rising cost of all vehicles as a result of auto manufacturers having to spend more as a result of higher federal fuel efficiency standards.

The most egregious aspect of the wasteful policies is that the manufacturers are being forced to build cars (like the Chevy Volt and Nissan Leaf) that help them to meet CAFE standards, but that consumers do not actually seem to want to buy! The overall result is that, by offering plug-in cars that few want, manufacturers can build lower-efficiency vehicles that are offset by cars like the Volt. The non-partisan CBO confirms this by stating, "However, the tax credits have other, indirect effects: Increased sales of electric vehicles allow automakers to sell more low-fuel-economy vehicles and still comply with the federal standards that govern the average fuel economy of the vehicles they sell (known as CAFE standards)."

Plug-in EVs remain more expensive to own than conventionally-powered vehicles, thus limiting consumer acceptance. The CBO report also states another fact that I have long known, which is that standard hybrids or gas-powered vehicles offer better value, even when taking into consideration subsidies. From the report:

At current vehicle and energy prices, the lifetime costs to consumers of an electric vehicle are generally higher than those of a conventional vehicle or traditional hybrid vehicle of similar size and performance, even with the tax credits, which can be as much as $7,500 per vehicle. That conclusion takes into account both the higher purchase price of an electric vehicle and the lower fuel costs over the vehicle's life. For example, an average plug-in hybrid vehicle with a battery capacity of 16 kilowatt-hours would be eligible for the maximum tax credit. However, that vehicle would require a tax credit of more than $12,000 to have roughly the same lifetime costs as a comparable conventional or traditional hybrid vehicle. Assuming that everything else is equal, the larger an electric vehicle's battery capacity, the greater its cost disadvantage relative to conventional vehicles-and thus the larger the tax credit needed to make it cost-competitive.

I find fault with one part of the CBO statement; raising the tax credit to $12,000 (please don't give President Obama any ideas!) does NOT lower the cost of EVs; it only transfers those costs to taxpayers.

The CBO report also breaks down the cost to government (they should say cost to taxpayers) for every gallon of gas saved by buyers of electric cars. The cost estimate is $3 to $7 for every gallon of gas saved. I don't see that this cost includes lost tax revenue from gas taxes, nor would it include state subsidies. I have previously calculated that the cost per gallon of gas saved would increase to about $10 per gallon for short term leases, like the subsidized 2 year leases that have helped manufacture demand for the Chevy Volt. Ponder that logic, taxpayers pay $10 for every gallon of gas that the lessees of those Chevy Volts save. We would be far better off having these people drive gas-powered cars for two years and paying for the extra gas in full!

We have learned from the recent "fiscal cliff" drama and subsequent agreement that our government is not really serious about making a dent in our budget deficit. A politically-driven token effort was made to increase taxes on the wealthy while wasteful spending and useless subsidies remain untouched. I'm sure that companies that manufacture wind mills and charging stations are doing their part to lobby politicians to continue the pork. Green energy subsidies are a prime example of how logic and facts are overruled by ideology and cronyism when it comes to our government's fiscal responsibility. The CBO report confirms that.

Mark Modica is an NLPC Associate Fellow.