The US oil and gas industry has good reasons to question heavy subsidization by the federal government of vehicles powered partly or wholly by electricity. Those reasons differ from the caricature reason given by pop commentators. In the caricature depiction, the industry opposes electric vehicles (EVs) to protect markets for oil products. That's nonsense. EVs won't displace enough traditional vehicles to seriously erode markets for gasoline and diesel for many years. They cost too much.
The good reasons for the oil and gas industry to question subsidization of EVs are: 1. Motorists are the industry's customers, whose interests it should support, and 2. The industry's shareholders and workers pay taxes and want their money to be spent wisely.
Stormy September
The EV industry hit stormy weather in September. Toyota slashed its program for sales of the all-electric eQ minicar and scrubbed plans to develop a follow-on EV. It will concentrate instead on the Prius, a hybrid with which it has had greater success.
Toyota's explanation for the pull-back cannot have been welcome in the EV industry. Takeshis Uchiyamada, Toyota vice-chairman and a leader in development of the Prius, told Reuters that development problems for EVs are great and that the market is too small. Pure EVs don't meet motorists' needs related to driving distance, cost, and charge time, he said.
Those drawbacks help explain why EV sales have fallen well below projections despite generous help from the US government. Buyers of new EVs can receive tax credits of as much as $7,500/vehicle. EV manufacturers receive grants and direct loans. Still, automakers are losing money on their electronic products. Reuters reports estimates that GM's high-end Chevy Volt, which has a base price of nearly $40,000, costs $75,000-88,000/unit to build. To move inventory, GM is offering Volts under steeply discounted leases.
Further darkening clouds over America's EV experiment in September was the conclusion of a Congressional Budget Office study that existing subsidies don't make EVs and plug-in hybrid electric vehicles sensible for consumers. "An average plug-in hybrid vehicle (that is, an electric version of the typical light-duty vehicle) with a battery capacity of 16 Kw-hr would be eligible for the maximum tax credit of $7,500," the CBO report says. "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."
If other factors don't change, CBO says, an EV's cost disadvantage relative to conventional vehicles increases as its battery capacity grows. At a given battery size, all-electric vehicles are closer than plug-in hybrids are to being competitive on cost with conventional vehicles, the study says.
To make EVs cost-competitive, therefore, the government needs to raise the subsidy to buyers. But the subsidies already are proving to be expensive ways to pursue the basic policy objectives. By CBO's reckoning, the cost to the government of existing tax credits' direct effects on gasoline consumption, for EVs similar in size and performance to a conventional vehicle with average fuel economy, is $3-7/gal of gasoline "saved". The cost of cutting emissions of greenhouse gases in a similar comparison varies widely because it depends on emissions from generation of electricity used to recharge vehicle batteries: $230-4,400/tonne of carbon dioxide-equivalent. Because of offsets with new fuel-economy standards, the credits will have little effect on gasoline consumption and GHG emissions over the next several years, CBO says. Costs per unit of gasoline not used and GHGs not emitted therefore will be greater than these estimates.
Costly pattern
This is the pattern when the government manipulates consumer choices: grandiose targets, lavish spending, disappointing performance, higher-than-expected cost, and the need to spend even more to rescue faltering programs. Yes, technology might reduce the costs and raise the desirability of EVs. But how long will that take? And how much money must taxpayers spend between now and—when?
A government with fiscal problems shouldn't need prodding to address these questions.
