Budget Office Says EV Incentive Programs Will Cost $7.5 Billion By 2019. Not Really working.

5 years ago by Jay Cole 12

Federal Credit Incentive Needed For Cost Parity

About 25% of the cost to promote electric (and some other advanced fuel efficient vehicles) comes from the federal $7,500 credit program, which applies to the first 200,000 vehicle sold by each manufacturer in the US.

The bill for this program, according to the US Budget Office will cost US taxpayers close to $2 billion dollars, provided it continues as planned.  The overall price behind the federal government’s goal of getting “a million EVs on the road” when all the programs and costs are tallied, is $7.5 billion.

The federal government has adopted several policies to encourage the production and purchase of electric vehicles, which run partly or entirely on electric power stored in a battery that can be recharged from a standard home outlet.

Such vehicles are fairly new, having been reintroduced commercially in the United States late in 2010. Federal policies to promote their manufacture and purchase include tax credits for buyers of new electric vehicles, financial support for the industry that produces them, and programs that promote efforts to educate consumers about electric vehicles and improve the infrastructure for recharging them.

The Congressional Budget Office (CBO) estimates that such policies, some of which also support other types of fuel-efficient vehicles, will have a total budgetary cost of about $7.5 billion through 2019. Of those federal incentives, the tax credits for buying electric vehicles—which account for about onefourth of that budgetary cost—are likely to have the greatest impact on vehicle sales.

In the lengthy study (44 pages-link at bottom of article), the government breaks the study of electric vehicle down to two types; the fully electric EVs (Nissan LEAF, Ford Focus EV, to anything from Tesla) and the plug-in electric hybrids (Ford C-Max Energi, Chevrolet Volt, Toyota Prius plug-in).

We Need Gas To Be How Much To Make Us Really Buy Plug-Ins?

We will let you read the study for yourself, as it draws many interesting, and reasonable (we think) conclusions.  However, if your not keen on spending the next couple hours reading a government document, we will bullet point the highlights:

  • Tax credits 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.    While this seems contradictory, the report goes on to say that “as automakers seek to comply with the rising federal standards that govern the average fuel economy of their vehicle fleets, they can use increased sales of highfuel-economy electric vehicles as an opportunity to boost their sales of low-fuel-economy vehicles as well. ”  Basically, the size and scope of CAFE regulations are to blame.
  • An average plug-in hybrid vehicle (think Chevrolet Volt) with a battery capacity of 16 kilowatt-hours (kWh) would be eligible for the maximum tax credit of $7,500. 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
  • Plug-In vehicles impact on GHG over the next several years will actually have little to no impact on GHG levels
  • Low kWh plug-ins and light duty trucks are the most competitive electric vehicles on the market today; not the case for small and compact passenger cars with large battery packs

The takeaway from the study is that the larger an electric vehicle’s battery capacity, the greater its cost disadvantage is and the greater the need for a variable tax credit to adequately make it cost competitive.  Basically, plug-ins need more money, because as it stands the study finds that although the $7,500 credit helps, it doesn’t make up the whole gap, so the majority of the plug-in sales today would still have happened without the tax credit.

The CBO, through some complicated math and analysis, puts a number on how many additional plug-in cars have been sold (and are likely to be sold in the future) based on the current program:  30%

Cost Of Incentive Programs To The Federal Government (Click To Enlarge)

Conclusions About Future Policy:

GHG/National Fuel Consumption: Any policy changes in the scope or size of the $7,500 credit (or other programs) would have little to no effect on the volume of gas use, or the amount of emissions because of the scope and underlining policies of current CAFE standards

Increasing the Tax Credit:  The CBO boldly does not give a straight answer, saying it would be hard to predict anything other than it would up the expectation for additional sales.

The CBO does say that what would effect the use of gasoline, the adoption of electric cars and most cut GHG emissions;  the addition of a gas tax.   While this has always been a environmental no-brainer, the US is one of the last protectors of keeping the cost of gas artificially low, and therefore it is most likely this “low cost” gas policy that is most causing the inequality between plug-ins and standard gas vehicles.

Nutshell:  Don’t make EVs incentives higher, just up the price of gas and that increase will float all boats…except in people’s pocketbooks.

Read the entire CBO report here (but bring water with you to avoid dehydration)

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12 responses to "Budget Office Says EV Incentive Programs Will Cost $7.5 Billion By 2019. Not Really working."

  1. Trevor says:

    Thanks – a clear analysis that saves us the reading and dehydration!

    1. Jay Cole says:

      You’ll have to give us your impressions of the Zoe when you get it. I can’t convince anyone here that it is a good idea for me to go to Europe for the media drives on InsideEV’s dime, (=

  2. ClarksonCote says:

    Wait, remind me again how much government spends to secure foreign oil supplies? I think it’s something around “Much more money, infinitely more lives”

    1. reinCARnate says:

      “Fossil-fuel consumption subsidies were $409 billion in 2010” as per:
      http://en.wikipedia.org/wiki/Energy_subsidies

      So these figures really make you think huh? 409 divided by 7.5 equals 54.5. Perhaps we shoot snag those fossil fuel subsidies and shoot for approximately 55 million electric cars by 2013. Or 550 million EVs by 2023. 🙂 Besides, if fossil fuel wasn’t subsidized, people would have a serious incentive to jump ship and start driving on cheap and more efficient electrons.

  3. Jackson says:

    ” Don’t make EVs incentives higher, just up the price of gas and that increase will float all boats…except in people’s pocketbooks.”

    Don’t know about anyone else, but people’s pocketbooks have taken quite a drubbing already over the past several years. You know, people need a healthy pocketbook to buy any car; or gasoline, for that matter.

    1. reinCARnate says:

      I marvel at how people decry subsidies for EVs but then complain about an increase in artificially low gas prices, which are subsidized by guess who: the gov’t. You can’t have it both ways. Low gar prices are not a right. And if you’re a free market advocate then gas prices should be allowed to go as high as the market will allow and there should be no gov’t intervention. Just sayin’.

  4. BlindGuy says:

    Yea well; this narrow-minded analysis smells hmmm, kind of like crude oil JMO. This analysis is not looking at the much bigger picture like not having our economy/security dependent on foreign sources that like our money but not so much Americans. This tax incentive speed-up the transition process by making these EVs affordable to more consumers and it promotes competition by letting the consumer with the tax credit choose what product they believe in the most. If anything; Congress should stop subsidizing “Big Oil” companies that have admitted that they don’t need the subsidies.

  5. reinCARnate says:

    The problem with the way we are approaching the EV market is twofold.

    1. We aren’t forcing the automakers to create a LOW BUDGET electric vehicle. And it CAN be done. You have to sacrifice a lot but that’s why it’s low budget. For the more expensive price range, you will get more range, and luxuries and amenities that we have come to expect in modern cars. But, there needs to be a SUPER LOW entry point, at say $12,000 for a very basic low range vehicle with electric powertrain and ability to fuel from the electric grid.

    2. Instead, we are allowing automakers to exclusively make high priced electric vehicles which most Americans can’t afford and those who can afford it, don’t need a subsidy because they already have the means to begin with. So basically we’re handing out money to people who don’t need it.

    Actually there is a third idea that could help to accomplish the goals in 1 & 2. We could federally mandate an increase in speed limit for street-only neighborhood electric vehicles to 45 mph across all states. Currently State’s regulate NEVs and they are typically set at 25mph. The increase would create a small car market that could be usen’t outside the context of a gold course or gated community.

  6. Nelson says:

    How many military officers have died protecting the U.S. GRID?
    One dead solider is worth a zillion dollars to his family.
    People have been desensitized to the loss of human life. If they valued life appropriately one dead solider would have paid to change the entire countries dependence on foreign oil.

    NPNS!
    Volt#671

    1. vdiv says:

      A wise friend once asked:
      “How many marines to the gallon does your SUV get?”

      That should really go on the EPA sticker of all new cars.

  7. Dave K. says:

    I would add at least half the U.S. “Defence” budget, spent protecting access to middle eastern oil, not just for us but our allies as well. I would include the cost of both Iraq wars and maybe even Afghanistan. If you paid all that at the pump you’ld have a hard time paying people to take an ICE car.

  8. Bonaire says:

    Citizens Say: “Congress Politics Continue To Fail By 2012 . Not Really working.”

    Time to vote them all out this November. No More Incumbents.