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CBO deals blow to EV purchase incentives

The Congressional Budget Office has estimated costs associated with federal policies promoting electric vehicles and other fuel efficient vehicles and states they will have little to no impact on gasoline use or on greenhouse gas emissions.


The nonpartisan U.S. Congressional Budget Office (CBO) estimates that current federal policies to promote the manufacture and purchase of electric vehicles, and some other types of fuel efficient vehicles, will have a total budgetary cost of $7.5 billion through 2019, but will have little or no discernible impact on greenhouse gas emissions or gasoline usage.

About one quarter of the current incentive policy's cost is in the form of tax credits for the plug-in market, which the CBO says will have the greatest effect of all the policies on electric vehicle sales, but those sales will have little impact on the stated goals of the policies - reducing GHGs and lowering gasoline usage and dependence on foreign oil. They do say that if future revisions of Corporate Average Fuel Economy (CAFE) standards are made more strict, then EV sales could show impact.

The focus of the CBO's study was on electric vehicles of the plug-in hybrid and battery-electric varieties (e.g. the Chevrolet Volt and Nissan Leaf respectively).

Costs to Consumers Still High
The CBO found that at current vehicle and energy prices, the lifetime costs to consumers for electrics are generally higher than they are for conventional vehicles, especially traditional (non-plug-in) hybrids of similar size and performance. Even after tax credits, which are as much as $7,500 for plug-ins. Using a hypothetical vehicle example, the report finds that a car with a 16kWh battery (required for the $7,500 credit) would require a $12,000 credit to remain even in lifetime costs to a conventional gasoline vehicle of the same type. In fact, the larger the vehicle's battery gets, the more this cost disparity increases, which jibes with other, similar studies done by private groups.

No Emissions Improvements
In judging greenhouse gas emissions, the CBO study found that while the purchased electric vehicles do have lower emissions at the tailpipe and over their lifetimes, but indirectly they allow automakers to use CAFE credits from those sales to sell more inefficient vehicles to the marketplace. This would result in a net averaging of the greenhouse emissions output, which would mean no GHGs were removed by the sale of EVs. This coincides with other studies that show that increases in CAFE requirements do not lead to lower gasoline consumption or fewer miles driven, but actually increase those things, which offset the gains had by the standards to begin with.

Market Impact Uncertain
Finally, the analysts found that they could not find any reliable estimates for the share of electric vehicles sold because of the credits. That is, the number of EVs sold because the tax credit exists versus those which would have been sold regardless is unknown. The best estimate is from research showing that hybrid sales in 2010 were 25% higher because of incentives. The CBO's best estimate for the current incentive's impact on sales is 30%, slightly higher because the incentives are now higher than they were in 2010.

The CBO's final policy recommendations did not include raising credits. Changing the size of the tax credits would affect the cost of the credits to the government, but would have little, if any, effect on gasoline use or emissions over the short term, the CBO says, because automakers would still have to meet existing CAFE standards. Increases or moderate reductions in the number of credits available would probably have little near-term impact on either the government’s costs or the credits’ benefits to society.

Despite the clarity with which these findings were given, those whose livelihoods depend on EV sales are unable to accept them at face value. Brian Wynne, president of the Electric Drive Transportation Association (EDTA), issued a statement saying:

EDTA agrees that economies of scale and ongoing technological advances will reduce vehicle costs and consumer tax incentives can help achieve them. While we do not agree with all of the assumptions made and relied on in the report, CBO’s illustrations do show that tax incentives can help move electric drive into the mainstream and reduce gasoline use and emissions, while growing the industry.

Too bad the CBO's report actually said the opposite.

Report Highlights Government Ineptitude
What the report does highlight to energy pundits and automotive analysts is that conflicting policies from the government often collide to cancel one another out, wasting resources and creating distractions rather than solutions. By subsidizing both sides of the energy argument - petroleum and electrics - and creating incentives to use and improve both, policies are effectively creating no change at all. Add in incentives for biofuels and other competing technologies as well as costs for emissions standards and their oversight, and we can see that huge sums of money are being spent to flog at a cypress tree that will only get larger for it. Until we begin looking to the root of the problem - government meddling in energy policies and wasteful conflicts of interest - we'll not see a solution coming from Washington, D.C. Assuming solutions from the Potomac are possible, which many may doubt.

The CBO report illustrates that, as Milton Friedman said, "The government solution to a problem is often as bad as the problem." Although Ringo Starr was more to the point when he said "Everything the government touches turns to crap."


Brian Keez (not verified)    September 22, 2012 - 2:47PM

The CBO report on federal tax credits and electric vehicles is incomplete and relies on poor assumptions. They use no actual statistic from the 40,000 PHEV and BEV's (AEV) that are mentioned in the report.

- It assume that the average range of an all-electric is 55 miles (pg. 32)
- It assumes that EV's are only be charged once per day (pg. 7)
- It assumes that EV's are driven fewer miles than an ICE would be by the same driver

The report was obviously written by people who are only academically familiar with electric vehicles. Who chose not to use available real-world data and instead chose "CBO assumptions."

Aaron Turpen    September 23, 2012 - 4:15AM

In reply to by Brian Keez (not verified)

Which, if true, are like most CBO reports. Interestingly, I've noticed that automakers, EV enthusiasts, environmentalists, "drill, baby, drill" pundits, and others have no problem pointing to favorable CBO reports to make their case. This is especially fun when "climate impacts" and "budget impacts" are cited in favor of promoting this or that ideal (usually either incentives or grants). The CBO was the main authority cited for discussions in favor of CAFE increases, for example.