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US tax credits for EVs ‘ineffective’

Oh sooner have  we had an attack on the UK Government’s strategy for boosting electric car sales (see story) then a report comes out damning the US’ approach too.

The Congressional Budget Office (CBO), an independent body which examines government spending, says that current measures to support electric vehicles and other low carbon vehicles in the US will cost around $7.5 billion through 2019 and will do little to reduce the US’ greenhouse gas emissions.

About a fourth of that $7.5 billion cost will be for consumer tax credits, which can be worth as much as $7,500 per electric vehicle to buyers. The rest comes from grants and loans to companies to fund their development of ultra-low carbon vehicles.

Consumer tax credits for cars such as the Chevrolet Volt may be an ineffective way to reduce the US' gasoline use

But consumer subsidies are too low to be effective, CBO’s report entitled ‘Are tax credits for electric vehicles cost effective?’ suggests, and do not cover the difference in lifetime cost between an electric car and a conventional model. That conclusion takes into account both the higher purchase price of an electric vehicle and the lower fuel costs over the vehicle’s life compared to combustion model of similar size and performance.

Tax credits would need to be as high as $12,000 for a plug-in hybrid vehicle with a battery capacity of 16 kilowatt-hours (such as the Chevy Volt, pictured) to have roughly the same lifetime costs as a comparable conventional or traditional hybrid vehicle.

At current levels of subsidies, the cost to the government works out at around $3-$7 per per gallon saved and $230 to $4,400 per metric tonne reduced in CO2 emission, through the use of an electric cars.

What’s worse, is that the use of electric and plug-in hybrid models may indirectly support the sales of low economy vehicles, in effect cancelling out their own CO2-saving virtues. Increased sales of electric vehicles allow automakers to sell more gas-guzzling models and still meet the federal standards that govern the average fuel economy of the vehicles they sell (known as CAFE standards). Consequently, the credits will result in little or no reduction in the total gasoline use and greenhouse gas emissions of the nation’s vehicle fleet over the next several years, CBO says.

Increasing consumer tax credits would increase the cost to government for any reduction in gasoline use, so instead CBO recommends further revision to the CAFE standard’s system of credits so that in the long term, electric cars don’t inadvertently fund low fuel economy vehicles. Furthermore, the agency suggests increasing the federal excise tax on sales of gasoline to create a greater incentive for consumers to buy higher fuel economy vehicles.

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Faye Sunderland

Filed under: Electric cars, Hybrid cars

1 comment


I think they are missing the point. It's not about a 1:1 match. It is about moving the technology forward, so by providing incentives we can encourage people to buy and companies to invest so that some day in the FUTURE our carbon footprints are greatly reduced.

We know that EVs don't really make financial sense right this instant. We are trying to help to create a more viable market for a few years down the road. We subsidize internal combustion to the tune of trillions of dollars. So helping the EV development a tad isn't a bad thing.

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