CBO Release Critical Review of Electric Vehicle Policies

Posted 11/14/2012
By Robert L. Redding Jr.

At the request of the U.S. Senate Committee on Energy and Natural Resources Ranking Member Lisa Murkowski (R-Alaska), the Congressional Budget Office (CBO) prepared an extensive report on the “Effects of Federal Tax Credits for the Purchase of Electric Vehicles.” Despite the federal subsidies and policies in place to encourage the research, manufacturing and purchase of electric vehicles and future planned expenditures of $7.5 billion over the next seven years to spur the growth of electric vehicle usage, the CBO report displays a great amount of skepticism.

The federal efforts to stimulate the use of electric vehicles have also included programs to educate consumers about these newly introduced vehicles (reintroduced commercially in the U.S. in 2010) and improvements to recharging infrastructure. The latter reached so far to include a U.S. Senate initiative to place a recharging station in the Senate garage.

The report focused on two classes of electric vehicles:

• Plug-in hybrid vehicles are powered by an internal combustion engine, which runs on gasoline or other liquid fuels, and by an electric motor, which is powered in part by an externally rechargeable battery. (Traditional hybrid vehicles, which have been available for about 10 years, also have internal combustion engines and electric motors, but their batteries cannot be recharged externally.)
• All-electric vehicles, also known as battery electric vehicles, run entirely on battery power.

Taking into account the higher purchase price and the lower fuel costs over the life of an electric vehicle, the average cost is $4500 higher over the life of an electric vehicle versus a conventional vehicle. This includes an assumption that the current tax credits for these vehicles are in place. CBO notes, “The additional tax credit that would be required for cost competitiveness is smaller for electric vehicles that have small batteries or that are substituting for vehicles with low fuel economy. 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. All-electric vehicles are closer than plug-in hybrids to being cost-competitive with conventional vehicles, for a given battery size.”

The tax credits lead to lower gasoline consumption and few emissions than if the electric vehicles were not in use. However, the report notes that these credits cost taxpayers $3 to $7 per gallon saved when people buy an electric vehicle that is similar in size and performance to a conventional vehicle with average fuel economy. With reference to the cost per metric ton of carbon dioxide equivalent emissions reduced has a greater variance, from $230 to $4400 for electric vehicles compared to average-fuel-economy conventional vehicles. Highlighted in this review is the determination that “The cost per gallon of gasoline saved or per metric ton of emissions reduced is higher when electric vehicles substitute for high-fuel-economy vehicles, which use comparatively little gasoline themselves, and lower when the alternative to electric vehicles is low-fuel-economy conventional vehicles.”

The short-term is not very encouraging for electric vehicles. CBO states that the tax credits will have little or no impact on the total gasoline use and greenhouse gas emissions of the nation’s vehicle fleet for the foreseeable future. The Administration’s current fuel economy policies coupled with its electric vehicle policies results in an interesting dilemma. Automakers seeking to comply with higher federal standards that govern the average fuel economy of their vehicle fleets can use increased sales of high-fuel-economy electric vehicles as “an opportunity to boost their sales of low-fuel-economy vehicles as well.” The CBO concluded that “given corporate average fuel economy (CAFE) standards that are high enough to constrain automakers’ production decisions, the tax credits cannot significantly affect total gasoline or greenhouse gas emissions by vehicles during the period when those standards are in effect.”

Fuel economy standards extend through 2021 and emissions standards through 2025. CAFE standards take effect in 2017 and increase through 2021. In the last year, standards reach about 40 miles per gallon.

The CBO compared the electric vehicle tax credits with the tax credits of traditional hybrids, tax credits for companies that blended biofuels with petroleum fuels and with the federal government’s 2009 Cash for Clunkers program, which made payments to vehicle owners who traded in eligible lower-fuel-economy vehicles for higher-fuel-economy vehicles. Of interest to independent repairers were the comments on the Cash for Clunkers program. The CBO suggested that the program did reduce total gasoline use and greenhouse gas emissions in the short term but pointed out: “The overall cost-effectiveness of such programs also depends on their long-term impact on gasoline use and greenhouse gas emissions. Cash for Clunkers probably did not have an ongoing influence on buyers’ vehicle choices, so it did not have any additional effects over the long-term.” In looking at future policies to reduce gasoline consumption and lower greenhouse gas emissions, the CBO offered that increasing the tax credits or the number of eligible vehicles would have little effect unless “changes in the size of the tax credits could affect future CAFE standards by influencing regulators’ expectations about future sales of electric vehicles and could also affect the commercial viability of the U.S. electric vehicle industry.”

The CBO also suggested policymakers should consider an increase in the federal excise tax on sales of gasoline. This would reduce gasoline use and emissions. It is unlikely that this will be seriously considered by the 113th Congress.

The administration has placed a great deal of emphasis on federal financial support for electric vehicle usage. The November election will impact whether the focus continues on electric vehicles becoming a larger component of the U.S. vehicle fleet or not.

To review the entire CBO report, please go to ASA’s legislative website, www.TakingTheHill.com.

Taking the Hill

EPA Considering Approval of California Vehicle Emissions Rules Recently, California rolled out strict new emissions rules for vehicles, Advanced Clean Car Program. If the U.S. Environmental Protection Agency (EPA) approves, the precedent-setting controls on vehicle Particulate Matter (PM), could serve as a model for Maryland and additional states to adopt. The EPA has accepted public comments on the Advanced Clean Car Program through Oct. 19, 2012, to determine whether to approve California’s strict emission rules for cars, light-duty trucks, medium-duty passenger vehicles and revisions to its low emission vehicle program (LEV). In addition, they received public comments through October 22 on changes in emissions standards for non-road engines. The upcoming final rule, “Control of Air Pollution from Motor Vehicles: Tier 3 Motor Vehicle Emission and Fuel Standards,” will establish new standards for vehicles and gasoline. This would also respond to the “anti-backsliding” requirements that were included in the Clean Air Act (CAA). The proposal also considers changes to the certification fuel for all types of gasoline. – Kaitlyn Dwyer

Bob Redding is the Automotive Service Association's Washington, D.C., representative. He is a member of several federal and state advisory committees involved in the automotive industry. For more information about the legislative activities of ASA, visit www.TakingTheHill.com.