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Should Congress pull plug on electric car subsidies

Published: Sunday, May 27 2012 12:00 a.m. MDT

The Chevy Volt is seen on display at the Washington Auto Show, in Washington.   (Associated Press) The Chevy Volt is seen on display at the Washington Auto Show, in Washington. (Associated Press)

No: the Long-term benefits far outweigh the tax money spentyes: the market doesn't want thembecause of price, other problems

CLERMONT, Calif. — Oil prices in the United States have fallen over the past few months and tensions have eased a bit in the Middle East.

But despite these hopeful signs, the price of oil on international markets remains at record highs — and the IMF warns that oil prices could double by 2022. The good news is that carmakers have continued to innovate.

Ford is introducing an electric version of its Focus. Mitsubishi, BMW, Tesla and other carmakers are also introducing new electric vehicles, or EVs. And, after a slow start, GM is on track to sell between 15,000 and 20,000 of its award-winning Volts this year. But this technology, like any infant industry, needs our support. Given this, it would be folly for Congress to slash the existing tax credit.

If we cast a cold eye on the economics of EVs, the credit is a bargain. Research shows that air pollution causes asthma, heart attacks, strokes and lung cancer — and costs taxpayers billions.

A 2010 study by the American Public Health Association estimates that air pollution from vehicles causes $50 billion to $80 billion per year in health care costs and premature deaths.

A 2009 study by the Center for Entrepreneurship and Technology at UC Berkeley estimates that over 20 years, EVs and plug-in hybrids could reduce health costs by $4.5 billion to $11.2 billion.

If we combine support for EVs with more renewable electricity generation, we could save $209 billion over that time. Estimates always contain uncertainty, but it's clear that cleaner vehicles will save billions of dollars and reduce the terrible human toll caused by air pollution.

On top of money and lives saved, we have another clear reason to support EVs: energy security. Yes, gas prices have fallen a bit in the U.S., but the IMF and many independent researchers believe this is just a temporary reprieve. EVs not only save consumers money at the pump, they make our economy more resilient to price shocks and reduce the money flowing to hostile nations.

At $4 a gallon, the average U.S. driver will spend $240 per month on gas — but utilities such as New Jersey's NRG are offering a month's worth of EV-power for only $50 to $90. More broadly, the U.S. holds less than 3 percent of the world's oil reserves — while consuming 22 percent of all the oil produced in the world. We need, more than ever, alternatives to fossil fuels.

EVs provide a bulwark against rising prices because our electricity grid is powered by a diverse array of sources that include coal, natural gas, nuclear and, increasingly, renewables such as wind and solar.

Since oil is a minuscule source of electrical power, EVs provide security. And, except in states heavily dependent on coal, EVs will reduce greenhouse gases.

A huge increase in EVs might require grid upgrades, but according to a 2007 study by the NRDC and the Electric Power Research Institute, we have enough capacity to meet demand.

Although total sales of EVs have been small, they are growing rapidly, and researchers forecast that millions of vehicles will be sold globally within five years. Given that air pollution and oil security are huge problems around the world, and that American carmakers are innovators in creating electric vehicles, we should do everything we can to support the industry — especially because it has the potential to create jobs as carmakers search for suppliers of batteries, drive-trains and other technologies.

In an age of budget challenges, we must scrutinize all government spending — but considering the billions we spend dealing with the health impacts of air pollution, the limits of domestic oil and the security risk of importing it, our support for clean vehicles makes economic sense.

The EV tax credit will phase out as sales increase, so if we want to cut wasteful subsidies, we should reduce outdated subsidies to the fossil fuel industry and redouble our support for clean and green approaches.

Nicholas L. Cain is a researcher and doctoral student in environmental public policy at Claremont Graduate University.

Yes: The market doesn't want them because of price, other problems.

FLINT, Mich. — It's tempting to call the shameful taxpayer subsidy for electric cars — vehicles that are unaffordable for all but a small number of wealthy Americans — this nation's costly little secret.

But it's no secret, and that's the real shame. It's obvious now that electric vehicles can't compete with gasoline-powered cars, even with generous government subsidies.

And for years automotive engineers have documented that the performance of electric vehicles — particularly their short range and battery uncertainty under real traffic conditions — falls short in virtually every aspect.

What's truly shameful is that such disparities have done nothing to change policy. Subsidizing electric vehicles has been a devil's bargain, making the development of other alternative technologies like conventional hybrids and advanced gasoline engines more difficult.

Since 2008, taxpayers have spent or provided loan guarantees of $6.5 billion for electric vehicles. That includes $2.4 billion for battery and electric drive component manufacturing, $3.1 billion in loan guarantees for electric vehicle projects and $1 billion in tax credits for the vehicles.

The price that American taxpayers pay for commercializing electric vehicles is painfully evident in the billions spent on green projects that are driven by politics rather than performance.

Instead of letting plug-in vehicles like the Nissan Leaf, GM Volt and Ford Focus Electric compete on their own against fuel-efficient gasoline-powered cars, the government has used subsidies to create an artificial market that otherwise would not exist.

Using taxpayer dollars to favor one automotive technology over another is contrary to the free-market principles that undergird our economy. Simply put, subsidizing electric vehicles doesn't make economic sense.

That's evident in the lackluster sales of the vehicles. Even with a $7,500 tax credit, GM sold a meager 7,671 electric-hybrid Volts in 2011, far fewer than its goal of 10,000. Nissan sold 9,674 all-electric Leafs.

We won't even come close to President Barack Obama's prediction a few years ago that 1 million electric cars would be on the road by 2015.

The production costs of electric cars have not dropped to make them competitive with gasoline-powered vehicles. The average American can't afford an electric car. Barring a huge run-up in gasoline prices, it would take more than a decade of driving to offset the Chevrolet Volt's $41,000 price tag or even the Nissan Leaf's still hefty window sticker of $33,000.

And the bills can pile up. Unless you're willing to wait eight hours to recharge your car, you'll want a high-speed recharger installed in your home, adding thousands of dollars to the cost. Maintaining an electric car is more expensive than a conventional car, because there are not many repair shops capable of doing the work.

And a battery that costs about $20,000 may last only eight years, leaving customers with a vehicle that has little resale value.

How does the government justify spending taxpayer money to subsidize wealthy Americans buying expensive cars?

Supposedly the price of electric cars will come down as volumes increase, making the vehicles more affordable. But even if the federal tax credit increases from $7,500 to $10,000, as Obama has proposed, and other states mimic California by adding an additional $1,500 tax credit, Americans may not buy electric vehicles because of their shortcomings in size, comfort and range.

The surest way to guarantee a product's failure is to subsidize it. Over time, cars that succeeded in the marketplace have been those that were developed and commercialized without government involvement.

If a technology isn't capable of succeeding on its own economic merits, there's no amount of taxpayer support that will ever make it a commercial success.

Mark J. Perry is a professor of economics at the University of Michigan in Flint, and a scholar at the American Enterprise Institute (www.aei.org) in Washington.

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