EV Tax Credit Impact Weak, Budget Analyst Says

Well. That wasn’t a very nice National Plug In Day gift from the Congressional Budget Office.

The CBO greeted this weekend’s annual celebration of socket-powered cars with a report that lists all the ways the tax credit of up to $7,500 will have “little or no impact” on how much gasoline we use or greenhouse gases we emit.

CBO electric vehicle EV tax credit report

image via Congressional Budget Office

The implied conclusion of the report is that a more effective way to get at those goals would be to just go ahead and raise taxes at the pump.

The report says the various policies now in place to help the electric vehicle industry will cost taxpayers $7.5 billion through 2019, with $2 billion of that going toward the tax credit for buying EVs. But even that hefty sum isn’t enough to close the cost gap – even taking into account fuel savings that EV owners realize – between EVs and conventional vehicles, the CBO says. Worse yet, even when electric vehicle purchases are induced, there are indirect effects that mitigate their positive impact.

“In particular, 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 high fuel- economy electric vehicles as an opportunity to boost their sales of low-fuel-economy vehicles as well,” the CBO writes.

It’s a vicious circle, as the CBO sees it: More EV sales to people in San Francisco and Austin just give the carmakers license to sell more Ford F-150s in Omaha and Billings.

But of course the view afforded by economics is a limited one, and the CBO study admits to a certain short-sightedness. It’s basing how people will act in 2019 on how people perceive electric vehicles in 2012. A lot could change (although the experience of hybrids, which have been stuck around 3 percent of total vehicle sales for years, suggest a lot could also stay the same).

“If the credits play an important role in helping the U.S. electric vehicle industry become self-sustaining, their effect on vehicle sales might continue to affect CAFÉ standards – and the resulting amounts of gasoline use and emissions – for many years after the tax credits themselves have run out,” the CBO says.

A coalition of EV-industry companies pointed to the report’s confessed limitations.

“In evaluating the effectiveness of the credit, the report provides the caveat that ‘As yet, no reliable estimates exist of the share of electric vehicle sales that can be attributed to the tax credits,’ Brian Wynne, president of the Electric Drive Transportation Association, said in a statement. “EDTA agrees that economies of scale and ongoing technological advances will reduce vehicle costs and consumer tax incentives can help achieve them.”

The full 41-page CBO report, “Effects of Federal Tax Credits for the Purchase of Electric Vehicles,” is available online as a PDF.

Pete Danko is a writer and editor based in Portland, Oregon. His work has appeared in Breaking Energy, National Geographic's Energy Blog, The New York Times, San Francisco Chronicle and elsewhere.

1 Comment

  • Reply September 26, 2012

    Alex Lester

    It would be better “not spent” since we need to spend way less and here is a place to start.

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