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Congressional Budget Office estimates US federal policies promoting EVs and other fuel-efficient vehicles will cost $7.5B through 2019; little or no impact on gasoline use and GHG in the short term

21 September 2012

Cbo
Tax credits and gasoline prices necessary for various electric vehicles to be cost-competitive with conventional vehicles at 2011 vehicle prices. Source: CBO. Click to enlarge.

The nonpartisan US Congressional Budget Office (CBO) estimates that federal policies to promote the manufacture and purchase of electric vehicles, some of which also support other types of fuel-efficient vehicles, will have a total budgetary cost of about $7.5 billion through 2019.

In a new report examining the effect of federal tax credits on the plug-in market, the CBO finds that tax credits for buying electric vehicles—which account for about one-fourth of the policy cost—are likely to have the greatest impact on vehicle sales. The report also finds that while tax credits for EVs will have little or no impact on the total gasoline use and greenhouse gas emissions of the nation’s vehicle fleet over the next several years, the credits can affect future gasoline consumption and emissions if future revisions to the CAFE standards are influenced by current sales of electric vehicles and expectations about future sales.

The electric vehicles that are the focus of this study fall into two broad classes: plug-in hybrid electric vehicles and battery-electric vehicles.

At current vehicle and energy prices, the lifetime costs to consumers of an electric vehicle are generally higher than those of a conventional vehicle or traditional hybrid vehicle of similar size and performance, even with the tax credits, which can be as much as $7,500 per vehicle, the report concludes. That finding takes into account both the higher purchase price of an electric vehicle and the lower fuel costs over the vehicle’s life.

For example, an average plug-in hybrid vehicle with a battery capacity of 16 kWh would be eligible for the maximum tax credit of $7,500. However, that vehicle would require a tax credit of more than $12,000 to have roughly the same lifetime costs as a comparable conventional or traditional hybrid vehicle.

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, the report says.

Tax credits for these plug-in electric-drive vehicles have multiple direct and indirect effects on the total amounts of gasoline consumed and greenhouse gases emitted by the US transportation sector.

  • The direct effect of the credits is to subsidize purchases of electric vehicles—including purchases that would have been made even without the credits. Those people who purchase electric vehicles because of the tax credit use less gasoline and produce fewer emissions of greenhouse gases than would otherwise be the case. The cost to the government of those reductions in gasoline consumption and emissions can vary widely.

  • Indirect effects. Increased sales of electric vehicles allow automakers to sell more low-fuel-economy vehicles and still comply with 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. As a result, the cost per gallon or per metric ton of any such reductions will be much greater than the cost calculated on the basis of the direct effects alone.

Over the longer term, the analysis finds, the tax credits can affect total gasoline consumption and emissions if future revisions to CAFE standards are influenced by current sales of electric vehicles and expectations about future sales. If the credits play an important role in helping the US electric vehicle industry become self-sustaining, their effect on vehicle sales might continue to affect CAFE standards and the resulting amounts of gasoline use and emissions for years after the expiration of the credits.

As of yet, no reliable estimates exist of the share of electric vehicle sales that can be attributed to the tax credits—that is, of the number of vehicles that would not have been sold without those credits. However, researchers have analyzed the earlier tax credits that applied to pur- chases of traditional hybrids (which expired at the end of 2010) and estimated that they were responsible for roughly one-quarter of all sales of those vehicles. On the basis of that research, CBO estimates that the current tax credits will be responsible for 30 percent of all electric vehicles sold. That share is slightly higher than the estimate for the earlier tax credits because the current credits are larger (a maximum of $7,500 rather than $3,400) relative to the cost of the vehicles.

The effects of the tax credits may extend beyond additional sales of electric vehicles, however. By lowering the effective purchase price of electric vehicles, the credits are likely to cause manufacturers to reduce prices of competing high-fuel-economy conventional and traditional hybrid vehicles, thus raising the average fuel economy of other, nonelectric vehicles sold. That effect may be large. The results of one study on the energy and environmental gains from the tax credits for traditional hybrids suggest that the benefits from increased sales of higher-fuel-economy conventional vehicles were about one and a half times the benefits from sales of the hybrids themselves.

The relative size of those various gains depends on how many vehicles are sold. Low sales of electric vehicles would not greatly affect the average fuel economy of conventional vehicles. At least in the near term, sales of electric vehicles will probably not be as large as sales of traditional hybrids have been—because of differences in their costs—so the impact of electric vehicles on the average fuel economy of other vehicles will probably be smaller than was found for traditional hybrids. CBO assumes that those spillover effects will be about half as large as the direct effect from sales of electric vehicles. Thus, in CBO’s analysis, the total reductions in fuel use and greenhouse emissions from electric vehicles are 1.5 times the direct reductions.

—“Effects of Federal Tax Credits for the Purchase of Electric Vehicles”

Possible future policies. 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, because automakers would still have to meet existing CAFE standards, the report finds. 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.

However, changes in the size or number of the credits could affect future CAFE standards by influencing regulators’ expectations about future sales of electric vehicles. The extent of such influence would be difficult to predict, however, as would the long-term costs and benefits of such changes.

Another option suggested in the report is increasing the federal excise tax on sales of gasoline, which would tend to reduce gasoline use and emissions. Other policies, such as a tax on the carbon content of fossil fuels, could focus on low-cost reductions in emissions outside the transportation sector. They would tend to minimize the total cost of achieving a given reduction in emissions, but they would not specifically target gasoline or oil consumption and would probably have little effect on the development of the electric vehicle industry.

EDTA response. In response to the CBO report, Brian Wynne, president of the Electric Drive Transportation Association (EDTA), issued the following statement:

The Congressional Budget Office (CBO) report ‘Effects of Federal Tax Credits for the Purchase of Electric Vehicles’ can be another useful contribution to the conversation on the benefit of investment in electric drive. It is important to highlight, however, some of the report’s acknowledged 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.’

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.

Carnegie Endowment suggests policies to advance the plug-in market. Separately, the Carnegie Endowment is releasing a policy paper urging more government support for the nascent electric vehicle market. Among the key recommendations:

  • Motivate PEV (plug-in vehicle) manufacturers. Policies that help boost PEV sales will foster the large-scale commercialization of electric vehicles, the report suggests. In particular, policies should more broadly distribute tax incentives for purchasing these vehicles, and federal electric-vehicle programs should be extended and expanded to provide direct financial incentives to PEV manufacturers. Auto dealers leading the way in PEV sales should also be rewarded.

  • Shine the spotlight on states. Those states making the most headway in advancing low-carbon electric vehicles should be held up as examples to help assure uncommitted states of the opportunities offered by PEV commercialization. They should also be benchmarked to maintain their lead- ing edge, and states should move away from fuel taxes and toward carbon pricing to compensate governments for their lost revenue.

  • Cultivate local PEV clusters. The federal government should target PEV policies at those regions where cleaner, renewable electricity is already generated because expanded PEV use in those regions will reduce carbon emissions. Similarly, programs should be targeted at cities already facilitating PEV use.

  • Promote PEV interactions with utilities. The transition to PEVs will be discouraged if electric-vehicle drivers who need to charge their cars face excessive electricity prices. Utility providers must be encouraged to revisit their electricity rate designs, invest strategically in recharging infrastructure, and investigate the effectiveness of decoupling regulations.

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September 21, 2012 in Electric (Battery), Market Background, Plug-ins, Policy | Permalink | Comments (45) | TrackBack (0)

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'On the basis of estimates by other analysts,
CBO concludes that, on average, the difference in
purchase price between a plug-in hybrid vehicle and a
conventional vehicle of similar size and performance consists
of a fixed component of about $4,000 (which reflects
cost differences that are independent of the size of the
electric vehicle’s battery) and a variable component of
about $950 per kWh (which reflects costs that depend
directly or indirectly on the size of the battery).14 On that
basis, a 16 kWh plug-in hybrid can be expected to cost
about $19,000 more to buy than a comparable conventional
vehicle [$4,000 + ($950 x 16)]—or an average
price difference of about $1,200 per kWh of battery
capacity.

GIGO.
$950kwh?

On a positive note, I am pleased that my guesstimate of electric cars coming into cost competitivity at petrol prices of around $4.50 seems around the right area.

For the fuel price graphs against competitiveness they are still assuming current tax credits, and of course no fuel duty, it seems:

'With gasoline prices of $6 a gallon, for example, the lifetime costs of many types of electric vehicles would be less than or equal to the costs of conventional vehicles, given the current tax credits (see the bottom panel of Figure 1 on page 8).'

Even allowing for their unrealistic battery costs, getting to be full cost competitiveness with large batteries is not going to be easy.

I think that certaIn ELEMENTS WITHIN THE CBO are piling the statistics in a very special way....as in a mile wide and an inch deep. I love how it says thatg PEV sales will allow a manufacturer to "conyinue selling low efficiency vehicles thus making no net impact"....the fact that someone can choose between the two makes the impact fellahs.

GIGO. $950kwh?
Perhaps for HEV batteries, with their very high specific power requirements.  Of course, using that figure for PHEVs and BEVs, with their different requirements, is deceptive.

Bob Lutz says battery costs are:
'The Volt “variable cost” (labor and materials, without revealing any confidential GM information), looks very roughly like this: A Li-Ion battery today runs about $350 per KWh. The Volt’s is 16KWh, so that’s roughly $6000. Add $4,000 for the battery pack structure, the cooling, the high-voltage wiring, the motor and the power electronics. So, that’s the electric portion. Add about 20 hours of assembly labor which we’ll round to a very generous $1000.'

That comes out to around $625 kwh

Other sources check out to that kind of figure.
The Leaf doesn't have the cost of a cooling system, but that is problematic with the chemistry they use.

In any case, for a ball park they argue that $12,000 subsidy is needed to break even at present sub $4 petrol prices..
Reduce that proportionately to what they seem to have overestimated battery costs, by a third, and you come out to $8,000 for the break even, near as darn it what the subsidy actually is in the US.

Is this accurate?
No, but it is better than the figures they are offering.

"As of yet, no reliable estimates exist of the share of electric vehicle sales that can be attributed to the tax credits"

As of yet, no reliable estimates exist of the real cost of ICE oil costs including:

Decades of oil wars: $trillion(s)
OVER a century of oil tax subsidies: more trillions
Over a century of unimproved 20 something average ICE mpg: even more wasted $trillions
...

A few years of EVs with over 100 mpg EPA window stickers and suddenly new ICE mpg averages increase by several miles per gallon per year.

If one uses US Congressional Budget Office estimates, use non-US oil subsidized world gas prices/gallon like:
U.K. $8.84
Germany $8.56
Japan $7.58
Italy $9.35
Hong Kong $8.89
..
http://wallstreetpit.com/92107-highest-and-cheapest-gas-prices-by-country/

Then promote EV tax credits, benefits, and dump(deregulate) oil company subsidies.

So that $7.5B is .02% of the budget. That is 2/100th of one percent. Or about two days spending in Afghanistan. It is also 1/30th of what we give the oil companies.

The love of oil profits may eventually destroy us. The lying certainly has increased. I suspect that is bad for the GOP, since not everyone is dumb enough to believe their silly lies. I can't figure out why anyone has ever thought that the GOP was fiscally responsible or patriotic. I guess you just keep sayin the same lies over and over and some people will capitulate.

I often read of large subsidies going to big oil, could someone direct me to a site that documents the amount oil companies receive. I'm aware of blending fee,s they receive to blend ethanol.

Jimr, Google:

large subsidies going to big oil
cost of oil wars
cost of oil pollution
cost of medical care relating to air pollution
..
and find a scientific calculator - good luck

Yes, if all direct and indirect subsidies to the Oil Industries ($1T+/year), plus total Oil wars cost, plus the total cost of negative environmental impacts ($XXT/year), plus the all extra healthcare cost ($XXXB/year), plus the cost of lower productivity ($XXT/year), etc etc...the liquid fuel real cost would not be $4/gal but much closer to $10/gal.

At $10/gal, all HEVs, PHEVs and BEVs would be very competitive at current price, without subsidies.

Governments have to stop subsidizing fossil and bio-fuel industries and electrified vehicles would sell like hot cakes.

"The American Coalition for Ethanol estimates that when combined with state and local government aid to large oil companies, subsidies amount to anywhere from $133.8 billion to $280.8 billion annually from all sources of taxpayer aid that goes to the oil and gas industry."
http://news.yahoo.com/history-u-oil-subsidies-back-nearly-century-215500548.html

That would be trillions over a century, then add the big expenses like oil wars, lost productivity, medical pollution costs, etc, etc, ..

"EVryman",
Auto companies are in the business to make money. Trucks, SUV's and other premium vehicles have the highest return on investment and profit margins. The companies will therefore predictably do what they have to to maximize those sales. For some automakers that may mean it will make more sense to produce 10 small cars at a loss for every high profit vehicle just to meet CAFE regulations and prevent financially punitive public perception implications and legal penalties.

This is not a new concept so I think that is what CBO meant when they report automakers will, "continue selling low efficiency vehicles thus making no net impact"

As long as people want to buy lower efficiency vehicles, for-profit companies will find a way to provide them. In fact higher CAFE requirements may even increase profits due to government trying to force a reduction in supply of lower efficiency vehicles.

Personally I believe the government should begin and/or accelerate the tapering of HEV and PHEV tax credits to phase them out. The industries they were meant to have jump-started are now for the most part in mass production.

We shouldn't be squandering our tax/borrowed money on things that have little to none of their originally intended effects.

That said, we should also not be hemorrhaging tax/borrowed money to oil companies through subsidies, special tax loop-holes, etc unless we're seeing a HUGE return on "investment". This includes anything to do with ethanol, pipelines, etc.

BTW, when I say a "HUGE ROI" I'm not talking about votes, I'm talking about jobs and re-investments into renewable technologies Energy-related companies have little to no incentive to offer/do otherwise.

It is wonderful, paraphrasing, to hear the bleatings of the True Beleivers in the Morning.

The only fully practical EV today is the Volt, and the technology is still a bit too expensive by about $8,000 -$12,000 per vehicle.

But that is much closer to prcticality, than the first big EV push 20 years ago, with the Pb-acid garage shop conversions from all auto manufacturers, save GM. GM dumped a $Billion dollars into the EV-1, only to have the pathetic Greens criticize the effort, and throw mud at the company, creating a PR nightmare.

In short, a next generation battery technology is still needed to make electrification really competitive. Li-Air is probably the next generation chemistry, but the subject is still open and in competition.

This time GM developed the VOLT. It is still too expensive, but it does indicate that were it absolutely necessary, we don't have to abandon civilization for lack of fossil fuel energy. A national automotive fleet of Volts could be supplied with all the fuels needed, from the present level of annual Ethanol production, and a new generation of LWRs, even without a drop of Oil.

Such is not the case however. Nor is it the only genuine choice in any real Universe.

The discredited 'Peakists' have crawled back under their rocks. The 'Warmists' who can't find warming, nor any accumulating Heat, seem to be headed there also. Moreover, the citizens willingness to give governments several dollars per gallon in taxes for doing essentially nothing, appears to be waining.

Europe has certainly revealed that $10 dollar gas does not produce better auto technology, but actually leads to shrunken and dirtier cars, and dirtier air. Mean while the greedy politician demands for ever MORE, never abates, nor is it ever satiated.

We will muddle ahead as always while we perfect the iCE technology, and also totally cleanse the ICE. In due course, 10-40 years from now, when the new technologies mature, and truely exist, electrification will gradually suppliment and replace the ICE.

"$7.5 billion through 2019" - that's less than nothing. On annual basis it would be 10 time less than Brotherkenny4 indicated. In some cases a lot bigger budgets are assigned for R&D of oil and gas industry. In case this negligently small budget money securing BEV and PHEV market entry would be canceled it would look like criminal act. Also one should remember that those money spur domestic manufacturing and power generation not oil imports.

At the lower estimate given by the ethanol institute, the subsidies cost $1T in 7.5 years; at the higher, in just 3.5.

We could certainly get rid of huge costs by promoting electric propulsion to a greater degree.

So Kelly, what is the air quality where you live?

The air quality where I live the air quality is good. This means that a BEV would be a waster of money to reduce medical cost from poor air quality.

Let me gripe a minute. I got no money from the government to buying a new Corolla or a more efficient pump. Just like millions of other Americans. When I make a choice, I look at the cost and the benefit.

The problem I have with people like Kelly is they come up wildly expensive but totally ineffective solutions.

So who gets a tax credit of $7,500. Anyone want to wager that 90% of BEV are sitting in front of 5000 square foot homes with two SUVs. Roger's concept is that a BEV will save them money but people who are actually worried about saving money because they need to drive a GEO Metro. That is until they can afford to drive an SUV.

What Kit P is saying is that the average American will drive large gas guzzlers as long as they can afford to do it. The best way to change that acquired attitude is to hit their pocket book progressively hard enough. That can be done 10+ different ways, such as:

1. With variable (negative and positive) purchase tax based on liquid fuel consumption. The pivot point could be 50 mpg. All cars doing better than 50 mpg would get a progressive tax credit equivalent to (let's say) 10X to 50X the mpg or mpge. All vehicles doing less than 50 mpg would pay a progressive purchase tax, higher and higher as it moves away from the 50 mpg pivot point. The pivot point could be increased about 5% per year or so. That program could be budget neutral.

2. A progressive increase in liquid fuel tax of 2 to 5 cents per month until the average EU price is reached. The progressive huge revenues could be used to build/repair roads and pay off some of the huge national debt.

3. A variable registration fee based on fuel consumption, similar to 1) above. That program should be revenue/budget neutral.

Don't worry, CBO, the solutions are very simple. No extra taxpyers' money need be spent on tax credit for EV's. The 7-billion USD can come from the defense budget. Now that we have withdrawn troops from Iraq, and soon from Afghanistan, a lot of saving in defense budget will be possible. Look at petroleum energy security as a national defense issue, and the use of defense budget will be justifible. We will need to reduce oil importation to avoid funding the terrorists.

Use some of the subsidies for natural gas and oil, toward the funding for EV's development. NG subsidy is no longer needed, for obvious reason, while oil subsidy can be reduced because with increasing EV penetration, oil demand will be relatively less.

Or, if all elses fail, simply add a $0.0025 tax (0.25 cent!!!) on each gallon of gas to come up with perhaps 10 billions USD yearly to fund EV's development. No one will notice this 0.25 cent increase in gasoline prices at the pump, but gov. can boast a lot about having vision to end America's dependency on foreign oil and improving the trade deficit and hence the economy at the same times. Less dollars paid out for imported oil means more money stayed at home to boost the domestic economy.

Correction to above: to achieve 7 billion USD in yearly revenue from fuel tax will need to raise the fuel tax by 5 cents per gallon, not the 0.25 cent as posted above. Still, probably no one will care about this 5-cent increase in fuel tax.

Sorry, I misread the article. The 7.5 billion cost to taxpayers is not a yearly cost, but is a one-time projected cost from the beginning through 2019. Now to 2019 is seven more years, so only 1 billion USD of fuel tax per year will be needed yearly to fund this EV tax credit. Dividing 5 cents by 7 will get you 0.7 cent of raise in fuel tax per gallon to fund the exsting EV tax credit.

Let's see, the Leaf came to the US in December 2010, so not being willing to count one month as a year, we're talking nine years. 2011 through 2019.

We spend about a billion dollars per day to import oil from foreign countries. (For now I'll leave out the $9 trillion spent on oil wars and who know how many hundreds of millions/trillions on keeping a large military presence in the Middle East and Homeland Security.)

$1B per day over nine years is $3,285 billion. $7.5B spent to give us an alternative to purchasing foreign oil is about 0.2%. One fifth of one percent.

Just for fun let's assume $3,285B for importing oil, $9,000B for foreign oil, and $500B for Homeland Security/junk fondling. Now we're at $12,785 billion. The entire "help us get off oil" spenditure is 0.06% (not 6 percent, 6/100ths of one percent) of what we're spending to burn oil. And I didn't include the cost of keeping our military in the ME.

Is it possible that some people simply do not have a clue?

Roger, in 7 years the US will consume about 1 trillion gallons of gasoline, 400 billion gallons of fuel distillates (diesel, heating oil, etc.) and 150 billion gallons of jet fuel.

http://www.eia.gov/forecasts/steo/report/us_oil.cfm

So, the EV tax credit will require less than a 0.7 cent of raise in fuel tax per gallon to fund the exsting EV tax credit.

I wonder if the folks with their bloomers in a bunch over federal support for EVs and PHEVs have thought what it will mean for them when they go to tank up their '69 Camaro in 2020?

Move half of all driving off gasoline and onto electricity and the demand for gasoline will be heck of a lot less. Less demand = more supply and that generally = lower prices.

Bet those folks make all sorts of noises about market forces every day....

I think those $7,5 bln could best spent US budget money. It could be better than money spent on Stinger program which destroyed USSR.

This $7.5B is very little compared with $170B (i.e 22.6 times more) to be spent of bio-fuels in about the same time frame. If extra labor and pollution is added, bio-fuels development may cost 35+ times more? Priorities are in the wrong place?

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