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The EV Tax Credit Is a Climate Lemon

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From Watts Up With That?

By Oliver McPherson-Smith

The Inflation Reduction Act’s consumer tax credit for electric vehicles (EVs) is a fiscal blowout and a gift to Chinese mineral companies. If that isn’t bad enough, it also swindles American taxpayers into paying up to $821 per ton of avoided emissions, which is several multiples above the Biden Administration’s own estimates of the cost of carbon. At that staggering price, the scheme is a spectacularly inefficient way to reduce emissions.

Through the so-called Inflation Reduction Act, taxpayers subsidize the purchase of new electric vehicles by up to $7,500. But how many tons of carbon emissions does that actually stop from reaching the atmosphere? Compared to a conventional vehicle, the International Energy Agency estimates that using an EV avoids the equivalent of around 22.24 tons of carbon dioxide across its lifecycle. This means that the EV tax credit costs around $337 to avoid each ton of carbon emissions.

However, the true cost is actually higher because proper accounting should exclude EV consumers who would buy electric vehicles regardless of the tax credit. Because the tax credit doesn’t sway those consumers, the associated avoided emissions shouldn’t be attributed to the credit. The credit has the same $7,500 value, but the scheme is actually avoiding fewer carbon emissions, so the price per ton is higher.

According to a 2021 study published by the National Bureau of Economic Research, 70% of consumers who claimed the federal EV tax credit would have done so in its absence, which would imply a $1,123 implicit cost of carbon. Since then, the Inflation Reduction Act introduced new conditions on the tax credit, including limits on eligibility for high-income buyers. Even if one generously assumes that the remaining pool of very motivated buyers is only half the size — meaning only 35% would purchase an EV without it — then the implicit cost of carbon is still $519 per ton.

The federal splurge on carbon gets a further boost thanks to President Biden’s onerous fuel efficiency standards. Mandating higher fuel efficiency means that a shift from a conventional vehicle to an EV has less of an effect in terms of avoided emissions. In May 2022, the Department of Transportation mandated that new cars on the roads in 2026 be 33% more fuel efficient than the 2021 standards. When consumers choose EVs over these more efficient gas-fueled vehicles, the implicit price of carbon within the EV credit jumps to $775. As the Biden Administration progressively ratchets these efficiency standards higher, so too goes the implicit price on carbon. By 2031, federal taxpayers will be forking over the equivalent of $821 for each ton of carbon the EV tax credit prevents from reaching the atmosphere.

Frittering away more than $800 for a ton of carbon is a rip-off that not even the most unscrupulous used car salesman could dream up. Compare this figure to recent estimates of the “social cost of carbon,” which the federal government uses to quantify the impact of emissions when making regulatory decisions. While the Trump Administration estimated it to be between $1 to $7 per ton, the Biden Administration blew the roof off in 2023 by raising that cost to $190. That progressive overstatement now looks like a steal.

Even within the Inflation Reduction Act’s tax and spend circus, the EV tax credit is a spectacularly wasteful way to reduce carbon emissions. For example, the natural gas tax, which solely punishes the oil and gas industry under a thin guise of environmentalism, levies a fee equivalent to $36 per ton of carbon. Meanwhile, the tax credit for vacuuming emissions out of the air is worth up to $180 per ton. These dramatically different prices, even within a single act of Congress, underscore the practical futility of calculating an efficient price on carbon for a carbon tax or tariff.

Progressives like to measure the success of their policies by how much taxpayer money they can burn through, and the White House periodically reminds taxpayers that the Inflation Reduction Act is the largest single climate spending spree in human history. What they don’t mention is that the American public is being ripped off at the car lot with a climate lemon of a tax credit.

Oliver McPherson-Smith, Ph.D., is the Director of the Center for Energy & Environment at the America First Policy Institute and a research fellow at Stanford University’s Hoover Institution.

This article was originally published by RealClearEnergy and made available via RealClearWire.

Electric vehicle subsidies as complex and costly as ever

From CFACT

BY DAVID WILLIAMS:

Electric vehicles (EVs) may be the most subsidized product in America. Federal taxpayers shell out $7,500 every time a new eligible electric vehicle is purchased (usually by wealthy buyers). State and local taxpayers chip in an additional $1,500 for each EV purchase. Then, there are the tens of billions of dollars “invested” by policymakers into building EV plants. Even these bank-breaking concessions aren’t enough to please the Biden administration. Recently finalized EV tax credit rules expand eligibility for the subsidy while maintaining bizarre trade sourcing rules likely to lead to further tariffs from China. It’s time for President Biden and lawmakers to ditch protectionism and finally end EV subsidies.

From the start, President Biden’s fumbling approach to EV subsidies has harmed the economy without bolstering ecology. In 2022, the chief executive declared, “[t]hanks to American ingenuity, American engineers, American autoworkers… if you want an electric vehicle with a long-range, you can buy one made in America.” Prices were already through the roof, with taxpayers being asked to shoulder these pricy purchases. Kelley Blue Book estimates that the average price of a new EV is more than $65,000, compared to $48,000 for gas-powered cars. Biden imposed requirements that EVs must undergo “final assembly in North America,” contributing to even higher prices for taxpayers and consumers.

Biden’s rules make production cost-prohibitive by restricting the foreign mineral inputs (e.g., graphite) that could go into tax credit-eligible EVs. The administration has since reversed course and allowed for a grace period for graphite sourcing. However, the new rules“introduce a stricter test for measuring whether 50% of the vehicle’s critical minerals come from the United States or a free trade agreement partner…[requiring] automakers to more precisely account for the value added at each step of the supply chain.” The net effect of all these confusing new rules is to expand the number of vehicles eligible for EV tax credits while increasing compliance costs. And, of course, this cost will be passed on to taxpayers and consumers.

Instead of tethering absurd rules to a complex and costly program, the Biden administration should start from scratch and axe the tax credit. EV subsidies are showered onto the wealthiest Americans at the expense of their poorer neighbors. According to a 2023 analysis of California EV purchase patterns by the news outlet CalMatters, “Most of the median household incomes in the top 10 [zip codes with the highest share of EVs] exceed $200,000, much higher than the statewide $84,097. Typical home values in those communities exceed $3 million, according to Zillow estimates.” In comparison, “electric cars are nearly non-existent in California’s lowest income communities: only 1.4% of cars in Stockton’s 95202, where the median household income is $16,976, and 0.5% in Fresno’s 93701, where the median is $25,905. Most are plug-in hybrids, which are less expensive.” This study’s findings are consistent with earlier multi-state surveys. A 2018 study by Dr. Wayne Winegarden of the Pacific Research Institute found that “79% of electric vehicle plug-in tax credits were claimed by households with adjusted gross incomes of greater than $100,000 per year. Households with incomes greater than $50,000 per year claimed 99% of the credits.”

This stunning regressivity ensures that subsidies are a net-negative for ecology. Wealthy Americans primarily purchase EVs as secondary cars, keeping them in the garage for occasional outings. EV owners are largely still using conventional cars, and there’s less-than-hoped-for substitution between gasoline and electricity. As a result, extra pollution is generated via increased EV production without corresponding decreases in driving emissions. One 2022 Harvard study suggests, “foregoing gasoline in favor of volts may actually increase, not lower, overall emissions in some cases.” This is far from the outcome envisioned by “green” activists and policymakers.

The Biden administration and lawmakers ought to seriously rethink adding more fuel to the dumpster fire of EV subsidies. Struggling Americans shouldn’t be forced to foot the bill for these over-hyped toys for tycoons.

David Williams is the president of the Taxpayers Protection Alliance

This article originally appeared at Real Clear Energy