Federal EV tax credit: unnecessary, inefficient, unpopular, costly, and unfair

In April, Senator Debbie Stabenow (D-MI) introduced the Drive America Forward Act, a bill that would expand the tax credit for new plug-in electric vehicles (EVs) by allowing an additional 400,000 vehicles per manufacturer to be eligible for a credit of up to $7,000. Currently, the tax credit is worth up to$7,500 until a manufacturer sells more than 200,000 vehicles. In late September, groups that stand to benefit from the extension of the federal tax credits wrote to Senator McConnell and other leaders in Congress, encouraging them to support on the Drive America Forward Act. As IER has documented in the past, lawmakers should not extend the EV tax credit as the policy is unnecessary, inefficient, unpopular, costly, and unfair.

Unnecessary and inefficient

The EV tax credit is not necessary to support an electric vehicle market in the U.S. as one group estimates that 70 percent of EV owners would have purchased their vehicle without receiving a subsidy, which is reasonable seeing as 78 percent of credits go to households making more than $100,000 a year.  Furthermore, the federal tax credit overlaps with a number of other government privileges for EVs, including:

  • State rebates and/or other favors (reduced registration fees, carpool-lane access, etc.) in California, as well as in 44 other states and the District of Columbia.
  • Tax credits for infrastructure investment, a federal program that began in 2005 and, after six extensions, expired in 2017.
  • Federal R&D for “sustainable transportation,” mainly to reduce battery costs, averaging almost $700 million per year.
  • Credit for EV sales for automakers to meet their corporate fuel economy (CAFE) obligations.
  • Mandates in California and a dozen other states for automakers to sell Zero-Emission Vehicles—a quota in addition to subsidies.

Even if the federal tax credits were needed to support demand for EVs, the extension of the tax credit would be an absurdly inefficient means of achieving the stated goal of the policy, which is ostensibly to lower carbon emissions. The Manhattan Institute found that electric vehicles will reduce energy-related U.S. carbon dioxide emissions by less than 1 percent by 2050.

Unpopular

Lawmakers should be aware that the vast majority of people do not support subsidizing electric vehicle purchases. The American Energy Alliance recently released the results of surveys that examine the sentiments of likely voters about tax credits for electric vehicles. The surveys were administered to 800 likely voters statewide in each of three states (ME, MI and ND). The margin of error for the results in each state is 3.5 percent.

The findings include:

  • Voters don’t think they should pay for other people’s car purchases. In every state, overwhelming majorities (70 percent or more) said that while electric cars might be a good choice for some, those purchases should not be paid for by other consumers.
  • As always, few voters (less than 1/5 in all three states) trust the federal government to make decisions about what kinds of cars should be subsidized or mandated.
  • Voters’ sentiments about paying for others’ electric vehicles are especially sharp when they learn that those who purchase electric vehicles are, for the most part, wealthy and/or from California.
  • There is almost no willingness to pay for electric vehicle car purchases. When asked how much they would be willing to pay each year to support the purchase of electric vehicles by other consumers, the most popular answer in each state (by 70 percent or more) was “nothing.”

The full details of the survey can be found here.

Costly and unfair

Most importantly, an extension of the federal EV tax credit is unfair as the policy concentrates and directs benefits to wealthy individuals that are predominantly located in one geographic area, namely California. A breakdown of each state’s share of the EV tax credit is displayed in the map below:

In 2018, over 46 percent of new electric vehicle sales were made in California alone. Given that California represents only about 12 percent of the U.S. car market, this disparity means that the other 49 states are subsidizing expensive cars for Californians.  However, in order to understand the full extent of the benefits that people in California are receiving, some further explanation is in order.

When governments enact tax credit programs that favor special businesses without reducing spending, the overall impact is parallel to a direct subsidy as the costs of covering the tax liability shift to the American taxpayer or are subsumed in the national debt (future taxpayers). California offers a number of additional incentives on top of the federal tax credit for electric vehicles that are also driving demand for EVs in the state. These incentives include an additional purchase rebate of up to $7,000 through the Clean Vehicle Rebate Project, privileged access to high-occupancy vehicle lanes, and significant public spending on the infrastructure needed to support EVs. Therefore, the additional incentives that California (and other states) offer to promote EVs have broader impacts as these policies incentivize more people to make use of the federal tax credit, passing their costs on to American taxpayers. In other words, you’re not avoiding the costs of California’s EV policies by not living in California.

This problem is made even worse when we consider the impact of zero-emission vehicle (ZEV) regulations, which require manufacturers to offer for sale specific numbers of zero-emission vehicles. As recently as 2017, auto producers have been producing EVs at a loss in order to meet these standards, and they have been passing the costs on to their other consumers. This was made apparent in 2015 by Bob Lutz, the former Executive Vice President of Chrysler and former Vice-Chairman of GM, said:

“I don’t know if anybody noticed, but full-size sport-utilities used to be — just a few years ago used to be $42,000, all in, fully equipped. You can’t touch a Chevy Tahoe for under about $65,000 now. Yukons are in the $70,000. The Escalade comfortably hits $100,000. Three or four years ago they were about $60,000. What this is, is companies trying to recover what they’re losing at the other end with what I call compliance vehicles, which are Chevy Volts, Bolts, plug-in Cadillacs and fuel cell vehicles.”

Fiat Chrysler paid $600 million for ZEV compliance credits in 2015 (plus an unknown amount of losses on their EV sales), and sold 2.2 million vehicles, indicating Fiat Chrysler internal combustion engine (ICE) buyers paid a hidden tax of approximately $272 per vehicle to subsidize wealthy EV byers. ICE buyers were 99.3 percent of U.S. vehicle purchases in 2015. So, even if half the credits purchased were for hybrids, each EV sold in 2015 was subsidized by more than $13,000 in ZEV credit sales, in addition to all of the other federal, state, and local subsidies.

As is typical with most policies that benefit a politically privileged group, the plan to extend the federal tax credit program comes with tremendous costs, which are likely being compounded by people abusing the policy.  One estimate found that the overall costs of the Drive America Forward Act would be roughly $15.7 billion over 10 years and would range from $23,000 to $33,900 for each additional EV purchase under the expanded tax credit. Seeing as the costs of monitoring and enforcing the eligibility requirements of the EV tax credit program are not zero, it should surprise no one that the program has been abused as it has recently come to light that thousands of auto buyers may have improperly claimed more than $70 million in tax credits for purchases of new plug-in EVs. Finally, additional concerns arise over the equity of the federal EV tax credit due to the fact that half of EV tax credits are claimed by corporations, not individuals

End this charade

When the tax credit was first adopted, politicians assured us that the purpose of the program was to help launch the EV market in the U.S. and that the tax credit would remain capped at the current limit of 200,000 vehicles. At that time, we warned that once this program was in place, politicians would continue to extend the cap in order to appease the demands of manufacturers and other political constituencies that were created by the program. A decade later, we find ourselves in that exact situation. At this point, it should be clear that Congress should not expand the federal EV tax credit as the program is nothing more than an extension of special privileges to wealthy individuals and corporations that are mostly located in California. If Congress can’t find the courage to put an end to such an unfair and inefficient policy, President Trump should not hesitate to veto any legislation that extends the federal EV tax credit, as doing so would be consistent with his approach to other energy issues such as CAFE reform.


AEA to Senate: Highway Bill is Highway Robbery

WASHINGTON DC (July 30, 2019) – Today, Thomas Pyle, President of the American Energy Alliance, issued a letter to Senate Environment and Public Works Committee Chairman John Barrasso highlighting concerns about the recently introduced America’s Transportation Infrastructure Act. Included in the legislation is an unjustified, $1 billion handout to special interests in the form of charging stations for electric vehicles.  AEA maintains that provisions like this are nearly impossible to reverse in the future and create a regressive, unnecessary, and duplicative giveaway program to the wealthiest vehicle owners in the United States. 
 
Read the text of the letter below:
 

Chairman Barrasso,

The Senate Committee on Environment and Public Works is scheduled to consider the reauthorization of the highway bill and the Highway Trust Fund today.  At least some part of this consideration will include provisions that provide for $1 billion in federal grants for electric vehicle charging infrastructure.  This is among $10 billion in new spending included in a “climate change” subtitle.  All of this new spending is to be siphoned away from the Highway Trust Fund (HTF), meant to provide funding for the construction and maintenance of our nation’s roads and bridges.  The HTF already consistently runs out of money, a situation that will only be exacerbated by these new spending programs.

We oppose this new federal program for EV infrastructure for a number of reasons, including, but not limited to the following:

  • The grant program, once established in the HTF, will never be removed.  Our experience with other, non-highway spending in the trust fund (transit, bicycles, etc.) is that once it is given access to the trust fund, the access is never revoked.  Our nation’s highway infrastructure already rates poorly in significant part due to the diversion of highway funds to non-highway spending.
  • As we have noted elsewhere, federal support for electric vehicles provides economic advantages to upper income individuals at the expense of those in middle and lower income quintiles.  This grant program would exacerbate that problem.
  • This program will result in taxpayers in States with few electric vehicles or little desire for electric vehicles having their tax dollars redirected from the roads they actually use to subsidize electric vehicle owners in States like California and New York.
  • This program is duplicative.  There is already a loan program within DOE that allows companies and States to get taxpayer dollars to subsidize wealthy electric vehicle owners.

For these and other reasons, we oppose the provisions that would create a regressive, unnecessary, and duplicative giveaway program to wealthy, mostly coastal electric vehicle owners.  This giveaway not only redirects taxpayer money from the many States to the few, in looting the Highway Trust Fund it also leaves those many States, including Wyoming, with less money to maintain their own extensive road networks.


Sincerely,

Thomas J. Pyle

The Unregulated Podcast #175: The Last American

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss recent movement on Capitol Hill and cover a litany of headlines from a busy week in the beltway and beyond.

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The Unregulated Podcast #174: Chop Choppy

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss recent primary contests, Biden’s latest stories, and the EPA’s “not-a-ban” ban on gas powered vehicles.

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11 Questions for FERC Nominees

WASHINGTON DC (03/21/2024) – The Senate Energy and Natural Resources Committee is holding a confirmation hearing today on three new nominees to the Federal Energy Regulatory Commission (FERC). Given the usual glacial pace in which the Senate operates these days, it appears the Senator Joe Manchin, the Chairman of the Committee, is working with President Biden to rush these nominees through the process without much scrutiny. While we know little about two of the nominees, David Rosner and Lindsay See, the third nominee, Judy Chang, has made vocal her opposition to the construction of new natural gas pipelines, the permitting of which is a key function of the FERC.

Given the importance of FERC’s role in shaping U.S. electricity and energy infrastructure markets, senators from both parties should ask some important questions in today’s hearing. More importantly, the Senate should refrain from rushing these nominees through the process until a full and transparent vetting of their qualifications and their views on these important issues has been conducted.

Here are some suggested questions for the nominees:

  1. The alleged purpose of the Natural Gas Act is to promote natural gas delivery to consumers. A major policy change was the redefinition of the term “public interest” to reflect the climate focus of the chairman at the time. Do you believe that the definition of “public interest” should affirm the need for FERC to ensure affordable and reliable energy?
  2.  Pipelines are the primary mode of transportation for crude oil, petroleum products, and natural gas. America has 190,000 miles of onshore and offshore petroleum pipeline and 2.4 million miles of natural gas gathering and distribution pipelines.  Approximately 80 percent of crude oil and petroleum products are shipped by pipeline on a ton-mile basis.  Will you commit to ensuring a speedier permitting process for oil and natural gas pipelines?
  3.  Should NEPA apply to transmission projects made necessary by political decisions to add intermittent renewable energy to the grid?
  4.  Will you affirm FERC’s responsibility to ensure the reliability of the energy grid as a priority over net zero and Paris Agreement targets? Should ordinary ratepayers be required to pay for the additional costs for adding the transmission necessary for these targets. 
  5.  In late January, the Department of Energy announced a pause on pending and future LNG export applications to countries that don’t have a free trade agreement with the United States. Do you view infrastructure supporting LNG as an essential component of affordable and reliable energy in the U.S.? 
  6.  In November 2023, FERC Chairman Willie Phillips and NERC CEO Jim Robb issued a statement on reliability in New England which stated: 

    “[w]ith respect to the natural gas system, the evidence raised what we view as serious concerns about certain local gas distribution systems’ ability to ensure reliability and affordability in the region without Everett.  And, although there was evidence that the retirement of Everett would be “manageable” for the electric system, at least in the near-term, given anticipated new resource deployments and transmission development, minimal load growth, limited resource retirements, and increased reliance on non-natural gas generators, the evidence indicates that, should those expectations not materialize as anticipated, ensuring reliability and affordability could become challenging in the face of a significant winter event.”  

    Do you support keeping the Everett Marine Terminal operational?  Do you think it would be beneficial for electric reliability? 
  7.  China controls the world’s supply chain for rare earth elements and strategic and critical minerals necessary for renewable energy like solar panels, windmills, and batteries.  Will the sourcing of these materials for renewable energy factor into your decision making at FERC?
  8.  To what extent do you believe that FERC should consider environmental impacts? Where is FERC authorized to be an environmental regulator?

Questions specifically for Judy Chang:

  1. As the former Undersecretary of Energy and Climate Solutions for Massachusetts, you were responsible for developing many of the policies surrounding energy in the state. At 28.85 cents per kWh, Massachusetts has the fourth highest residential electricity prices in the country behind Hawaii, Rhode Island, and California. If confirmed, why should we expect different results? Are you concerned by the precarious nature of natural gas supply in the New England region? Would you support more natural gas pipeline capacity into New England?
  2. In a 2016 report, you bemoaned the low price of natural gas saying it sends “exactly the wrong type of market signals,” and you went on to explain that Massachusetts should do more to raise the price of natural gas. Do you still believe you are more capable of determining the “correct” price of natural gas than the millions of decisions made by consumers and producers through the market process?
  3. In 2018, you made an inaccurate prediction that the state of Massachusetts would move away from natural gas. You went on to explain that, because of this, states should stop investing in “gas pipelines or gas plants.” You were quoted in an article discussing high electricity prices in Massachusetts: “If you have states already setting goals and policies to bring onto the grid more hydropower, offshore wind, plus other renewables and clean energy, does it make sense at the same time to build more gas pipelines or gas plants? To me, it doesn’t make sense, because all those costs will be paid by ratepayers in one way or another.” Do you still stand by this statement? Do the other nominees agree with Chang’s conclusion that we should stop investing in natural gas infrastructure?

Additional Resources:


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AEA Statement on EPA’s Gas-Powered Vehicle Ban

WASHINGTON DC (03/20/2024) – Today, the Biden administration finalized a gas-powered vehicle ban that aims to remake the transportation sector and fundamentally upend the American way of life. The regulation mandates electric vehicle adoption by requiring 67 percent of new light-duty and 46 percent of new medium-duty vehicle sales to be EVs by 2032. It will also increase America’s reliance on China for the critical minerals – such as lithium, cobalt, and manganese – required in battery manufacturing.

AEA President Thomas Pyle issued the following statement:

“This regulation is another example of President Biden’s assault on the middle class. The American people should be free to choose the types of cars and trucks that make the most sense for them. This administration wants to take away that choice by forcing Americans into specific vehicles preferred by government agents at the EPA. The Biden regulations will make cars more expensive and ultimately make fewer cars available for Americans. By now, we have gotten used to incredibly damaging and stupid rules from the Biden administration, but this one is in a class by itself.”


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AEA Statement on Energy Week

WASHINGTON DC (03/20/2024) – As House Republicans bring a series of bills to the floor aimed at increasing domestic energy production and reducing energy costs for Americans, the Biden Administration moves another step closer this week to forcing the auto industry to shift exclusively to electric vehicles, another in the more than 200 actions the Biden Administration and congressional Democrats have taken to make energy harder to produce and more expensive to purchase in the U.S.

AEA President Thomas Pyle issued the following statement:

“House Republicans are right to focus their attention on energy prices, which continue to be front and center for the many families struggling to make ends meet in this inflationary environment. Meanwhile, the Biden EPA is busy finalizing an internal combustion engine vehicle ban.

The contrast could not be more clear. House Republicans encourage the responsible development of our natural resources and reject policies – like a carbon tax – that Americans overwhelmingly oppose. Meanwhile, President Biden continues to push an agenda that restricts our energy production here at home, takes away our choice, and makes everything more expensive and less reliable.”

Additional Resources:

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Renewable Energy Mandates Increase Chances Of Major Blackouts

Texas and California lead the nation in power outages and in wind and solar generation. Since 2019, there have been 263 power outages across Texas–more than any other state–each lasting an average of 160 minutes and impacting an estimated average of 172,000 Texans. From 2019 to 2023, California had 221 power outages, ranking second, and Washington ranked third with 118 outages, based on data from the Department of Energy. Texas has the most wind capacity in the nation and is the nation’s top wind producer and California has the most solar capacity in the nation and is the nation’s top producer of solar power.

Texas

Over the past 5 years, more than a third of Texas’ outages occurred in 2021, when a freeze led to widespread outages and the deaths of at least 210 people around the middle of February. There were 47 outages in February 2021 out of 91 across Texas that year. Mass outages such as the one that occurred during the 2021 freeze are rare. Typically, the outages Texans experience are localized and caused by damage to power lines. Power outages — and other events such as wildfires — are becoming greater risks for utilities as the nation’s power grid infrastructure, much of which was installed more than 50 years ago, cannot handle surging electricity demand, higher rates of intermittency, and extreme weather events. Much of the U.S. electric grid was built in the 1960s and 1970s. While the system has been improved with automation and some emerging technologies, it is struggling to meet the electricity needs of Biden’s energy transition, such as renewable energy resources and growing building and transportation electrification.

In 2022, Texas led the nation in utility-scale wind-powered electricity generation, producing more than one-fourth of the U.S. total, leading the nation for the 17th year in a row. Wind power surpassed the state’s nuclear generation for the first time in 2014 and exceeded coal-fired generation for the first time in 2020.  In 2011, Texas was the first, and until 2020 the only, state to reach 10,000 megawatts of wind generating capacity. By February 2023, Texas had nearly 40,000 megawatts of wind capacity, which was more than one-fourth of the state’s utility-scale generating capacity and almost three fourths of its total renewable generating capacity, including from small-scale (less than 1 megawatt) solar installations. In 2022, wind supplied one-fifth of Texas’ in-state utility-scale (1 megawatt or larger) generation.

Texas ranks sixth in the nation in solar power potential. In 2022, the state was the country’s second-largest producer, after California, of solar power. Solar PV capacity at the state’s large- and small-scale facilities increased to more than 13,500 megawatts in early 2023. Solar energy accounted for about 5 percent of the state’s total electricity generation in 2022. Small-scale solar facilities provided about one-eighth of that total. Natural gas-fired power plants supplied about half the electricity generated in Texas in 2022, coal-fired power plants supplied 16 percent, and the state’s two operating nuclear power plants supplied 8 percent.

The Public Utility Commission of Texas, the state’s utility regulator, is requiring Texas utilities to file resiliency plans this year for the first time. These plans would lay out each utilities’ strategies to reduce outages and otherwise harden their infrastructure against weather-related events.

California

Between 2019 and 2023, California had its largest power outages in 2022 (69 outages) and in 2020 (56 outages). In August 2020, hundreds of thousands of Californians briefly lost power in rolling blackouts amid a heat wave, marking the first-time outages were ordered in the state due to insufficient energy supplies in nearly 20 years. The heat wave extended into September and was the state’s hottest and longest for September. For more than a week, the California Independent System Operator (CAISO) — which oversees the electrical grid serving 80 percent of the state — had been calling on residents to conserve their energy use in the later afternoon and evening amid extreme temperatures that sent electric demand on the grid to record levels. Heat waves drive up demand due to increased air-conditioning use. Typically, summer peak load in CAISO was about 30 gigawatts, but on a very hot day, it was over 50 gigawatts–a 60 percent plus increase, and virtually all air-conditioning.

California is second in the nation, after Texas, in total electricity generation from renewable resources and solar energy is the largest source of California’s renewable electricity generation.  In 2022, solar energy supplied 19 percent of the state’s utility-scale electricity net generation, increasing to 27 percent of the state’s total net electricity generation when small-scale solar generation is included. In 2022, California produced 31 percent of the nation’s total utility-scale and small-scale solar PV electricity generation and 69 percent of the nation’s utility-scale solar thermal electricity generation. At the beginning of 2023, California had more than 17,500 megawatts of utility-scale solar power capacity– more than any other state—and when small-scale facilities are included, the state had almost 32,000 megawatts of total solar capacity. The state is the nation’s top producer of electricity from solar energy, which generates less power in the evening and virtually none at night as the sun goes down, but that is when Californians arrive home from work and turn their air conditioners up and other appliances on.

In 2022, wind accounted for 7 percent of California’s total in-state electricity generation, and the state ranked eighth in the nation in wind-powered generation.  At the beginning of 2023, California had more than 6,200 megawatts of wind capacity.  In 2022, natural gas-fired power plants provided 42 percent of the state’s total net generation and nuclear power’s share was about 8 percent, about the same as hydropower’s contribution. According to the Energy Information Administration, California is the nation’s largest importer of electricity from other states, relying upon them for around 30 percent of its electricity.

Nation

Nationally, the number of outages from 2019 to 2023 was 93 percent higher than in the previous five years. Tennessee and Utah were the only states with a decrease in outages in the last 5 years (2019 to 2023) compared to the prior 5 years (2014 to 2018), among states with sufficient data. Tennessee generates most of its power from nuclear, natural gas and coal, which together provided over 85 percent of its generation in 2022, followed by 12 percent from hydropower. Solar energy, biomass, petroleum, and wind energy provided almost all the rest of Tennessee’s net generation—about 3 percent. About 80 percent of Utah’s electricity comes from coal and natural gas plants. In 2022, coal fueled 53 percent of Utah’s total electricity net generation, and natural gas accounted for 26 percent. Almost all the rest of Utah’s in-state electricity generation came from renewable energy sources (16 percent), primarily solar power. Utah generates about one-fifth more electricity than it consumes, and the state is a net supplier of power to other states.

Conclusion

A study has found that power outages have increased by 93 percent across the United States over the last 5 years—a time when solar and wind power have increased by 60 percent. Texas, who leads the nation in wind generation, and California, who leads the nation in solar generation, have had the largest number of power outages in the nation over those 5 years. The U.S. electric power grid is aging but it is being asked to handle increasing demand from President Biden’s forced “green” energy transition along with an increase in generation from intermittent and weather-driven renewables (wind and solar), which are to displace affordable and reliable natural gas and coal power that currently supply almost 60 percent of U.S. generation. That is a prescription for more power outages to come.


*This article was adapted from content originally published by the Institute for Energy Research.

The Unregulated Podcast #173: More Barbie than Oppenheimer

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss the circus like proceedings of the Senate Budget Committee. Later Carolyn Phippen, a candidate in the GOP primary for Utah’s senate seat,  joins the show to discuss the most pressing issues facing the Beehive State and the rest of the country.

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Biden’s Offshore Wind Projects To Cost Double Initial Estimates

The cost to consumers of two offshore wind projects expected to support New York’s self-imposed climate goals has more than doubled from their original estimates, which were high to begin with. Developers had threatened to cancel their offshore wind projects without higher prices, citing inflation, supply chain challenges and rising costs driven by the pandemic, Bidenomics and Russia’s invasion of Ukraine. The agreements, which still need to be finalized, are expected to keep 1,700 megawatts of offshore wind on schedule for 2026. New York wants to reach 70 percent renewable energy by 2030, but to reach that goal—the highest renewable goal in the nation for 2030, the state will need to dump huge costs on its utility customers. The estimated impact to consumer bills for the two projects will be 2 percent, or about $2 per month for the new 25-year agreements—more than double what was expected in the 2019 agreements. The 2019 agreements, which were canceled, were projected to increase bills between 0.49 percent and 0.9 percent or 73 cents per month. Despite having pre-existing contracts with the state, both projects were able to bid into a November 2023 solicitation under New York state rules that allow bids from wind projects that need new contractual terms to remain financially viable. New York state government officials are walking away from protection of consumers in order to claim they are “leaders” in climate policies.

The two NY projects are the 810-megawatt Empire Wind 1 developed by Norwegian company Equinor and the 924-megawatt Sunrise Wind, slightly larger than the original 880 megawatts expected, developed by Orsted and Eversource. Empire Wind, located about 15 miles south of Long Island has received final federal approval, and Sunrise Wind, located more than 30 miles east of the eastern point of Long Island, expects final approval later this year. The projects are both expected to begin providing power by late 2026. The average development cost of the projects over 25 years is about $150 per megawatt-hour, the “strike price” for offshore renewable energy credits, for energy that is intermittent and weather driven with capacity factors less than 50 percent. In contrast, geothermal energy producers are using hydraulic fracturing to ultimately get costs down to $100 per megawatt hour for renewable energy that performs 24/7 and is reliable and carbon dioxide free.

The new offshore wind contracts are expected to include new economic benefit commitments beyond those agreed to by the developers in their 2019 contracts: $188 million in purchases of U.S. iron and steel; $32 million for disadvantaged communities; $16.5 million for wildlife and fisheries monitoring and a labor peace agreement for operations and maintenance. The agreements also maintain commitments by Empire Wind to utilize and support the South Brooklyn Marine Terminal as an assembly and staging port for offshore wind construction and for Sunrise Wind to use the Port of Coeymans near Albany for some foundation components. Both developers, Equinor and Orsted, are European companies.

The earlier awards for the projects had a net present value of $2.2 billion, but the current value is not yet available from the Governor’s office.  The strike prices in nominal dollars (not adjusted for inflation) for the original agreements were $110.37 per megawatt hour for Sunrise Wind and $118.38 per megawatt hour for Empire Wind 1. Sunrise Wind sought a requested increase to their average strike price of 27 percent while Empire Wind 1 sought a 35 percent increase. The increase in strike price from the previous contracts averaged about 30 percent. According to a New York government agency, the new cost estimates were “not directly comparable” since they are based on forecast energy prices and other factors.

A third bidder, the 1.3-gigawatt Community Offshore Wind 2 project, is “waitlisted” and may be awarded in the future. Two other large offshore wind projects have canceled their contracts, hurting the state’s ability to reach its 2030 renewable target. Equinor opted not to rebid its second offshore wind project, the 1,260-megawatt Empire Wind 2 facility, after canceling its existing contract in January. Instead, Empire Wind 2 will be ​“matured for future solicitation rounds,” according to the company. Its former partner, BP, did not indicate that it planned to rebid the Beacon Wind offshore wind facilities in the latest auction. New York plans a public webinar on the two re-awards on March 19, where the public may learn more about their decision to make consumers pay so much more for energy than the original prices.

New York is not the first or only state to allow financially distressed offshore wind facilities to re-bid their contracts after several project cancelations over the past few years. Other states, including New Jersey, Massachusetts, Rhode Island and Connecticut, have allowed similar actions. New Jersey, for example, agreed to contracts with three developers that included prices similar to those in New York’s new agreements. These solicitations have allowed projects that were nearing construction to continue as their governments seem unconcerned about higher costs for consumers in their states.  Other offshore wind development projects remain locked into contracts that they will either need to cancel or rebid in order to remain financially viable.

Nationwide Goals

Nationwide, the Biden administration has set a goal of installing 30 gigawatts of offshore wind by the end of this decade. Current estimates are that half of that are likely to be built. As of February, the United States had installed over 240 megawatts of offshore wind capacity off the coasts of New York, Massachusetts, Rhode Island and Virginia — up from just 42 megawatts a year ago. Biden’s offshore wind targets were thrown into jeopardy after financial hardships and logistical challenges hit project developers as inflation skyrocketed and supply chains were broken.

Supply-chain constraints, rising material costs, higher interest rates and permitting delays made it more expensive and less profitable to develop these massive and complex offshore wind projects. The developers most affected by these conditions were the ones that had already signed agreements with utilities or public agencies—agreements that were not flexible in renegotiating costs. Companies signed the long-term agreements early in the planning process to specify the rate customers will pay for the electricity and how much of the energy they will use. Last year, developers with contracts signed before the pandemic found it impossible to turn a profit under their existing terms. In 2023, developers canceled contracts to sell 5.5 gigawatts of offshore wind power from projects in New Jersey, Connecticut and Massachusetts, incurring billions of dollars in penalties. These experiences cast doubt on Biden’s belief that wind and solar are the cheapest forms of energy.

Conclusion

Last June, offshore wind developers petitioned New York state’s Public Service Commission for increased payments under their contracts. Those petitions were denied and new solicitations were made in November. Two of those are about to be awarded, covering development cost increases of about 30 percent. Under the new agreements for the 25-year contracts, consumers will be paying more than double the bill increase that was set under the original contract agreements in 2019. New York is aiming to build 9,000 megawatts of offshore wind capacity by 2035, and this solicitation will cover 1,700 megawatts with a late 2026 operational date. Other states are also offering new solicitations to keep their offshore wind projects viable. Despite that, a number of offshore wind projects have been canceled with developers paying penalties. President Biden wants 30,000 megawatts of offshore wind by 2030—only half that amount is expected, which is good for consumers, who will be paying heavily for the privilege of receiving electricity generated by offshore wind that is more expensive than electricity generated from natural gas.


*This article was adapted from content originally published by the Institute for Energy Research.

EV Hypocrites At Home And Abroad

Supposedly, the reason for switching to electric vehicles from gasoline-powered vehicles is to reduce carbon dioxide emissions by using less gasoline and thus oil. However, a country that was way ahead of the United States in the transition to electric vehicles found that its oil demand did not decline from EV use despite electric vehicles making up 64 percent of new car sales and despite thousands of dollars in annually recurring subsidies. In fact, Norway’s ownership and use of gas-powered cars increased, especially for long trips where electric vehicles have a range problem. Despite Norway having some of the “greenest” electricity in the world with its vast hydropower resources, a Norwegian EV owner needs to get 45 years of use out of the vehicle’s imported EV battery, which has an expected life of 15 years, to offset the global carbon dioxide emissions from producing it.

Norway’s EV Incentives

The Norwegian government offered consumers massive subsidies to purchase an electric vehicle. New electric vehicles were exempt from several onerous taxes and the 25 percent value added tax (VAT). On average, a large new ICE vehicle would be subject to $27,000 in various taxes and an equivalent EV would pay none. Electric vehicles were also exempt from any road or ferry tolls, were allowed to use bus lanes, were offered free parking and charging in municipal areas, and had “charging rights” in apartment buildings. Although Norway rolled back some of these subsidies starting in 2017, an Oslo resident can still expect EV benefits that total $8,000 annually. Norway can do this in part because they have the largest sovereign wealth fund in the world, made possible by revenue generated by their oil and gas production.  The fund is approaching $1.5 trillion, representing about $250,000 per resident.

Norway spends nearly $4 billion annually on EV subsidies—about the amount it spends on total highway and public infrastructure maintenance. Because EV subsidies favor high-income urban citizens, who take advantage of free tolls, parking, and charging and avoid the onerous tax on larger luxury vehicles, public scrutiny made the Norwegian government reduce several subsidies. Municipal parking is no longer free, EV passengers (not the vehicles) are subject to certain tolls, and a partial purchase tax was introduced on new electric vehicles. The changes will likely reduce EV penetration. For example, in 2022, Sweden eliminated several subsidies that resulted in a 20 percent drop in EV sales.

Norwegians are reluctant to give up their ICE vehicles, even after purchasing an electric vehicle. Two-thirds of Norway’s EV households own at least one ICE vehicle. From 2010 to 2022, Norway added 550,000 electric vehicles, but the number of ICE vehicles on the road, rather than falling, increased by 32,630. While the population grew by 11 percent, the total number of passenger cars grew by 25 percent. Norwegians are using their electric vehicles when they want to avoid a road or ferry toll, have access to free parking or charging, or avoid congestion by using bus lanes. Otherwise, they use their ICE vehicle.

Norway’s electricity demand has increased as it shifted from fossil fuels to electricity for transportation, heating, and lighting. Since 2010, Norwegian electricity demand increased by 20 percent and total primary energy demand for all forms of energy increased by 5 percent. The shift to electric vehicles did little to reduce overall energy consumption despite claims they are far more efficient.

The Efficiency of EVs vs. ICE vehicles

Electric vehicles are less energy efficient  than ICE automobiles when all the costs of the supply chain are considered, including the costs of both the battery and the renewable power required to make “carbon-free” electric vehicles. Manufacturing an electric vehicle consumes far more energy than an ICE vehicle. Most of the additional energy is spent mining the materials for and manufacturing an EV’s lithium-ion battery. Mining companies use energy-intensive trucks, crushers, and mills to extract each battery’s nickel, cobalt, lithium, and copper and the manufacturing process consumes vast amounts of energy. While many analysts tout the carbon savings from displacing fossil fuels, they are not adequately accounting for the battery’s increased energy consumption. Once these adjustments are made, most, if not all, of the EV’s carbon advantage disappears.

Throughout the history of energy, there has not been an example where a new technology with inferior energy efficiency has replaced an existing, more efficient one. As a result, electric vehicles will fail to gain widespread adoption despite massive subsidies and the threat of ICE bans. Recently, both Ford and Hertz had to scale back their EV initiatives due to lower-than-expected consumer interest.

The Efficiency Issue in the “Green” Transition Is Even More Widespread

Global energy efficiency, which was improving by 1.9 percent annually for more than a decade, has been growing at only half that rate since 2021. The “green” energy transition, pushed by politicians, is actually making it more difficult to reduce carbon emissions because it is stimulating more energy consumption overall through increasing electricity demand and encouraging inefficient solar and wind investments that result in more emissions due to increased mineral mining and less energy output.

The Irony Continues

As Western countries are pushing electric vehicles and solar and wind power, China is building coal plants to produce the “green” technologies that the West needs for its energy transition. China’s BYD car maker has surpassed Tesla in EV sales; China manufactures over 70 percent of the world’s solar panels and it dominates the world in the processing of critical minerals needed for EV, “green” energy technology and weapon production. Subsidizing electric vehicles and green energy technologies actually gives China and other developing nations the incentive to use more fossil energy and release more carbon emissions making these products for Western countries whose governments encourage them.

Conclusion

The Biden administration needs to look at Norway for an understanding of the use consumers put to electric vehicles and ICE vehicles to realize that subsidies and regulatory mandates will not make consumers march to those orders. Norway’s experience brings out the reality that electric vehicles are purchased by the wealthy who get wealthier from government subsidies that make their lives better by providing benefits such as free parking, use of bus lanes and free tolls. Norway did not reduce oil use from selling more electric vehicles and thus its EV movement did not reduce carbon emissions. Instead, the movement resulted in more government spending. That is what President Biden is doing with the energy transition in the United States—spending government funds. The carbon emission reductions that have occurred in the United States have resulted from switching from coal to low-cost natural gas in the electric power sector, largely before Biden became President.


*This article was adapted from content originally published by the Institute for Energy Research.

California’s Plastic Bag Ban Backfires Bigly

In 2014, California state legislators passed a law banning single-use plastic bags to reduce the amount of discarded plastic and to limit emissions resulting from their production. Californians, however, are now tossing more pounds of plastic bags than before the legislation was passed. A report by the consumer advocacy group CALPIRG found the tonnage of discarded bags rose from 4.08 per 1,000 people in 2014 to 5.89 per 1,000 people in 2021—a record high. The actual tonnage of plastic waste increased by almost 50 percent.  That is because the newer bags, which typically cost 10 cents, are thicker to meet technical specifications for “reusable,” but typically are not reused. “Reusable” plastic bags are at least four times thicker than typical single-use plastic bags. Also, during the COVID lockdown, groceries, restaurant dishes and other products were delivered to consumers’ doors, often in thick plastic bags. This finding is similar to a study of New Jersey’s plastic bag ban. In California, new legislation is being proposed that would also ban the thicker plastic bags from grocery and large retail stores.

Also, in California, Governor Gavin Newsom signed a law in 2022 that puts more responsibility on companies that produce the plastics. Under the law, at least 30 percent of plastic items sold, distributed or imported into California must be recyclable by January 1, 2028. By 2032, that number will increase to 65 percent. It also requires that waste from single-use plastics be reduced 25 percent by 2032 and provides CalRecycle, a state government agency,  with the authority to increase that percentage if the amount of plastic in the economy and waste stream grows. In the case of expanded polystyrene, that number needs to reach 25 percent by 2025. If that number is not hit, the hard-to-recycle foamy plastic will be banned. Recycling rates for polystyrene are in the low single digits, making it improbable that a 25 percent recycling target could be met in the three years from the signing of the bill. Language in the bill includes dates and consequences for failure, including a $50,000-per-day fine on any company or “entity” not in compliance with the law, as well as directions for how collected fees can and cannot be used.

Plastics companies will have oversight and authority over the program via a Producer Responsibility Organization, which will be made up of industry representatives. Among various duties, the group will be responsible for collecting fees from its participating organizations to pay for the program, as well as an annual $500-million fee that will be directed to a plastic pollution mitigation fund. According to the U.S. Environmental Protection Agency, more than 35 million tons of plastics were generated in the United States in 2018 and only 8.7 percent was recycled.

Consumers Turned to Free Paper Bags Where Available

Plastic bag bans that did not place a fee on paper bags caused many customers to substitute paper bags for plastic bags. In Portland, Oregon, paper bag use increased nearly 500 percent after its plastic bag ban was put into effect without a fee on paper bags. In 2020, Oregon’s statewide ban added a paper bag fee. Philadelphia, another city with no paper bag fee as part of its single-use plastic bag ordinance, had a 157 percent increase in the proportion of customers using at least one paper bag after its ban. In contrast, Vermont’s plastic bag ban, which includes a minimum 10-cent fee on paper bags, resulted in an estimated 3.6 percent increase in paper bag use. The plastic bag ordinance in Mountain View, California, which also included a minimum 10-cent fee on paper bags, resulted in a 67 percent decline in the proportion of customers using a paper bag. While paper bags are recyclable, using new ones for every grocery trip is more wasteful than using reusable plastic bags.

New Jersey’s Plastic Bag Ban

In 2020, New Jersey passed a law banning single-use plastic and paper bags in all stores and food service businesses—a law that went into effect in May, 2022 that was cheered by  “environmental groups.” While the total number of plastic bags did go down by more than 60 percent to 894 million bags, the alternative bags ended up having a much larger carbon footprint with the state’s consumption of plastic for bags spiking by a factor of nearly three. Plastic consumption went from 53 million pounds of plastic before the ban to 151 million pounds following the ban. Most of New Jersey’s stores switched to heavier, reusable shopping bags made with non-woven polypropylene, which uses over 15 times more plastic and generates more than five times the amount of greenhouse gas emissions during production per bag than polyethylene plastic bags. Further, the alternative bags were not widely recycled and do not typically contain any post-consumer recycled materials. Greenhouse gas emissions rose 500 percent compared to the old bags as consumers shelled out money for reusable bags at a time when Bidenomics was already pressuring grocery budgets.

Conclusion

States and localities are finding that the single-use plastic bag ban is back-firing on them as both plastic waste and emissions from bag use has gone up with the ban. While reusable bags are available, people are disposing of them in many cases as they did with single-use plastic bags, increasing plastic waste as more plastic goes into their manufacture to create their thickness, and increasing the emissions from their production. States and localities that allowed free paper bags in lieu of the plastic bags found their use to also increase, also resulting in more waste, as they were destroyed often after a single use. The plastic bag ban shows what can occur when politicians rush into laws and regulations without the proper research to see whether their goals will be attained.


*This article was adapted from content originally published by the Institute for Energy Research.