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 #186: 8-1-1

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss how the 2024 presidential race is shaping up and survey the issues influencing elections in America and abroad.

Links:

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Biden Takes Another Step to Limit Consumer Choice, Ban Gas Powered Vehicles

WASHINGTON DC (06/07/2024) – Today, the Biden administration has concluded the revision of fuel economy mandates for trucks and SUVs, extending them until 2031. Carmakers must reach an average of 50.4 miles per gallon across their fleet by the 2031 model year.

These mandates severely limit consumer choice, stifle innovation, and increase costs for American families already struggling under sustained high inflation rates. When combined with EPA tailpipe restrictions and the California ban on gas powered vehicles, which the Biden administration is expected to approve, the rules will amount to a de facto ban on gas powered vehicles.

AEA President Thomas Pyle issued the following statement:

“Today, the Biden administration took yet another step towards their goal of forcing electric vehicles into the marketplace and taking away our ability to choose the types of vehicles that make the most sense for individuals and families.

The first step was the EPA tailpipe emission rule. The final step will be the expected granting of the federal waiver to allow California and several other blue states to ban gas powered cars.

This rule may be less stringent than the original proposal, but make no mistake, it doesn’t change the final result. This is on top of an already unreachable level in the previous rule that’s currently being adjudicated. With today’s action, President Biden has made it absolutely clear that he wants to electrify everything, including and especially cars and trucks. Under this rule, cars will continue to become more and more expensive and Americans will continue to have fewer and fewer options when they are ready to buy a car.

Congress should immediately vote to repeal this new mandate. Better yet, they should repeal the CAFE law altogether.”

AEA Experts Available For Interview On This Topic:


Additional Background Resources From AEA:

The Unregulated Podcast: #185: Take Your Wins

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss the trump trial, the impending incompetence crisis, immigration issues, and the latest updates on global energy issues.

Links:

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Governor Youngkin Protects Virginia Car Buyer’s Right to Choose

WASHINGTON DC (06/05/2024) – Today, Gov. Glenn Youngkin of Virginia announced that Virginia has opted against adopting the emissions mandate set by California, choosing instead to transition back to the Federal rules by year-end. Backed by the Attorney General, this action will ensure, at least for now, that access to personal transportation remains affordable and equitable for everyone in Virginia.

In 2019, the Trump administration revoked California’s authority to set its own regulations, but in 2022, the Biden administration reinstated this power. Over a dozen Republican-led states are seeking to overturn California’s ability to establish mandates. The U.S. Court of Appeals for the District of Columbia Circuit denied their request in April. The decision will likely be appealed to the Supreme Court.

Virginia’s refusal to adopt California’s EV regulations coincides with a decline in consumer demand for electric vehicles and as automakers are adjusting their strategies for developing new EV models and investing in battery factories to align with the lower-than-anticipated consumer interest.

AEA President Thomas Pyle issued the following statement:

“Today, Governor Youngkin followed through on his promise to preserve the right of Virginians to choose the types of cars that best suit their needs. Virginians of all stripes have made it clear that they don’t want to be forced into buying more expensive and less reliable vehicles mandated by bureaucrats in California.

At a time when high inflation is making household budgets more and more expensive, Governor Younkin’s decisive action will help keep cars affordable for Virginia families. What happens in California should stay in California, especially bad policies like a ban on gasoline powered cars and trucks. It is unfortunate that the Democrats in the Virginia legislature have refused to join him.”

AEA Experts Available For Interview On This Topic:

Additional Background Resources From AEA:

For media inquiries please contact:
[email protected]

Senate Committee Advances Biden’s Slate of FERC Nominees

WASHINGTON DC (06/04/2024) – The Senate Energy and Natural Resources committee voted today to advance three Federal Energy Regulatory Commission (FERC) nominees, Democrats David Rosner and Judy Chang, and Republican Lindsay See. The nominees now await a vote before the full Senate.

Thomas Pyle, President of the American Energy Alliance, issued the following statement:

“The two candidates for President of the United States have vastly different visions for the future of our energy and electricity markets, and FERC will play a critical role in setting that direction. The Senate should wait until the voters have spoken before bringing these nominees to the floor. If the Senate does proceed before November, each nominee should clearly state their position on the discredited proposed pipeline policy statements advanced by departed Chairman Richard Glick and outgoing Commissioner Allison Clements and each nominee should be considered individually on their own merits.

Lindsay See is an accomplished attorney who is firmly grounded in free-market principles. As solicitor general for West Virginia, she successfully represented the state before the Supreme Court in the 2022 case West Virginia vs. EPA, which regulated the transition of power plants away from coal, oil, and natural gas. She should be given favorable consideration should her nomination proceed on the Senate floor.

David Rosner is an analyst at FERC who is currently on detail with the Democratic majority of the Senate Energy Committee under Senator Joe Manchin. While on paper he appears qualified to serve as a commissioner, we have no way of knowing whether he will pick up where former Chairman Richard Glick left off with respect to the future of natural gas pipeline policy at FERC. That should greatly concern the Senate.

Judy Chang, a former undersecretary of energy and climate solutions in Massachusetts, is an ideologue and an advocate for the failing net-zero climate agenda. In 2018, Chang wrongly predicted New England would move away from natural gas ‘within the next five years.’ She subsequently argued that it didn’t make sense to build natural gas pipelines. Her ideology has deprived people in Massachusetts access to affordable and reliable electricity. In March 2014, Massachusetts’ electricity rates were 41% higher than the national average, but after ten years of implementing the policies she has promoted, electricity rates are now 78% higher than the national average.

With electricity demand forecasting a sustained increase due to the ‘electrification of everything’ agenda of the Biden Administration, along with the growth of AI and associated data center capacity, now is the worst possible time to be interfering with the reliable functioning of the electricity system. Even Larry Fink, the Godfather of ESG, has reversed course and is calling for more dispatchable power. At no time should a FERC commissioner be pursuing ideological fixations like net-zero, but especially not now when additional stable and reliable capacity is desperately needed. Judy Chang should be rejected by the full Senate.”

AEA Experts Available For Interview On This Topic:


Additional Background Resources From AEA:


For media inquiries please contact:
[email protected]

The Unregulated Podcast #184: Are You For Real? 

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna ponder why Team Biden can’t get their talking points together, the ramifications of the Trump trial, and what it all means for the 2024 presidential contest.

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The Unregulated Podcast 183: A Bronx Tale (5/24/24)

 

#183: A Bronx Tale (5/24/24)

Links:

Haley Voting for Trump
www.cnn.com/2024/05/23/politics…analysis/index.html
Source: CNN

Greater Idaho
nypost.com/2024/05/22/us-news/…join-greater-idaho/
Source: NY Post

Harvard Corporation Rejects 13 Over Faculty Recommendation
Harvard Corporation Rejects FAS Effort to Let 13 Pro-Palestine Student Protesters Graduate | News | The Harvard Crimson (thecrimson.com)
Source: Harvard Crimson

Stop Copper Thieves, Improve Traffic Safety at the Same Time
jalopnik.com/oakland-thwarts-co…ign-tec-1851491153
Source: Jalopnik

More than half of Americans think the U.S. is in a recession. It’s not.
www.axios.com/2024/05/23/us-rece…economic-data-poll
Source: Axios

Red Lobster Bankrupt
slate.com/life/2024/05/red-lob…-endless-shrimp.html
Source: Slate

Ford Backs Car Rule in Court
www.reuters.com/business/environm…rules-2024-05-20/
Source: Reuters

VW Abandons Ship
www.bloomberg.com/news/articles/20…ed-checkout=true
Source: Bloomberg

Embrace Chinese EVs (that only took a few days…)
On Tariffs and the EV Transition – Energy Institute Blog (wordpress.com)
Source: Energy Institute

Senate Passes Bipartisan Legislation to Preserve Consumer Choice in Gas Furnaces

WASHINGTON, DC (5/22/24) – Yesterday, the Senate passed S.J.Res.58, the Congressional Review Act resolution disapproving of the Department of Energy’s (DOE) energy conservation standards for residential gas furnaces, with a bipartisan vote of 50-45. The DOE’s extreme rules will eliminate the most affordable home heating options, reducing choice and raising costs for American consumers. AEA included S.J.Res.58 in the American Energy Scorecard.

Following the passage of this bill, AEA President Thomas Pyle issued the following statement:

“The Biden Administration’s relentless attack on the lifestyle and pocketbooks of American families hit a roadblock today thanks to the leadership of Senator Ted Cruz. Whether it is gas stoves, or cars, or in this case furnaces, Senator Cruz is fighting the misguided attacks on domestic oil and natural gas and helping shield American families from even higher prices brought about by the policies of President Joe Biden. The American Energy Alliance applauds Senator Cruz for advancing free markets and helping to keep home heating and cooling affordable.”

Additional Resources:

Biden Announces Restrictions on Gas Furnaces

Why are Republicans Embracing Joe Biden’s Potential Second Term Climate Plan?

John Podesta, President Biden’s climate czar, recently suggested that a carbon border tax could be proposed during the second term of the Biden administration.

A carbon border tax involves levying taxes on imports based on their estimated greenhouse gas emissions.  Given the interconnected nature of the global economy and the presence of foreign components in most consumer products, a tariff targeting greenhouse gas emissions on imports essentially functions as a tax on everything.  As we have pointed out in numerous places, the brunt of this energy tax would be borne by the American people, particularly the most vulnerable: the impoverished, the elderly, and individuals on fixed incomes as the costs of taxes on imported goods will ultimately be passed to them.  

Furthermore, carbon border taxes are susceptible to political manipulation due to the complexities involved in assessing the true carbon intensity of products sourced from various countries with differing regulatory frameworks.  The sheer complexity of rating products would create massive compliance costs that would raise the cost of doing business throughout the economy.

The effort to impose a carbon border tax is being aided by some Republican members in the Senate as last June Sen. Kevin Cramer (R-ND) and several other Republican senators introduced legislation to establish the administrative framework needed to implement such a tax called The PROVE IT Act.  

The PROVE IT Act assigns the Department of Energy (DOE) the task of creating a comprehensive report evaluating the greenhouse gas (GHG) emissions linked to various product categories to determine their average emissions intensity domestically and internationally. While proponents may portray it as a straightforward data-gathering initiative, the legislation marks the first step towards gathering crucial data for potential carbon taxes and tariffs in the United States.  It grants the DOE broad discretion in methodology, paving the way for rent-seeking and intense lobbying efforts from affected industries, which will ultimately skew the report’s findings as accurately measuring and quantifying GHG emissions presents significant challenges.  GHG emissions measurement is inherently imprecise, with virtually all human activities contributing.  Additionally, the Act’s focus on establishing an average emissions intensity for national products overlooks regional variations in emissions within the vast United States, which can affect companies differently.  Expectations of calculating emissions profiles for other nations are also overly optimistic, given potential data limitations and cooperation issues, particularly from countries like China. Despite acknowledging these challenges, the Act mandates the DOE to compile a report, potentially flawed and incomplete, for regulatory and taxation purposes.

Currently, it appears that Rep. John Curtis (R-UT) is seeking cosponsors for a House version of the PROVE IT Act. While it’s no shock to witness Democrats embracing policies prioritizing climate change without much heed to cost or efficacy, it’s disheartening to witness Republicans aiding them in this endeavor.  A faction within the Republican Party is eager to impose protectionist trade policies that might benefit a small number of companies in their districts.  These Republican members know energy taxes are not popular, so they have obscured their efforts to hike energy prices behind rhetoric about being tough on China.  In the process, they are finding common ground with a segment of the Democratic Party that is focused on supporting climate action in any form.  Together, both groups are very willing to pass the costs of those policies onto the rest of us.  

In December, the American Energy Alliance and the Committee to Unleash Prosperity released a survey on voter attitudes toward climate and energy policies, and we posed this question to 1,600 likely voters in eight swing states: “How much are you willing to pay annually to address climate change?” The median response was $10 per year. Surprisingly, over one-third of respondents, including 17 percent of surveyed Democrats, expressed unwillingness to pay anything at all.  Moreover, when confronted with the prospect of a proposed tax on imported goods, voters displayed a resounding opposition, with nearly a 2-1 margin against it. This sentiment was echoed across the board, with a widespread consensus emerging that the federal government should refrain from imposing measures that increase the cost of energy, exacerbate inflation, or escalate taxes on energy.  Carbon border taxes do all of that.

Previous instances have shown that tariffs did not meet their intended goals, including revitalizing protected industries, maintaining job opportunities, and improving environmental results. These are identical aims outlined by supporters of carbon border taxes, and there’s little evidence to suggest outcomes will vary at present. Republicans should heed this: the American people reject new energy taxes.

 

Unregulated 182: Romney Being Romney (5/17/24)

#182: Romney Being Romney (5/17/24)

Links:

Alsobrooks beats Trone
www.npr.org/2024/05/14/12514704…an-alsobrooks-trone
Source: NPR

David Trone and the History of Candidates Lighting their Money on Fire
www.washingtonpost.com/politics/2024…rone-funding/
Source: Washington Post

Biden Hits Chinese Electric Vehicles, Chips and Other Goods With Higher Tariffs
www.nytimes.com/2024/05/14/us/pol…hina-tariffs.html
Source: NY Times

Romney: Biden Should have pardoned Trump
Source: MSNBC
www.nbcnews.com/politics/rcna152420

IER/Rig Zone
www.rigzone.com/news/how_much_oil…4-176766-article/

R&D Energy/Climate Poll: Trembath Tweet: EVs
“The Biden administration’s proposed tailpipe regulations that would ‘require auto companies to sell more electric vehicles after 2030’ is one of the worst performing ideas in the entire poll.”
Source: www.liberalpatriot.com/p/the-partisa…ergy-policies

EIA EV sales lower.
www.eia.gov/todayinenergy/detail.php?id=62063

Tweet of the week: x.com/Brooks_Gate/status/1790389822302965799