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 #116: Extraterrestrial

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss the deliberations at Davos, the impending debt limit crisis, and more.

Links:

Subsidy-Fueled EV Bubble Likely To Pop

Electric car manufacturers in Europe are slowing down production because battery cars have proven too expensive for the middle class and the supply of lithium for their batteries is too uncertain. Production in Europe this year is expected to be 12 million cars—a million less than previous estimates. Tesla, for example, is cutting prices to boost demand. Of more than 900 auto executives surveyed internationally, 76 percent believe that inflation and high-interest rates will slow sales and that EV adoption will take longer. In the United States, that figure was 84 percent. The median expectation for EV sales by 2030 dropped to 35 percent in the United States, from 65 percent a year earlier. Longer-term impediments cited by the executives include the availability of raw materials for batteries, as well as stricter rules around federal incentives for buying electric vehicles. Also, consumers see touted fuel savings not materializing. Britain’s Daily Mail reports: Electric vehicles can be more expensive to fill up on the open road than their petrol and diesel equivalents as the cost of utilities continue to spiral.

Britain

It is now expected that the UK will produce 280,000 fully electric cars and vans in 2025, down from a previous estimate of 360,000. That forecast means only a quarter of car output will be electric within the next two years, lower than prior forecasts of more than a third. Declining production threatens to wreck a key government plan to cut greenhouse gas emissions by banning sales of new petrol and diesel cars by 2030. A recovery in EV sales by 2030 is ‘uncertain’ due to ongoing supply chain issues, particularly of lithium needed for electric car batteries, as well as political tensions across the globe.

BMW announced in October that it would stop production of the electric Mini at its plant in Oxford, England and transfer that operation to China. Jaguar, owned by India’s Tata Motors, has not produced further details on plans to become fully electric by 2025.

UK consumers are also concerned about operating costs with the average cost of charging an electric car increasing by 58 percent since last May. Also, UK councils are planning double-digit increases in parking fees. Charges will increase by around 10 percent from April in various areas. An all-day ticket in Dudley will shoot up by 43 percent to £5 and fees will rise by 29 percent at the most popular sites in Cornwall, to £2.20 an hour. Local authorities have defended the increases because they are under financial pressure, but others worry that higher parking fees will hurt town businesses.

Slowing U.S. Auto Market despite Rising EV Sales

U.S. auto sales fell about 8 percent last year to fewer than 14 million cars and trucks, the lowest level since 2011, due to shortages of computer chips and rising borrowing rates that made customer financing more expensive. While auto sales declined, sales of electric vehicles increased 66 percent to over 808,619, according to Kelley Blue Book.

Tesla’s Price Cut and Outlook

Tesla cut prices on most of its electric cars in the United States and Europe by as much as 20 percent to boost demand as stiff competition and rising interest rates have reduced the demand for electric vehicles. By cutting the prices of its current models, Tesla is conceding some profit in order to increase sales volume. The company typically shows gross profit margins of 26 percent — more than double that of some competitors. Tesla’s high-end Model 3 Performance compact is now selling in the United States for just under $54,000, down from $63,000, a price cut of 14 percent. The most affordable version of the Model 3 now sells for just under $44,000—a reduction of about $3,000 or 6 percent. The Model Y now starts at $53,000—a cut of 20 percent from the previous price of $66,000.

Tesla’s websites for Germany, France and other European nations showed similar price cuts. The base Model 3 is now listed at 44,000 euros—a reduction of about 12 percent from the previous price.

In the United States, Tesla’s price cuts will allow some of its lower-priced models, depending on optional features, to qualify for federal tax credits of $7,500 that were made available starting January 1 under the Inflation Reduction Act. The credit is available on electric cars priced under $55,000. In the past, Tesla’s sales were aided by a $7,500 tax credit provided by an earlier federal program. Despite those credits disappearing after Tesla sold 200,000 vehicles in the U.S. market, the company’s sales continued to grow, in some cases aided by state incentives.  Tesla expects its sales to grow about 50 percent a year for the next few years.

Tesla offers only four models—two are luxury models out of reach of most mainstream consumers. Tesla last introduced a car in 2020, when the Model Y went into production. Since 2019, Tesla has promised to introduce a pickup, called the Cybertruck, but has delayed its production several times. The company hopes to begin making it this year. The Cybertruck has an angular, futuristic design and is expected to be sold as a luxury vehicle, which could limit its appeal. At one time, Elon Musk indicated a desire to produce an electric car that can sell for around $25,000, but there are no formal plans available. In December, Tesla began delivering a small number of battery-powered semi trucks to PepsiCo, its first truck customer.

Tesla sold 1.3 million cars in 2022—a 40 percent increase from the year before but short of the 50 percent target. Tesla’s fourth-quarter production of 440,000 cars was 34,000 more than the company delivered. The company weathered the computer chip shortage early in the COVID pandemic better than most automakers because it rewrote software that could run on substitute chips that were in more plentiful supply. Other automakers temporarily idled plants because of shortages of certain electronic parts.

While Tesla dominates EV sales, several automakers are gaining ground. Ford, Volkswagen and several other automakers posted sizable increases in EV sales last year, offering many models that were significantly more affordable than Tesla’s. Hyundai and its affiliate Kia together sold more than 43,000 electric vehicles in the United States in 2022—up from a just few hundred in 2021. This year, General Motors is supposed to start making electric versions of its Chevrolet Silverado pickup and Chevrolet Blazer and Equinox sport utility vehicles.

Tesla also faces major competition in China, its largest market, where a local manufacturer, BYD, is now the number 1 electric vehicle brand. Tesla recently lowered prices in China and reported a global sales total for 2022 that was below analysts’ expectations.

Conclusion

The EV mania may be over or at least slowing as interest rates increase, inflation and supply chain shortages continue and restrictions remain on tax credits. While some politicians are following in California’s footsteps by banning gasoline-powered vehicles and President Biden has a goal for 50 percent of new car sales in 2030 to be electric, those feats may not be attainable due to problems in manufacturing and selling of electric vehicles. Range and performance problems still exist making consumers wary. And with escalating electric rates, operating costs may not be less than those for gasoline vehicles as Europe is seeing. Despite some manufacturers such as Tesla lowering purchase costs, competition from other manufacturers and consumer awareness may keep goals from reaching fruition.


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

Biden’s EPA Declares War on Farmers, Energy Producers, and Land Owners

During the holidays, the U.S. Environmental Protection Agency (EPA) and the Department of the Army issued a proposed redefinition of the Waters of the United States (WOTUS) under Section 401 of the Clean Water Act (CWA).  The rule would expand the EPA and Army’s regulatory oversight to include traditionally navigable waters, territorial seas, interstate waters and, “upstream water resources that significantly affect those waters.”  According to the two agencies, the revised rule is based on definitions that were in place before 2015. Farming groups, oil and gas producers, and real estate developers criticized the regulations as overbearing and burdensome to business, and, in particular, the ruling has the potential to affect natural gas infrastructure projects. It also would exert federal control over lands not owned by the federal government.

The ruling comes as a surprise since the U.S. Supreme Court is to decide on a case this session called Sackett v. Environmental Protection Agency that challenges the government’s determination that a wetland on private land in Idaho is protected under the Clean Water Act.  The case involves an Idaho couple, Michael and Chantell Sackett, who sought to build a house in the state’s panhandle. After they began preparing for construction in 2007, the Sacketts were stopped by the EPA, which said the property included a federally protected wetland. EPA ordered them to return the property to its original state or face fines. The couple sued the agency and the Supreme Court heard oral arguments last fall.

The EPA began the rulemaking process on updating the definition last June. That preliminary ruling is available for public comment until February 7. The proposal, once approved, would come into effect 60 days following its publication in the Federal Register. A final decision from the EPA is expected this June, with the Army’s decision on issuance of Nationwide Permit (NWP) 12 under Section 404 of the CWA expected this August.

Background

In 2015, the Obama administration supplied a definitional amendment to “provide critical context and guidance in determining the appropriate scope” of WOTUS that is covered by the CWA.  It was heavily criticized at the time as an example of government overreach and an infringement of private property, as it included any place regulators could argue was wet, even in such cases as an area immediately after an uncommonly heavy rain, such as a temporary mud puddle. The Government Accountability Office found the EPA at the time engaged in a ”covert propaganda” program using social media to convince the public of their actions’ worthiness.

In April 2019, President Trump targeted the definition with Executive Order 13868, which took aim at state authority over water quality certifications to gain approvals for natural gas infrastructure. The Executive Order in 2020 was further ensconced following a rulemaking by the EPA under the Trump administration, known as the Navigable Waters Protection Rule (NWPR). Oil and gas organizations at the time voiced their support for the NWPR after years of complaints that state governments opposed to energy infrastructure improperly relied on the scope of the CWA to obstruct the pipeline permitting process.  This was part of President Trump’s “energy dominance” program of making the United States more energy self-sufficient.

On his first day in office, President Biden signed Executive Order 13990, Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis, granting the EPA and Army the authority to once again review and rescind the NWPR.

Court Cases

Clean Water Act jurisdiction has been a muddy area, particularly when it comes to wetlands that do not have direct surface water connections to larger waterways like rivers and streams. For the past 15 years, questions of which wetlands have enough of an impact on downstream waters to merit federal protections have all come down to how EPA and the Army Corps of Engineers interpret the Supreme Court’s decision in Rapanos v. U.S. 

That 2006 case splintered the justices 4-1-4 and resulted in two competing tests to determine if property must meet the Clean Water Act permitting requirements. In one case, wetlands would be federally protected if they have a hydrologic, biological or chemical impact on downstream waterways—a test that has been largely adopted by federal courts. In another case, only wetlands with relatively permanent surface water connections to larger waterways would merit protection. The terminology involves “navigable waters,” and what that is intended to mean.

The Supreme Court again dealt with questions of Clean Water Act jurisdiction in the case Sackett v. EPA. During oral arguments last fall, the justices homed in on the question of whether federal protections applied to a wetland located about 300 feet away from a regulated lake but separated from it by a human-made road. Several justices inquired whether a new test is needed to best identify federally protected waters. It is unclear how the new rule will affect the Supreme Court’s decision this year and, in turn, how the Supreme Court could impact the new rule.

Conclusion

Permitting reform is needed for infrastructure, transportation and energy projects to end the endless costs occurred from needless regulation and lawsuits by environmentalists. And, certainty is necessary to ensure agriculture is not unduly burdened by an expansive definition of navigable waters. This rule does not provide that reform. Rather, it moves the process backwards by making more projects subject to federal permitting requirements and adding more bureaucratic red tape. The rule makes it more difficult for Americans to get the energy they need at affordable costs. Further, the Supreme Court case now being considered will most likely have an impact on the ruling.


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

Biden Administration Announces Intent To Ban Gas Stoves

A Commissioner of President Biden’s Consumer Product Safety Commission (CSPC) wants a ban on indoor gas stoves. Richard Trumka Jr., a Biden commissioner on the CSPC, told Bloomberg the ban is justified because gas stoves increase respiratory problems such as asthma among children, which is a myth promoted by environmentalists whose real agenda is not to reduce asthma but to ban natural gas. The American Gas Association notes that neither the CSPC nor EPA has cited gas stoves as a significant contributor to adverse air quality or as a health hazard.   And, millions of Americans actually prefer gas stoves to electric ones for several reasons, including food tastes better when cooked on gas rather than electric and gas stoves are cheaper to install and operate. Gas stoves are used in about 35 percent of households nationwide, or about 40 million homes. The household figure is closer to 70 percent in some states, such as California and New Jersey. Other states where many residents use gas stoves include Nevada, Illinois and New York.



Opposition Was Plentiful

The American Gas Association pushed back against the natural gas ban saying it makes housing more costly because “electric homes require expensive retrofits.”

Senator Joe Manchin joined in opposition saying, “The federal government has no business telling American families how to cook their dinner. I can tell you the last thing that would ever leave my house is the gas stove that we cook on.”

Tucker Carlson, on his Fox News television show, featured a restaurateur who indicated that his costs would go up and productivity go down by using electric stoves. “This will destroy our industry,” the restaurant owner, Stratis Morfogen, said. “Electric can work for fast casual. However, with fine dining, it’s impossible to function with an electric kitchen,” said Morfogen, director of operations for the Brooklyn Chop House and founder of the Brooklyn Dumpling Shop eateries. “Imagine a guest ordering a 2- to 3-pound whole fish. It usually takes 40 to 50 minutes to cook. Now it will take two hours.

Andrew Rigie, executive director of the NYC Hospitality Alliance, which represents more than 24,000 eating and drinking establishments, said “Putting aside if chefs prefer cooking with gas or not, the cost to open up a new restaurant would skyrocket if someone had to convert existing gas equipment into electric, which could be further complicated by whether or not the building had an adequate electrical load.”

The ban would affect old-timers and millennials who are obsessed with cast-iron pans, which are tricky to use on electric stoves. “This is plain stupid,” said a 70-year-old resident of Sea Gate, Brooklyn. “We lost electricity before, during Hurricane Sandy. The only thing we had to heat up our food was gas. What if that happens again?”

According to the Association of Home Appliance Manufacturers, cooking food produces emissions and harmful byproducts no matter what type of stove is used. “Ventilation is really where this discussion should be, rather than banning one particular type of technology. Banning one type of a cooking appliance is not going to address the concerns about overall indoor air quality. We may need some behavior change, we may need (people) to turn on their hoods when cooking.”

Mr. Trumka tried to quell the firestorm that resulted from his announcement, indicating “To be clear, C.P.S.C. isn’t coming for anyone’s gas stoves,” adding that any regulations would only apply to new products. At an October meeting of the commission, Mr. Trumka asked the staff to begin writing rules regarding gas stoves but could not get support from the other four members. Instead, the commission agreed to obtain input from the public.

The Inflation Reduction Act includes $4.5 billion for states to provide rebates to consumers for the purchase of electric appliances, including stoves. Consumers can get a rebate of up to $840 for an electric stove or other electric appliances, and up to $500 to help cover costs of converting from natural gas to electric. This is happening at a time when the grid is already stressed from increased intermittent renewable energy sources, mainly wind and solar power.

Natural Gas Becomes a Battleground for States

Natural gas use has become a hot topic over the last several years in many states with some U.S. cities banning natural gas from being used in new buildings. Berkeley did so in 2019, followed by San Francisco in 2020 and New York City in 2021.  This followed an organizational meeting in 2019 sponsored by the Rocky Mountain Institute (RMI), the Energy Foundation and the World Resources Institute.  “On July 18, the group met for a panel discussion called ‘Natural Gas Lock In’ which set its sights on natural gas home appliances like stoves, washers, and dryers.”  This campaign is against the use of natural gas promoted by activist groups as an email invitation to the event details: “We are asking lead energy policy advisors to attend from a dozen states with supportive, and in many cases, new governors and legislatures interested in accelerating the transition to a clean, low-carbon economy. You are invited because you are the, or one of the lead policy advisors to your governor on energy and climate policy,” the agenda stated.

Despite this campaign, 21 state legislatures have put in place “preemption laws” which forbids cities from banning the use of natural gas. Most households in these 21 states, however, cook with electric stoves, not natural gas, according to a 2020 analysis from the Energy Information Administration. States with the highest percentage of households that use natural gas for cooking include California, Nevada, Illinois, New York and New Jersey.

Source: Forbes

Recently, Governor Kathy Hochul proposed that the N.Y. legislature phase out the sale of fossil fuel heating equipment in existing residential buildings beginning in 2030 and require new residential and commercial buildings be all-electric by 2025 and 2030, respectively. If passed, New York would be the first state to ban natural gas heating and appliances in new buildings. Hochul called during her state-of-the-state address to ban the use of fossil fuels by 2025 for newly built smaller structures and 2028 for larger ones. New York would also prohibit the sale of any new fossil-fuel heating systems starting in 2030.  The Real Estate Board of New York trade association did not endorse Hochul’s proposal.

California is weighing its own statewide proposal that would take effect in 2030.

The Move to Electrification

The widespread shift to running power plants on natural gas instead of coal helped reduce carbon dioxide emissions in the generating sector during the last decade. But now, environmentalists are attacking natural gas. They want all energy use to be electric, produced by wind and solar power—intermittent and unreliable energy sources.

This push to electrify all energy demand ended up with blackouts in North Carolina during the recent Arctic blast as there was insufficient firm power to meet growing electricity demand. States are pushing their utilities to generate electricity with wind and solar power that have low capacity factors and require the sun to shine and the wind to blow, while they shutter their reliable coal plants. As a result, firm electricity supply is lacking. Now that many states want to switch from petroleum cars to electric vehicles, transition from natural gas to electric heating and cooking, and to shutter all fossil fuel generating plants, the United States will clearly be short of electricity supply. In California alone, the forced move to electric vehicles is estimated to double the state’s electricity demand. Meanwhile, electricity prices are spiking for consumers to pay for an increasingly fickle and complicated electrical distribution system. California’s average residential electricity prices are the fifth highest in the nation and 63 percent higher than the national average.

Conclusion

There is talk of banning natural gas in new buildings, including gas stoves. The gas stove proposed ban is causing much opposition, particularly from restaurants that indicate they cannot produce meals as quickly with electricity as with natural gas. They also mention the phenomenal cost from purchasing new equipment to upgrading the facility’s electrical load. Clearly, with environmentalists wanting all energy demand to be electric, produced by mostly wind and solar power, the United States will be running out of electric supply facilities and at risk of becoming a third-world country, where power is insufficient as a normal part of the day’s activities. Americans should be aware that this is a well-orchestrated campaign, driven by “green power” advocates, investors and the foundations who support them.

Send A Message To Lawmakers Demanding They Rein In Biden’s Rouge Regulators:


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

Democrats Double Down On Costly SPR Policies

Biden’s Department of Energy will not be refilling the nation’s emergency reserves, the Strategic Petroleum Reserve, any time soon as the agency has rejected bids received for the February fill since the bids are above $70 a barrel. Today’s price for Texas Intermediate oil is $75.87 a barrel. Biden depleted the emergency oil reserve of 260 million barrels to keep gasoline prices down going into the mid-term election last year. Biden promised to refill the reserve starting this February. But, apparently, his energy department did not like the bids. His Department of Energy (DOE) was to refill up to 3 million barrels for delivery to the Strategic Petroleum Reserve in February, but stated “DOE will only select bids that meet the required crude specifications and that are at a price that is a good deal for taxpayers.” Never mind that the reserve was set up to be used for national emergencies, not for reducing gasoline prices during an election year–prices that his climate policies needlessly raised.

Biden’s SPR Releases

In November 2021, Biden released 50 million barrels from the petroleum reserve and on March 1, 2022, Biden announced the release of a further 30 million barrels. Then on March 31, 2022, Biden announced another 180 million barrels would be released over the remaining 9 months of the year to reduce gasoline prices—prices that he raised due to his energy policies. Over the 9 month release period of the last announcement, DOE sold 180 million barrels of oil at an average price of $96.25 a barrel, well above the recent market price of $75.87—meaning that the U.S. government should be over $3.6 billion ahead. Biden’s SPR sales were the largest since the reserve was created after the Arab oil embargo from 1973 to 1974. Because SPR oil is sold to the highest bidder, including foreign companies, China was allowed to buy almost 6 million barrels.

But the Biden administration appears to be in no rush to buy oil to refill the reserve. It believes the SPR’s remaining holdings—about 382 million barrels—leave it well-positioned to weather potential supply shocks. The SPR held about 593 million barrels of oil at the beginning of this year, down from a peak of 727 million barrels in 2009.

In March of 2020, President Trump wanted to stabilize the domestic oil industry after Covid-19 hit and global petroleum demand tanked by spending $3 billion to fill the reserve when oil sold at about $24 a barrel. Because the Democrats in Congress voted against it, billions in potential profits were lost and tens of millions of fewer barrels were at President Biden’s disposal. It will now take more oil to fill the reserve than two years ago. In March 2020, the reserve had 634 million barrels stored out of a capacity of 727 million barrels. The reserve is now at its lowest level since 1984, which is a problem since U.S. consumption is much higher today than it was in 1984. In 1984, the United States was using 20 percent less oil.

SPR’s Congressionally Mandated Sales

DOE requested Congress to pause or cancel previously scheduled SPR sales of about 140 million barrels between 2024 and 2027. The $1.7 trillion omnibus spending bill cancels most of the congressionally mandated oil sales through fiscal year 2027. The legislative changes in the spending bill would effectively redirect nearly $10.4 billion generated from this year’s emergency sales to offset the estimated future revenue from the 140 million of oil sales that would be canceled. According to the Biden Administration, it would also avoid an outcome that would make “no sense,” of refilling the SPR and selling its oil at the same time to comply with past congressional mandates, despite those sales being specifically attached to funding specific projects.

Congress in prior years ordered the sale of 147 million barrels of oil from SPR in fiscal years 2024 to 2027 to raise revenue for debt reduction, infrastructure and other priorities. The omnibus bill cancels all those sales, with the exception of 7 million barrels that would be sold in fiscal years 2026 to 2027.

The Biden Administration is casting its emergency drawdown of 180 million barrels of oil from the SPR as a good deal for taxpayers because it brought down fuel prices and SPR oil was sold at an average price of $96 per barrel, resulting in a supposed profit. The omnibus spending bill shows the oil sales being canceled only if needed to raise $74.25 per barrel to comply with budgetary rules, indicating a paper profit of $22 per barrel from the emergency sales.

The bill would not cancel another congressionally mandated sale of 26 million barrels of SPR oil that is required to be sold by the end of this fiscal year on September 30. The measure would also keep intact previously enacted sales of 92.6 million barrels of SPR oil scheduled for fiscal years 2028 to 2031.

Conclusion

The Strategic Petroleum Reserve was set up to be used for emergency purposes, but this administration has politicized it, using it to lower gasoline prices during a political season, rather than letting oil and petroleum markets work. Having depleted the reserve of 260 million barrels of oil, President Biden announced that the refill will begin this February. However, the price and crude specifications of the bids were not to his administration’s liking, thus delaying the refill process. His administration feels that the remaining barrels in the reserve are sufficient for an emergency.

Rather than using the SPR as a political tool to lower gasoline prices, President Biden should review his energy and climate policies and make changes to his lease and permit approval program for drilling oil and natural gas on federal lands. If he were to go back to President Trump’s energy program, energy prices would be much more affordable for Americans and food and other costs would also be lowered as transportation costs to produce and move the products would also be less.


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

The Unregulated Podcast #115: Rocket Man

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss recent events in Congress, California’s descent into chaos, this week’s crop of word salad, and Biden’s high-security garage.

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Biden Ensures Wealthy Luxury Car Buyers Receive EV Tax Credit

To Senator Manchin’s dismay, Biden’s Treasury Department is allowing the tax credit for electric vehicles to be claimed if the vehicle is leased regardless of where the battery components and vehicle were manufactured. The intent of the Inflation Reduction Act was for the tax credit to be applied to electric vehicles that were manufactured from components made in the United States or its allies to develop those industries at home and not to be reliant on autocratic countries. Europe’s skyrocketing energy costs and inflation are, in part, due to its reliance on Russian energy supplies, which could occur again since China dominates the electric battery supply chain and President Biden is bent on electrifying the U.S. economy.

According to Senator Joe Manchin, Treasury’s guidance “bends to the desires of the companies looking for loopholes and is clearly inconsistent with the intent of the law.” Manchin plans to introduce legislation that “clarifies the original intent of the law and prevents this dangerous interpretation from Treasury from moving forward.” Part of the objection stems from very expensive foreign automobiles such as a Bentley Flying Spur hybrid and other vehicles which are now eligible for tax breaks. These vehicles can approach $300,000 in price and are clearly purchased by only the wealthiest of Americans.

Inflation Reduction Act (IRA) Tax Credit for Electric Vehicles

The intent of the legislation was to:

  • Take away the 200,000-vehicle cap on tax credits that made electric vehicles and plug-in hybrids from Tesla, GM, and Toyota ineligible for tax credits.
  • Do away with tax credits for expensive electric vehicles—such as the GMC Hummer EV, Lucid Air, and Tesla Model S and Model X.
  • Eliminate tax credits for vehicles not assembled in North America, including the BMW i4, Hyundai Ioniq 5, Kia EV6, Subaru Solterra, and Toyota Z4X that are purchased by individual consumers.
  • Add an annual adjusted gross income cap for buyers of $150,000 for single tax filers, $225,000 for those who file as head of household, and $300,000 for married couples filing jointly.
  • Restrict the full tax credit on new purchased electric vehicles to vehicles with battery minerals sourced from the United States or countries that the U.S. has a free trade agreement with, battery minerals that are recycled in North America, and battery components sourced from North America. Starting in 2024, if any minerals or components are sourced from “foreign entities of concern,” including China or Russia, the vehicle would not qualify for any tax credit.

Half of the $7,500 tax credit ($3,750) is tied to an increasing share of EV battery components being made in North America, and the other half to its minerals being extracted or processed in the United States or countries with which the U.S. has a free-trade agreement. Under the law as written, few EV models are expected to qualify for even half of the credit in coming years.

Treasury’s Guidance

Over the holidays, Treasury issued guidance that would help automakers circumvent the restrictions by letting electric vehicles leased to consumers qualify as “commercial clean vehicles,” which do not include North American manufacturing, material sourcing, income or price restrictions. The law’s commercial EV tax credit was intended for Amazon, UPS and contractors. But under Treasury’s interpretation, a BMW i7 (retail price of $119,300) leased to a consumer would qualify for the commercial vehicle credit whether or not it is used by a business. That is also true for other electric vehicles no matter their cost or their manufacturing location.

About 28 percent of new electric vehicles are leased. Many EV drivers prefer leases because they expect battery technology to improve and their resale value to fall quickly. Treasury’s guidance will encourage dealers to lease electric vehicles instead of selling them, and customers may find lease financing more attractive.

In the case of a lease, the dealer would receive the commercial credit, not the person leasing the vehicle, and dealer would need to pass the savings from the tax credit on to the consumer. If the dealer does pass the savings along, drivers could get the $7,500 tax credit on a car made outside North America as well as high-income consumers and those who lease a high-cost electric vehicle such as a Tesla Model S or X, or for that matter, a Bentley.

Conclusion

Biden’s Treasury Department is circumventing the intent of the Inflation Reduction Act with respect to the electric vehicle tax credit, allowing leased vehicles to be considered “commercial clean vehicles” so that restrictions in the law do not apply to them. This is all part of President Biden’s plan to electrify the U.S. economy and eliminate fossil fuels, despite whether sufficient electric resources exist to avoid rolling blackouts and outages as recently occurred due to the Arctic blast. Further, the movement from petroleum-based vehicles to electric vehicles puts the United States at the mercy of an autocratic country that controls the battery supply chain and the processing of critical minerals. A 2022 analysis of the EV supply chain from the International Energy Agency shows that the vast majority of minerals, components, and battery cells are currently sourced from China.

The Biden Administration released its new rules over the holidays hoping people would not be paying attention to their departure from clear intent expressed in the law by Congress. So, if you have ever wanted to drive a Bentley hybrid for almost $300,000, now is your chance.  American taxpayers will help pay for your whim, and your car has plenty of space to put a bumper sticker stating that you are saving the climate.


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

The Unregulated Podcast #114: Outrageous Demands

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss the ongoing battle for Speaker of the House, America’s holiday spending habits, and the first headlines of 2023.

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Rumors of Coal’s Demise are Greatly Exaggerated

Coal generation worldwide is expected to increase to a new record in 2022, driven by robust coal power growth in India and the European Union and by increases in China. In Europe, high natural gas prices led to fuel switching to coal in electricity generation. However, both natural gas and coal generation increased due to lower hydroelectric and nuclear power production, low wind speeds in some European countries and insufficient growth in wind and solar power. Many thought global coal generation would peak in 2018, but it has been increasing each year since its decline in 2019. Despite spending trillions of dollars subsidizing renewable energy sources such as wind and solar power, the world is nevertheless burning record amounts of coal to keep the lights on and to generate warmth.

While most of the world is increasing its coal generation, the United States continues with its coal decline, according to the International Energy Agency (IEA). In the United States, coal generation peaked in 2007 and started its decline during the Obama Administration as coal plants began to retire due to onerous regulations and low cost natural gas, which made coal uncompetitive. U.S. coal generation in 2021 was 45 percent of its 2007 peak level. IEA expects coal use in the United States to maintain its downward trajectory, despite its reserves which are the largest in the world.

Global Coal Demand

In 2022, fossil fuel prices rose substantially, with natural gas prices increasing the most, prompting a wave of fuel switching away from gas and pushing up demand for more price-competitive alternatives, including coal.  Despite coal prices increasing, coal demand is expected to grow by 1.2 percent, reaching an all-time high and surpassing 8 billion metric tons for a new record. Coal used in electricity generation is expected to increase by just over 2 percent in 2022, while coal consumption by industry is expected to decline by over 1 percent, primarily driven by falling iron and steel production due to the economic crisis arising from large energy price increases. Russia’s invasion of Ukraine sharply altered the dynamics of coal trade, price levels, and supply and demand patterns. IEA expects global coal demand to plateau around the 2022 level of 8 billion metric tons through 2025.

Global Coal Consumption 2000-2025

Source: International Energy Agency

China accounts for the majority of global coal consumption (53 percent). Droughts and heat waves this summer increased the demand for air conditioning and hence coal generation in China. In August, coal power generation in China increased by around 15 percent year-on-year to over 500 terawatt-hours. However, Covid-19 lockdowns lowered economic activity and offset somewhat the increase in coal generation from the summer’s air conditioning demand. China’s power sector accounts for one-third of global coal consumption. IEA expects coal consumption in China to average a growth rate of 0.7 percent a year to 2025 because of an expected increase in renewable power generation. Between 2022 and 2025, China’s renewable power generation is expected to increase by almost 1,000 terawatt hours–equivalent to the total power generation of Japan today.

In India, coal consumption has doubled since 2007 at an annual growth rate of 6 percent, and it is expected to continue to be the major growth area of global coal demand.

In Europe, lower hydroelectric generation due to weather conditions and technical problems in French nuclear power plants put additional strains on the European electricity system along with reduced supplies of natural gas from Russia. In response, some European countries increased their coal generation and extended the lifetimes of nuclear plants. Some coal plants that had closed down or been left in reserve were brought back on-line. Germany, for example, is operating with 10 gigawatts of coal capacity, increasing coal power generation in the European Union, which is expected to remain at higher levels for some time. IEA expects coal generation and demand in the European Union to return to a downward trajectory in 2024 in its forecast, but remain high in 2023.

Global Coal Production

China and India, besides being the world’s largest coal consumers, are also the world’s largest coal producers and the world’s top two coal importers. In response to price increases, supply shortages and growing demand, China and India increased domestic coal production after the summer of 2021. In March 2022, Chinese production reached a new monthly high, which is expected to increase to a new annual record, with expected growth of 8 percent for the year, reducing the need for imports and replenishing stocks.

In India, the government is increasing coal production to reduce imports. In 2021, coal production reached over 800 million metric tons for the first time. India’s coal production is expected to surpass 1 billion metric tons by 2025. Indonesia, the world’s third-largest producer, is also expected to expand production to reach a new high in 2022, with exports playing a more important role than domestic demand.

Conclusion

Global coal is not going away despite what environmentalists and politicians wish and display through their “green” policies. In fact, the renewables they are forcing onto electric grids worldwide are generally supplementing existing sources. China and India will remain the largest coal producers and consumers since the United States with its largest in the world coal reserves will be inundated with “green” policies to cause coal’s demise under Biden’s “all of government” approach to climate change, which he insists is “an existential threat.”

China is building coal plants around the world, with the latest in Afghanistan where they will be obtaining future riches from the country’s critical mineral supply needed for renewable technologies, electric vehicle batteries and weapons production. China dominates the supply chain of critical minerals through its worldwide investments and its processing capabilities. Clearly, while Europe got caught relying on Russian energy, Western countries will soon be dependent on another autocratic country—China.


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

Europe Trades Dependency on Russian Gas for Chinese Solar Panels

The European Union added 41.4 gigawatts of solar capacity in 2022, increasing 47 percent from the 28.1 gigawatts added in 2021. It was led by Germany with 7.9 gigawatts of solar capacity added and Spain with 7.5 gigawatts. Other European countries also added solar capacity in 2022 as follows: Poland (4.9 gigawatts), the Netherlands (4 gigawatts), France (2.7 gigawatts), Italy (2.6 gigawatts), Portugal (2.5 gigawatts), Denmark (1.5 gigawatts), Greece (1.4 gigawatts), and Sweden (1.1 gigawatts), rounding out the top 10 European buyers of solar power. It seems that Europe has not yet learned from the foibles incurred from its energy dependence on Russia, as it is now turning to China to buy solar panels–the largest solar panel producer in the world–as the continent continues with its energy transition to renewable generating technologies.

Source: PV Magazine

The increase in E.U.’s solar capacity is due to taxpayer-funded incentives for solar power. For example, Italy introduced its Superbonus 110% incentive scheme in 2020. Under the program, homeowners are entitled to a tax credit of up to 110 percent on the cost of upgrading their home, such as installing insulation systems, heat pumps and solar panels or replacing an old boiler, or undertaking other projects that reduce the risk of damage from seismic activity. People claim the subsidy by subtracting the costs of the projects from their tax returns over a five-year period, or pass the credit on to the building contractor, who subtracts it from its taxes or sells the credit to a bank, which in turn is refunded by the government. The extra 10 percent covers bank interest. So far, the Italian government has paid out about €21 billion ($22 billion) since launching the program in July 2020 as part of the country’s post-pandemic recovery strategy.

Poland took third place in solar capacity additions despite switching from net metering to net billing this past spring. The new provisions established that all new PV “micro-installations” up to 50 kilowatts had to operate under a new net billing system. The new net billing system replaced net metering that was in place since 2016. Under the old net metering rules, owners of PV systems with capacities up to 10 kilowatts could supply up to 80 percent of their power to the grid, and PV systems ranging from 10 kilowatts to 50 kilowatts were allowed to supply up to 70 percent of their electricity to the grid. Under the new net billing rules, a bill is prepared that includes the energy generated. The price is calculated according to a model related to the price of a kilowatt-hour during the “day-ahead trading.”  The new net billing provisions also allow PV system owners who submitted correct grid-connection applications by March 31 to have access to the country’s rebate program, launched in July 2019, for the next 15 years.

E.U.’s Total Solar Capacity

The E.U.’s total solar power capacity increased by 25 percent, from 167.5 gigawatts in 2021 to 208.9 gigawatts in 2022. SolarPower Europe forecasts annual PV growth in Europe to be 53.6 gigawatts in 2023 and 85 gigawatts in 2026, with the E.U. solar market more than doubling within four years, reaching 484 gigawatts by 2026. There are five key areas for getting Europe ready for increasing solar power: expanding the pool of solar installers, maintaining regulatory stability, improving grid stability, streamlining administrative procedures, and strengthening European manufacturing.

E.U. Buys Solar Panels from China

As Europe pivots from Russian fossil fuels, the Chinese solar industry is expected to gain—potentially at the expense of E.U.’s energy security. Chinese solar panels have increased in popularity among European consumers in addition to electric blankets, hand warmers, candles and wood as they face a cold winter with less access to natural gas.

The E.U. depends on China for the bulk of its solar panels. Chinese customs data show a steep increase in its exports of solar panels to Europe with the value of solar panels sales to the E.U. more than doubling. Solar panel sales to the E.U. from January to August this year were over $16 billion compared to $7.2 billion over the same period last year.

According to the International Energy Agency, in 2021, China accounted for 75 percent of global solar panel production, compared to only 2.8 percent for Europe. And, China has an even greater market control on the components and materials required to make solar panels, such as solar cells, silicon wafers, and polysilicon. At one time Germany was the leader in solar panel production, but China with its cheap energy and “slave” labor overtook Germany in solar panel production in 2015.  According to Clean Energy Wire, “the overall drop in employment has been mostly due to the collapse of Germany’s solar power industry over the past decade, as many companies were forced out of business thanks to cheaper competitors from China scooping up most of the market.”

From January to August, China’s solar PV exports reached $35.77 billion, exceeding the value of solar PV exports in all of 2021. The soaring demand stretched supplies and raised the prices of silicon, the raw material for PV products, to a high of 308 yuan ($42.41) per kilogram, the highest in a decade. China’s production capacity for silicon is expected to exceed 1.2 million tons at the end of this year, and to double to 2.4 million tons next year. Silicon products are largely made in Xinjiang, the world’s most important production base for polysilicon where Muslim Uyghurs are used as labor and coal-based electricity is generated at an extremely low cost of 3 cents per kilowatt hour.

Europe needs caution in rushing from Russia to China for energy. China, like Russia, uses economic relations for political goals. For instance, after Lithuania showed support for Taiwan, Chinese customs blocked Lithuanian goods and China led a corporate boycott of multinationals with ties to Lithuania.  Similarly, in 2010, China cut off rare earth mineral exports to Japan (which are critical to renewable technologies and in which China dominates) because of a territorial dispute.

Conclusion

Europe is continuing with its transition to intermittent renewable energy by increasing its solar power capacity additions by almost 50 percent this year. Germany and Spain led the additions with each adding over 7 gigawatts of solar capacity. Germany was once a leader in solar panel manufacturing, but has been replaced by China because of China’s cheap energy and “slave” labor. Now that Europe has moved away from buying energy from one authoritarian government, Russia, it is turning to another, China, who dominates the solar market and its components. Europe should be worried more about energy security than it has shown in the last decade when it turned away from its own production of oil, natural gas and coal, shuttering fossil fuel generators, cutting lease ales, and banning hydraulic fracturing and horizontal drilling.

America should not follow–but is–following in Europe’s energy transition footsteps and can look forward to energy price increases in the future, along with less secure energy supplies. The West’s preoccupation with renewable energy sources as a “solution to global warming” does not stand up to the tests of its own interests in energy, economics, and national security.  Despite the clear writing on the wall, it has chosen to ignore all the signs and plunge ahead.  It appears there are still lessons that need to be learned.


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