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 #90: Natural Law

On this episode of The Unregulated Podcast, Tom Pyle and Mike McKenna discuss Team Biden’s latest ideas on how to tackle inflation, energy prices, and the crisis in Europe, as well as the latest round of decisions from the Supreme court.

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Supreme Court Denies Broad EPA Authority To Regulate Greenhouse Gases


Chief Justice Roberts Writes for a Six-Justice Majority in West Virginia v. Environmental Protection Agency


WASHINGTON DC (06/30/2022) – Today, the Supreme Court decided West Virginia v. Environmental Protection Agency. Chief Justice Roberts wrote the Court’s opinion concluding that the EPA lacks broad authority to regulate greenhouse gas emissions from power plants under the Clean Air Act.

AEA Director of Policy and Federal Affairs Kenny Stein issued the following statement:

“The Court’s decision today merely confirms what AEA and other critics of the Clean Power Plan have long pointed out: prior to the Obama administration, section 111(d) of the Clean Air Act had never been construed to grant EPA the power to remake the nation’s electricity system. The 2015 ‘discovery’ of this vast power was clearly an attempt to rewrite the CAA to give EPA the power that Congress had declined to give it. The Court correctly notes that vast regulatory authority must be expressly given by the people’s representatives in Congress. The Biden administration should take this message to heart and abandon its ‘whole of government’ regulatory adventurism.”

AEA President Tom Pyle issued the following statement:

“From the start, the Clean Power Plan was all about the administrative state waging war on reliable and affordable energy sources. The Court’s decision today makes it clear that the EPA, as well as other regulatory agencies, do not have sweeping authority to reorder the entire U.S. power sector under the Clean Air Act.

This decision is also critical for democracy. Congress, as the People’s democratically elected representatives, needs to authorize regulatory agencies to act. If President Biden wants EPA to act on climate, then it is time for President Biden to craft a plan and have Congress vote on it. Now, the American people can decide this issue through their elected representatives in Congress, as the Constitution envisioned.”

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Biden Works To Cut Off Domestic Energy Supplies Even As Court-Mandated Lease Sales Begin

The Energy Information Administration (EIA) forecasts that nine new fields will come online in the deep waters of the Gulf of Mexico this year, which will account for 5 percent of natural gas production and 14 percent of oil production in U.S. federal Gulf of Mexico waters by the end of 2023. However, EIA expects that the additional capacity from these new fields will not sustain oil production at levels similar to the end of 2021 in offshore fields. According to EIA, declining production from existing Gulf of Mexico fields will largely offset the increases in oil production from the new fields, with natural gas production in the Gulf of Mexico continuing its three-year decline. During 2021, 15 percent of U.S. oil production and 2 percent of U.S. natural gas production was produced in the Gulf of Mexico.

The Biden administration has not had a successful offshore lease sale since Biden’s inauguration—lease sales that are required by federal law—because the only offshore lease sale held in November 2021 was invalidated by a federal judge a few months later. The Biden administration has not contested the judge’s decision, which was that climate change was not adequately considered in the sale. In fact, the Biden administration only held the sale after being ordered to do so by another federal judge.

Earlier this year, the Biden administration canceled lease sales in federal waters off Alaska’s Cook Inlet, citing a lack of industry interest. On top of those actions, the Biden administration has yet to provide an offshore lease plan for new oil and gas leases in federal waters that is required by law every 5 years.  The Department of Interior indicates that a draft of one will be provided by June 30, 2022, but will include an option of no lease sales. The Biden administration continues to withhold oil and gas supplies from the American public.

Source: Energy Information Administration

EIA Gulf of Mexico (GOM) Forecast

EIA expects that GOM natural gas production will average 2.1 billion cubic feet per day in 2023, down 0.1 billion cubic feet per day from 2022 and that GOM oil production will average 1.8 million barrels per day in 2023, about the same as in 2022. There are no GOM fields scheduled to start production in 2023. The nine fields coming online in 2022 include those at Argos/Mad Dog 2, Vito, Lobster, Dome Patrol, Olympus, Taggart, and the Kings Quay fields.  The large development fields at Argos/Mad Dog 2, King’s Quay, and Vito each has a peak production capacity of at least 100,000 barrels of oil equivalent per day. Eight of the nine new fields in the GOM will produce both oil and natural gas by year-end and the ninth field will produce only oil. Offshore producers have made significant progress simplifying and standardizing floating production systems and collaborating with various partners, including overseas construction services companies, to reduce costs and remain competitive with onshore producers.

Source: Energy Information Administration

Since the late 1990s, new development in the GOM has been targeting oil-bearing reservoirs. Most of the natural gas produced in the GOM comes from associated-dissolved natural gas production in oil fields instead of natural gas fields. In 2020, gross withdrawals of natural gas in the GOM that came from natural gas wells accounted for less than 30 percent of total GOM natural gas production, compared with 76 percent in 1999.

Required Offshore Lease Plan

Shortly after taking office, President Biden signed an executive order to pause the issuing of new leases, but a successful legal challenge from western states forced the administration to hold new lease sales. The new offshore lease plan, however, is likely to block new drilling in the Atlantic and Pacific oceans; the eastern Gulf of Mexico has been closed to drilling since 1995. At issue is whether to allow lease sales in parts of the Arctic Ocean as well as the western and central Gulf of Mexico. During his campaign, Biden pledged to end new drilling on public lands and in federal waters. The draft five-year plan for the National Outer Continental Shelf Oil and Gas Leasing Program is expected to include several options, including a “no action alternative” — that would not offer any new lease sales.

Areas made available for leasing under the new plan would be auctioned through 2027. Once the Interior Department’s Bureau of Ocean Management releases the draft five year plan, it will be subject to a period of public comment before it is finalized.

According to Erik Milito, president of the National Ocean Industries Association, new leases in the Gulf of Mexico could mean an additional 2.4 million barrels of oil a day, which can impact the global marketplace. For example, oil prices dropped by over $9 a barrel in 2008 when President George W. Bush opened the Outer Continental Shelf to oil drilling, signaling he wanted more supply to be produced. Biden could get similar results if he truly wanted more investment in oil production and made a proposal that clearly showed it. Instead, Biden has offered a temporarily pause on the federal gas tax that needs to be approved by Congress, released oil from the strategic petroleum reserve, and suspended a ban on summertime sales of ethanol-gasoline blends. None of these actions encourages new oil development or produced a single barrel of new oil production.

Recent History of Offshore Leases

Both the Obama/Biden and the Biden/Harris administrations have tried to block new offshore production. President Obama banned drilling in portions of the Arctic Ocean’s Beaufort and Chukchi Seas, and later invoked an obscure provision of a 1953 law, the Outer Continental Shelf Lands Act, to also ban drilling in areas along the Atlantic coastline. President Trump tried to open all coastal waters of the United States to oil and gas drilling, including the areas kept off limits by the Obama administration, but was unable to make that happen.  Due to pressure from coastal states, President Trump signed an executive order that prohibits drilling for 10 years off the coasts of Florida, Georgia, South Carolina and North Carolina. This, unlike Biden’s actions, happened at a time of low oil prices because of the huge increases in production the United States enjoyed on its way to energy independence reached in 2019.

President Biden signed a pause on drilling on federal lands and waters during his first weeks in office, calling for a review of the program that ended up increasing royalties for onshore production by 50 percent and also increasing rents. New onshore royalties will be 18.75 percent, matching those for offshore which were hiked by the Obama/Biden administration. President Biden in his 17 months in office has not had a successful offshore lease sale and all indications is that he would like to continue in that direction.

Conclusion

According to EIA, declining production from existing GOM fields is expected to be greater than the increase in production from new fields for natural gas and to be equal for oil. With no new fields coming on line in 2023, offshore oil production may decline as natural gas production is doing in the GOM. And with a hold on leasing federal lands and waters the share of energy produced from those areas will continue to lag the production from state and private lands.

Biden’s Interior Department is supposed to release a 5-year lease plan by the end of this month that will include a no lease sale option despite the plan and lease sales being required by law. Biden and his administration clearly do not want to encourage investment in new offshore oil fields and are doing everything possible to decrease production, contrary to what they state.  Cutting off domestic energy supplies and begging foreign nations to produce more oil seems to be the Biden administration’s policy.


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

Even After Russian Invasion, Biden Slow Walks Lease Sales

Between August 2021 and February 2022, President Biden’s Bureau of Land Management’s approval of drilling permits was low, averaging about 200 per month. After Russia invaded Ukraine, however, the approvals picked up with 473 approved in March and 357 approved in April. Those approvals were still much less than the 600+ approved in April and May 2021. And, there is still a large number of pending permits: over 4,400. Biden’s call on U.S. oil and gas producers to drill more — and his ban on Russian oil imports — focused attention on the administration’s handling of the federal oil program, which constitutes 22 percent of the national supply. It appears Biden directed Interior Secretary Haaland to pick up the pace of permitting to mollify the political pressure rising along with pump prices.

Source: Bureau of Land Management

Receiving a permit to drill is a necessary step for oil and gas companies to undertake once they have purchased a lease. However, the determination to drill depends on many factors including finances, local regulations, the availability of materials such as steel, and worker availability. Workforce availability and supply chain issues are currently obstacles to oil field development, as they are in many other industries. Also, given that the Biden administration has said repeatedly that its policy is to end drilling on federal lands, the oil and gas industry is “skeptical” regarding the true nature of the approvals and whether further investment is in their economic interest. This is particularly true since the Biden administration has increased royalty rates from 12.5 percent to 18.75 percent and cut about 80 percent of the acreage proposed by industry during environmental reviews ahead of proposed onshore lease auctions.

Status of Onshore Lease Sales

The Biden administration has yet to hold a single onshore lease sale. In April 2022, the Department of the Interior announced it would proceed with six oil and gas lease sales as part of a reformed federal leasing program that reduced land available by 80 percent and increased royalty rates for drillers. The lease sales were being held because of a June 2021 federal court ruling blocking Biden’s attempted “pause” on all new leasing, where the judge indicated that Congress had ordered the lease sales and Biden was violating the law.

The Biden administration was supposed to hold its first onshore oil and gas lease sales in Wyoming and several other states in June. It has postponed some of those sales, in fact, more than once. The date for three lease sales slated for New Mexico, Colorado and Wyoming is now supposed to take place at the end of June, a year after the Court order them to be held. The Bureau of Land Management (BLM) originally scheduled the New Mexico and Colorado sales for June 16 and the Wyoming sale for the week after. According to BLM, “The date for this sale has shifted slightly to complete the analyses required under the National Environmental Policy Act and allow time for protest resolution.” In addition, earlier this month, a separate oil and gas lease sale in Nevada scheduled for June 14 was delayed two weeks. Two other lease sales set for June 28 in Utah and Montana have so far not been pushed back.

Conclusion

Since taking office, Biden has canceled the Keystone XL pipeline, rolled back drilling in Alaska’s Arctic National Wildlife Refuge, canceled drilling in the Naval Petroleum Reserve—Alaska and pushed for green energy subsidies, while increasing fees on the oil and gas industry. His “pause” on leasing on federal lands was overturned by a federal judge, but as yet no onshore lease sales have been held in 18 months of the Biden administration. With one week remaining in June, squeezing in six oil and gas lease sales may be a difficult task, or maybe there will be further delays based on protests from environmentalists that have already delayed several lease sales. Delays and uncertainty about political risk are known to drive investment capital away from projects. Between the Administration’s mixed messages and their friends in the Green Movement’s repeated litigation, businesses are less likely to invest in federal land production of the oil and gas the Biden Administration argues it wishes to increase.


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

Biden “In Denial” With Energy Crisis, Tom Pyle on Varney & Co.

Monday, June 27, AEA president Tom Pyle joined Stuart Varney on Fox Business to discuss the Biden administration’s refusal to embrace energy realism. Watch the video below to see Tom call out Biden for chasing the “green dream” even while scaring away investments in reliable, affordable sources of energy.


Follow Tom on Twitter for his latest on America’s energy policy.

Biden’s Holiday From Reality

President Biden is grasping at straws to reduce gasoline prices because he refuses to let the American people have access to oil and gas on their lands or modify regulations to encourage new refineries to be built. Instead, he has asked Congress to pass a gasoline tax holiday lifting the 18.4 cent federal tax on a gallon of gasoline and the 24.4 cent tax on a gallon of diesel through the end of September, which he hopes will make Americans vote for his favored people this November. Biden also demanded that companies pass on the benefits of the tax holiday to consumers, and asked states to suspend their gasoline taxes. The administration estimates that if states also suspend their gasoline taxes and oil companies step up refining, gasoline prices could fall by at least $1 a gallon. But because the federal gasoline tax makes up less than 4 percent of the total cost of gasoline per gallon, consumers probably will not see the federal tax change as significant, which is why he needs states to join in and is demanding refineries produce more.

It is unclear what refineries can do to help out President Biden. Because of Biden’s policies, onerous regulation and the realities of investment decisions when the government is saying they will end your business, the United States lost about 1 million barrels per day of refining capacity since the COVID pandemic began. Refineries are also converting to biofuel facilities where government policies and regulation encourage the improvement of their revenues through subsidies and mandates. The remaining operating petroleum refineries, which the Energy Information Administration indicates have a capacity of 17.94 million barrels per day, are producing at record rates of over 90 percent, supplying Americans with gasoline, diesel and jet fuel, among other petroleum products.

There is a small amount of idled refinery capacity, 0.4 million barrels per day, that Biden wants to have operable, but he has not provided any reason for the industry to bring those facilities back online. Rather, he has indicated that he wants to do away with fossil fuels, which makes companies reluctant to invest. The supply situation is so dire, refineries in India are raking in profits by buying oil at a discount from Russia and selling finished petroleum products to Western countries, including the United States. India and China have both added refineries in recent years to meet growing demand, while the United States was shuttering capacity.

Source: S&P Global

Congress has never lifted the gasoline or diesel tax, which supply the majority of the Highway Trust Fund—federal funding used to build and maintain highways—which in 2019 totaled $36.5 billion. For more than a decade, those revenues have fallen short of federal spending on highways and other public works, prompting transfers from the Treasury’s general fund to the trust fund to make up the difference. Despite the fact that outlays of the fund have exceeded dedicated revenues in recent years, Congress has not increased the federal gasoline tax since 1993. Biden’s request to suspend the fuel tax for three months will cost the Highway Trust Fund roughly $10 billion in forgone revenue that must come from someplace else.

State Experience

Some states, such as New York, Connecticut, and Georgia have already suspended state fuel taxes, and other states are also considering consumer rebates and direct relief. Maryland suspended its state tax of 36.1 cents per gallon on gasoline and 36.85 cents per gallon on diesel from March 18 to April 16, 2022. Georgia lifted its state fuel taxes for 10 weeks from March 18 until May 31, consisting of a tax of 29.1 cents per gallon on gasoline and a tax of 32.6 cents per gallon on diesel. Connecticut suspended its state tax on gasoline of 25 cents per gallon from April 1 to June 30. In each case, the tax holidays were relatively short, and the state taxes were higher than the federal gas tax of 18.4 percent.

Recent research at the University of Pennsylvania looked at the experience of the three states. The researchers found that the suspensions of state gasoline taxes in the three states were mostly passed onto consumers in the form of lower gasoline prices, but that the reduced-price levels were not sustained during the entire tax holiday. In Maryland, 72 percent of tax savings were passed onto consumers, in Georgia, 58 percent to 65 percent of the tax savings were passed onto consumers, and in Connecticut, 71 percent to 87 percent of the tax savings were passed onto consumers. However, as the market adjusted over time, the consumer benefit faded as can be seen in the graph below.

Gasoline Prices In Maryland, Georgia, Connecticut And The Rest Of The Country

Conclusion

Gasoline prices will decline if the demand falls, as it did during the COVID pandemic or if supply increases as it did when U.S. oil companies used hydraulic fracturing to produce oil from shale deposits. A gas tax holiday does not decrease demand nor raise supply because it is designed to be temporary. Further, not all the tax decrease ends up in the pockets of the consumer. And, as one can see from the above graph the prices in Maryland and Connecticut ended up slightly higher than the average of the other states after the tax holiday ended. (Georgia’s tax holiday did not end until the end of May.)

President Biden refuses to do what is necessary to truly lower gasoline and diesel prices because he has stated repeatedly he wants to put an end to fossil fuels. Companies will not invest under that environment because it makes no economic sense. Americans need and want fossil fuels to live a comfortable life. Biden’s policies will only result in economic damage and a lower living standard for Americans. The country does not need band-aids; it needs policies and regulations that encourage companies to make investments that benefit Americans. So far, President Biden has been taking actions to drive up the price of gasoline while talking about reducing them, as in the case of the suspension of the gas tax.


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

The Unregulated Podcast #89: Tough Stuff

On this episode of The Unregulated Podcast, Tom Pyle and Mike McKenna discuss the prospects of Congress passing a reconciliation bill, Biden getting his “gas tax holiday,” SCOTUS rulings, and an update on the Ukrainian conflict.

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President Biden’s Gas Tax Holiday: Another Empty Gesture

Americans need real regulatory reform, not empty gestures.


WASHINGTON DC (06/22/2022) – Earlier today, President Joe Biden called for temporarily suspending the federal gasoline tax, asking lawmakers to pass a three-month pause on the federal 18-percent-per-gallon tax.

This continues his administration’s routine of offering empty gestures to Americans who are struggling with record-high energy prices. Since President Biden took office, his administration and Congressional Democrats have taken over 100 actions deliberately designed to make it harder to produce energy here at home. Thirty-two of these anti-energy proclamations were enacted after the Russian invasion of Ukraine, which Biden regularly touts as the reason for rising gas prices.

AEA President Thomas Pyle issued the following statement:

“President Biden is once again grasping at straws to make Americans believe that he is doing all he can to lower gasoline prices. The reality is the Biden climate agenda calls for higher energy prices and this Administration has done everything in its power to make energy more expensive for American families.

Instead of proposing what even President Obama called a gimmick, Congress should take substantive steps to reverse Biden’s assault on affordable and reliable energy from oil and natural gas. Clearly, the President doesn’t care about the struggles of American families. If the Democrats on the Hill still do, as they claim, they can do something that’s actually meaningful instead of playing along with Biden’s charade.”

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Supply Chain Woes Pour Cold Water On Biden’s Green Dreams

Over a dozen battery storage projects that were meant to support intermittent renewable energy supplies have been postponed, canceled or renegotiated due to labor and transport bottlenecks, soaring minerals prices, and competition from the electric vehicle industry. The delays, ranging from several months to a year, are in a number of states including California, Hawaii and Georgia, with battery providers Tesla and Fluence warning of disruptions to supply. The battery projects are needed to capture excess generation from solar and wind power to be used when there is no generation from these sources, that is when the wind does not blow and the sun is not shining, which occurs every evening. Frequently, electricity demand is highest when the sun goes down and people return home from work. Battery projects are expensive and not included in the cost of solar and wind power when determining what technologies should be built, i.e., in the “levelized cost” projections often used to estimate relative costs of generation sources. As a result, consumers are seeing and will continue to see higher electricity prices.

Battery storage makes up about 3 percent of U.S. electrical capacity. Installations increased 170 percent in the first quarter of 2022, totaling 758 megawatts. But the pace is slowing below forecasted amounts. According to Energy research firm Wood Mackenzie, its current forecast for battery storage installations of 5.9 gigawatts for 2022 may be revised down because of market disruptions and because 2021 installations came in at about two-thirds of what the company had expected.

Battery Prices

Prices for lithium-ion batteries, three-quarters of which are produced in China, have increased as much as 20 percent since last year due to rising lithium and nickel costs, disruptions to manufacturing from COVID lockdowns, and slow shipments from transport constraints. According to Bloomberg, the cost of metal necessary to make batteries increased by 280 percent last year. In the first quarter 2022, the prices of many metals more than doubled. Prices for lithium alone have increased 438 percent this year, according to Fortune. The United States has one active lithium mine in Nevada and it produces less than 2 percent of the global lithium supply. The United States has about 4 percent of the world’s lithium reserves.

New lithium mines in the United States are being held up by the Biden administration or by legal challenges. The Thacker Pass Lithium Mine in Nevada could produce a quarter of today’s global lithium demand but is being held up by a lawsuit. Ioneer Ltd.’s lithium mine also in Nevada could supply 22,000 metric tons of lithium annually (enough for about 400,000 electric cars), but is being held captive by environmentalists, who claim the mine threatens Tiehm’s buckwheat, a rare flowering plant, which the Biden administration has listed as endangered. The company still needs to obtain permits for the mine. In normal circumstances, the process of getting a mine to first production can take 7 to 10 years, but recalcitrant federal bureaucracies can extend that timeline, as has been the case for other mineral mines in the United States under the Biden administration.

Competition from Electric Vehicle Market

Battery manufacturers are favoring the EV market because their orders are more predictable compared to the much larger project-specific orders from power storage developers. Tesla Chief Executive Elon Musk acknowledged earlier this year that the company had prioritized EV battery supplies over stationary storage. Fluence issued force majeure notices on three contracts because its battery suppliers in China were not able to fulfill their obligations. It also raised prices on new contracts by 15 to 25 percent and would price future contracts based on raw material indices to guard against volatility.

Solar Projects Being Built with Associated Storage Projects

Storage projects are being constructed alongside solar farms, allowing the storage facilities to claim a federal tax credit that does not exist for standalone batteries. But, the ongoing investigation by the Commerce Department regarding China using other Southeast Asian countries to avoid tariffs has resulted in fewer solar projects than expected because of the uncertainty over potential tariffs on Asian imports. President Biden recently waived the tariffs for two years on panels from countries impacted by the Commerce Department investigation, which should encourage more solar construction with panels from Asia, and thus more storage facilities.

Storage Projects

There are supposedly about 14.7 gigawatts of battery storage in development, some of which state authorities had hoped would be in place to prevent blackouts this summer. According to Governor Gavin Newsom, California had been counting on new battery storage projects, many of which were procured following rolling blackouts in August 2020, to shore up summer reliability. Among recent delays is 535-megawatts of storage Ameresco Inc. is developing for Southern California Edison. The company expects only a portion of the project—about 300 megawatts—to be online by its August target.

Central Coast Community Energy (CCCE), which has 430,000 customers in five California counties, is also facing delays of six projects, including 122 megawatts of storage, needed to meet state-mandated requirements for “clean” energy. The projects, originally meant to come online this year and next, are experiencing delays of between six and 12 months. CCCE and Silicon Valley Clean Energy Authority, its partner in several projects, sued developer EDF Renewables over its termination of contracts for the Big Beau solar and storage project that started generating power last year. EDF in March asked to increase the price for the project’s energy storage component by $76.8 million—a 233 percent increase.

In Hawaii, utility Hawaiian Electric is seeing delays in solar and storage projects that are to replace the state’s only coal-fired power plant, which is supposed to retire in September. The developer of four projects, Canada’s Innergex Renewable Energy, is seeking to renegotiate the terms of the deals – including price and timing – after receiving force majeure notices from its battery supplier, Tesla, which as mentioned above, is concentrating on EV batteries. Hawaiian Electric expects just 39 megawatts of the 378.5 megawatts of solar and storage it procured to be in service prior to the coal plant retiring.

According to the International Energy Agency IEA), battery storage needs to reach 585 gigawatts by 2030 to decarbonize the global power sector—a 35-fold increase from 2020. With supply chains as they are, lockdowns continuing over COVID in China, the huge price increases in critical metals and competition from electric vehicles for batteries, it is unlikely that IEA’s battery storage number will be achieved.

Conclusion

It seems unlikely that President Biden’s decarbonization of the electric sector will happen by 2035 since it is unlikely that the battery storage needed to support wind and solar power can be accomplished by then. With competing priorities, i.e., governments wanting 50 percent of cars sold in 2030 to be electric, it is putting a great deal of strain on available resources, particularly when obstacles are put in front of mine development in the United States. Many forecasters have predicted a metal shortage as companies are pursuing electric vehicles to meet Biden’s goal and the goals of European countries. Battery storage to back-up intermittent solar and wind power seems almost an afterthought, except to places like California where residents are used to rolling blackouts and increasingly high energy prices, so storage batteries are just another cost added to the state’s attempts at reliability combined with their focus on wind and solar.


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

Watch Rep. Rho Khanna Backtrack on Domestic Oil Production

Many leading Democrats in Congress, including Rep. Rho Khanna, ran for office promising to end domestic production of natural gas, oil, & coal. Back in October of last year, he praised oil companies for decreasing oil production in Europe and asked if they were embarrassed because they were increasing production in the United States. 

Now Rep. Rho Khanna is singing a different tune and wants to make sure everyone knows that he now wants to distinguish between the long-term and the short-term. In an interview on CNBC, Rep. Khanna said “Of course, we need short-term production to go up.”

Watch the interview here: