On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna are joined by Lou Pugliaresi of the Energy Policy Research Foundation for a wide ranging discussion on events in D.C. and Dubai.
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Manchin Played By Biden Administration On EV Giveaway To China
December 7, 2023 by Leave a Comment
President Biden’s climate law, the Inflation Reduction Act (IRA) of 2022, provides up to $7,500 in tax credits to consumers who buy electric vehicles made in the United States, using largely domestic materials. The law includes a general ban on Chinese products, orchestrated by Senator Manchin, Chairman of the Senate Energy & Natural Resources Committee, who was the deciding vote on the Democrat-passed bill. Lawmakers mandated that firms in China, Russia, North Korea and Iran be prohibited from providing certain materials to cars that received those tax breaks. The law, however, left open several questions, including what constitutes a Chinese or Russian company. According to Biden Administration officials, any entity that was incorporated or had headquarters in China or Russia, as well as any firm in which 25 percent of the board seats or equity interest is held by Chinese or Russian governments constitutes a Chinese or Russian company.
Senator Manchin is unhappy with the EV tax credit rules that the Department of the Treasury released on December 1, allowing Chinese companies who set up operations outside China to benefit, as long as the Chinese government is not a significant shareholder. Manchin accused the Biden administration of “trying to find workarounds and delays that leave the door wide open for China to benefit off the backs of American taxpayers”. The Treasury interpretation of the law was a relief to automakers, who need Chinese technology, parts and minerals for their EV business and had feared that the Biden administration would ban them from contracting with Chinese-owned mines or factories in the United States or other parts of the world. That was the original intent of the IRA, at least to Senator Manchin.
IRA also requires battery makers undertaking contracts or licensing agreements with Chinese firms to ensure they are retaining rights over their projects. Some lawmakers have challenged Ford’s plans to license technology from the Chinese battery company CATL for a plant in Marshall, Michigan, arguing that such a partnership should not be eligible for federal tax credits. The Treasury rules did not make it clear whether vehicles produced under Ford’s license agreement with CATL would receive the tax credit.
The rules could have a profound effect on the U.S. electric vehicle market, which made up about 8 percent of new cars sold in the third quarter. EV car sales, however, are not growing quick enough given all the electric vehicles sitting on auto dealer lots, as some dealers have a 12-month backlog of vehicles. Concern about electric vehicle range and the availability of chargers are holding back electric vehicle sales. Despite $7.5 billion for chargers in the IRA, the Biden Administration has a “net zero” record for charger deployment.
It is yet unclear which EV models would qualify for the full tax credit. The new rules kick in for battery components in 2024, and in 2025 for critical minerals like lithium, cobalt and nickel. Many cars have been disqualified from the tax credits by other rules, like a requirement that vehicles be assembled in North America. Only about 20 vehicles currently qualify for the subsidy program out of more than 100 electric vehicles sold in the United States. According to Tesla, the two least expensive versions of its Model 3 sedan would qualify for only half the $7,500 credit starting in January. The Model Y SUV also might not qualify for the full credit after December 31. The Model Y and Model 3 are the top two electric vehicles by sales in the United States. Tesla buys some batteries from CATL.
The Treasury rules also exempt trace materials. If the Biden administration banned all minor Chinese parts from the supply chain, no car models might have qualified for tax credits next year.
The rules also raised new issues about whether stricter requirements for supply chains could continue a trend of driving more consumers to lease, rather than buy, vehicles. The Treasury Department rules issued earlier allowed leased vehicles to receive the full EV tax credit, regardless of where the components came from. That is, the prohibition on sourcing from China applies only to vehicles that are sold, not to those that are leased. Because consumers can receive tax credits for electric vehicles they lease from auto dealers, electric vehicle leasing has boomed.
Over the past year, companies have invested $213 billion in the manufacturing and deployment of “clean” energy, “clean” vehicles, building electrification and carbon management technology in the United States–a 37 percent increase from a year earlier. But, the global electric vehicle industry remains anchored in China, which is the world’s largest producer and exporter of electric vehicles. China produces about two-thirds of the world’s battery cells and refines most of the minerals that are key to powering an electric vehicle. China processes more than half of the world’s lithium, cobalt and graphite, which are crucial inputs.
The rules also restrict automakers from sourcing nickel used in their batteries from Russia, which is one of the world’s largest nickel producers. Efforts to start new nickel mines in the United States have been stymied by the Biden Administration.
One of the challenges for automakers will be developing systems to track all the components of their battery through the supply chain. The rule, which has a 30-day comment period, establishes the beginnings of a system for automakers to track critical minerals contained in their cars from the source and for the IRS and the Energy Department to review the materials that automakers procure. For example, car makers have a two-year transition period to adapt to regulations for small battery parts that lack tracing standards, such as electrolyte salts. Vehicles that are reported incorrectly will be subtracted from an automaker’s eligibility for tax credits, and automakers that commit fraud or intentionally disregard the rules could be declared ineligible for the tax credit in the future.
Conclusion
Treasury released additional rules on December 1 concerning which vehicles would receive the full EV tax credit based on the IRA, a Democrat-passed bill in 2022. One of the issues was to define what constitutes a Chinese or Russian company—guidance that Senator Manchin finds as “another example of the Biden administration clearly breaking the law to try to implement a bill that it could not pass.” Unless auto makers follow the Treasury Department’s measures, however, new EV supply-chain companies could lose access to $6 billion in federal grants and auto makers would not be able to offer customers all or part of a $7,500 tax rebate on EV purchases.
Senator Manchin is correct in his taking issues with the Treasury Department guidance, which works around the intent of the law in developing an EV industry in the United States. While the United States has critical mineral resources, the Biden administration is not allowing new mines to be developed to further the industry. Biden has revoked leases, delayed permits and placed fauna and flora on the endangered list to avoid developing new mines. Further, EPA regulations would make it difficult to develop critical mineral processing facilities that are needed for making the minerals usable for EV manufacturing. And, as the Biden administration is ridding the United States of its affordable and reliable coal plants, the industry would have a problem competing with China for cheap electricity needed for the energy-intensive industry. China has spent decades gearing up for the energy transition and has left the United States in the dust. Biden is not helping as he is garnering votes from his environmental friends for his reelection bid in 2024.
*This article was adapted from content originally published by the Institute for Energy Research.
House Votes to Save Our Cars
December 6, 2023 by Leave a Comment
WASHINGTON DC 12/6/23 – Today, the House passed H.R. 4468, the Choice in Automobile Retail Sales Act, by a vote of 221-197. This bill, introduced by Rep. Tim Walberg (R-MI), prevents the EPA from finalizing its proposed rule on federal vehicle emissions standards, which would require 70 percent of cars and trucks to be electric in less than 10 years.
AEA President Thomas Pyle, and founding member of the Save Our Cars Coalition, issued the following statement after House passage of the bill:
“Bipartisan passage of this bill is welcome recognition that Americans should continue to be free to choose the car or truck that best suits their budget and lifestyle.
The proposal to essentially ban internal combustion engines ignores the realities of the vehicle sales market and shows just how out of touch the Biden administration is when it comes to the types of cars and trucks Americans prefer.
Using the regulatory process to pick winners and losers in Washington is an abuse of the law and will do little more than raise costs and reduce our choice in vehicles. This legislation signals that Congress is reasserting its authority over the ideologies of unelected bureaucrats and putting the needs of their constituents first.”
Additional Resources:
- Save Our Cars Coalition Website
- AEA Key Vote Alert for H.R. 4486
- American Energy Congressional Scorecard
- Auto Dealers Tell President Biden to Pump the Brakes on EV Mandates
For media inquiries please contact:
[email protected]
Key Vote YES on H.R. 4468
December 6, 2023 by Leave a Comment
The American Energy Alliance supports H.R. 4468, the Choice in Automobile Retail Sales Act which would prevent the EPA from mandating certain types of vehicles.
The Biden Administration has made very clear that it has a strong ideological preference for electric vehicles and wants to do everything in its power to increase electric vehicle sales. But Congress has given no power to the President to require the purchase or sale of electric vehicles. Indeed, where the topic is mentioned, existing statutes make very clear that the administration is not supposed to even consider electric vehicles when making regulatory decisions, for example with regard to Corporate Average Fuel Economy standards.
Contrary to this clear instruction from Congress, this administration has sought backdoor ways to force adoption of electric vehicles through supposedly neutral regulations that in practice can only be complied with by producing more electric vehicles. This legislation directly addresses one element of this overreach, the EPA’s new tailpipe emissions standards, and clarifies that in the future EPA cannot use tailpipe regulations again in such a deceptive manner.
Americans have made clear through their purchasing decisions that they are reluctant switch over to electric vehicles. This legislation respects that preference by ensuring that consumers can continue to buy the kind of cars they find most useful rather than be forced into the cars that a bureaucrat decides for them.
A YES vote on H.R. 4468 is a vote in support of free markets and consumer choice. AEA will include this vote it in its American Energy Scorecard.
The Unregulated Podcast #158: The Coup
December 4, 2023 by Leave a Comment
On this episode of The Unregulated Podcast Tom Pyle is temporarily replaced with long time show producer Alex Stevens who joins with Mike McKenna in a discussion of the future of Bidenomics, an update on the 2024 presidential field, and the competency of the Biden administration’s speech writers.
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COP 28: Hot Air And Hypocrisy
December 1, 2023 by Leave a Comment
The upcoming UN Climate Conference (COP 28) will have a larger ‘carbon footprint’ than any of the 27 previous U.N. climate conferences. COP28 is being held in the United Arab Emirates (UAE), where more than 70,000 people are attending–about 25,000 more than were at COP 27 in 2022. Biden’s special envoy for climate change, John Kerry, recently said that the United States will pay ‘millions’ into the U.N.’s ‘loss and damages’ fund that is attracting record numbers of attendees, who are looking for handouts despite the cost of attending the Dubai conference where luxury hotels are sold out at high rates. President Biden and Vice President Harris, however, are not planning to be part of the 70,000 attendees, skipping a meeting expected to be attended by King Charles III and leaders from nearly 200 countries.
President Biden earlier this month called climate change “the ultimate threat to humanity” and is pushing his climate agenda in the United States, using taxpayer funds to subsidize his favorite technologies. Last year, he promoted the passage of the Inflation Reduction Act—the country’s most significant climate law. That legislation is providing at least $370 billion into “clean” energy over the next 10 years. Biden believes it would help the rest of the world move away from fossil fuels. But, current national climate plans are expected to achieve only a 7 percent reduction in greenhouse gas emissions by 2030. This year global carbon dioxide emissions are expected to increase by 1 percent, despite the United States reducing its carbon dioxide emissions by a projected 3 percent. No major nation is on track to meet the emissions reduction goals outlined in the United Nations’ Paris accord.
China’s President Xi is also not expected to attend the meeting despite China being the world’s largest emitter of carbon dioxide. The United States, the world’s second largest emitter, and China recently established a joint agreement to boost renewables with the goal of displacing coal, gas and oil. Both nations will back global efforts to triple renewable energy capacity by 2030, accelerate the domestic buildout of green power to replace coal, oil and gas, and advance cooperation to limit emissions of nitrous oxide and methane, the US State Department and China’s Ministry of Ecology and Environment said in identical statements.
China’s Renewable Growth Undermined by its Coal Expansion
China’s energy bureau recently noted that total installed solar power capacity hit 536 gigawatts in October, up 47 percent from last year and wind capacity increased 15.6 percent to 404 gigawatts. Despite those numbers, China is continuing to increase its coal capacity faced with rising energy consumption, as the world turns to it for solar panels, EV batteries and minerals needed to produce “green” technologies.
China has granted permits for 152 gigawatts of new coal power since the start of 2022, starting construction on 92 gigawatts, with total capacity on track to increase 23 percent by 2030. Low cost and reliable coal power has made China the polysilicon leader of the world. For the same amount of capacity, coal can generate 2 to 3 times the energy that wind and solar generate due to their intermittency and dependence on the sun shining and the wind blowing. Further, coal generators can easily operate for 40 to 60 years, while wind and solar generators produce power for 20 or 30 years and then must be replaced and capitalized.
China’s carbon dioxide emissions are by far the highest in the world. They rebounded in 2023 as a result of low hydropower output and the revival of the country’s economy after its COVID lockdowns. Global demand for energy and materials from the rapid expansion of clean energy and electric vehicle manufacturing also offset the decline in emissions brought about by a slump in real estate, which restrained cement and steel production.
Biden’s Domestic Energy Transition is Facing Challenges
Despite the generous subsidies for green energy from Biden’s Inflation Reduction Act (IRA), the President’s climate agenda is suffering, faced with canceled offshore wind projects, imperiled solar factories, and fading demand for electric vehicles. Even President Biden’s and Energy Secretary Granholm’s favorite electric bus company, Proterra, is in bankruptcy. A year after passage of the largest climate change legislation in U.S. history, meant to set off a boom in American clean energy development, economic realities are becoming apparent due to inflation, high interest rates, soaring costs, unreliable supply chains, and sluggish permitting. Offshore wind developer Orsted cancelled projects in the Northeast; Tesla, Ford and GM scaled back EV manufacturing plans, and the breakneck speed of developing solar manufacturing plants has created the prospect of a glutted market that could drive down the price of solar panels due to supply outpacing demand. Biden’s Inflation Reduction Act’s billions in tax credits cannot resolve these issues, nor the fundamental issue that these technologies make energy more expensive.
More than 56 gigawatts of “clean” power projects have been delayed in the United States since late 2021 with solar energy facilities accounting for two thirds of those delays due in part to U.S. import restrictions. The United States has been trying to combat the use of forced labor and tariff-dodging in a global solar panel supply chain that is dominated by China.
Permitting gridlock, local fights over where to site solar and wind projects and a grid connection process that can take an average of five years are cited by developers as among the industry’s biggest challenges. While these are traditional problems faced by conventional energy projects over many decades, it appears to be surprising to “green energy” business people, many of whom were supportive of regulatory roadblocks to other energy projects. Tight supplies and strong demand for renewables from utilities and corporations because of mandates and subsidies have also driven up contract prices, which could mean higher costs for consumers. Solar contract prices increased 4 percent to $50 per megawatt hour for the first time this decade in the third quarter. The IRA has incentivized domestic production of solar panels and wind turbines, but manufacturers have recently warned that a wave of new Asian capacity is threatening the viability of dozens of planned American factories.
Turmoil in the U.S. offshore wind industry is a major issue. Developers like Orsted, BP and Equinor have sought to renegotiate or cancel contracts due to soaring costs, and have taken multi-billion dollar write downs on projects. Only one bid resulted at a federal wind lease sale in the Gulf of Mexico in August. The Biden administration’s target of deploying 30 gigawatts of offshore wind by 2030 is now widely regarded as unattainable with 16 gigawatts being a more likely target.
Some corporations are delaying investment decisions, awaiting the Treasury Department to write rules regarding the IRA’s tax credits. For instance, one company is waiting on the design of tax credits for sustainable aviation fuel under the IRA, to determine whether corn-based fuel can qualify as a feedstock.
Conclusion
The U.N. COP 28 is expected to garner a huge crowd that will be waiting for handouts from wealthy nations, starting with the United States. The United States is spending billions on Biden’s climate agenda pushing his favorite technologies here, but progress has slowed due to inflation, high interest rates, and problems with supply chains. Despite that, Biden is charging ahead with agreements with China to triple renewable energy to phase out fossil fuels, but that will not stop China from continuing to build coal plants and remain the world’s top emitter of greenhouse gases. Meanwhile, global carbon dioxide emissions continue to rise, led by China.
*This article was adapted from content originally published by the Institute for Energy Research.
Auto Dealers Tell President Biden to Pump the Brakes on EV Mandates
November 30, 2023 by Leave a Comment
WASHINGTON DC (11/30/2023) – This week, nearly 4,000 auto dealers from all 50 states sent a letter to President Biden calling on the administration to slow the implementation of proposed rules that mandate the sale of electric vehicles (EVs).
AEA President Thomas Pyle, and founding member of the Save Our Cars Coalition, issued the following statement:
“Auto dealers are in the business of selling cars. They want to stock vehicles that consumers want to buy. But this administration is so set on dictating which cars and trucks Americans should own, that their policies have upended the balance between supply and consumer demand.
Today, nearly 4,000 car dealers wrote to President Biden to explain these dynamics. As the last stop along the supply chain, dealers have the closest interaction with consumers and are most significantly impacted by policies that reduce the availability of cars and trucks that Americans want to buy.
Despite taxpayer-funded subsidies that artificially reduce costs, consumer demand for EVs persistently lags supply, and the vehicles sit on lots longer than gas- and diesel-powered cars. By speaking out, hopefully, these auto dealers will be able to help persuade the administration that American families should have the freedom to buy the vehicle that best suits their budget and lifestyle while encouraging fair competition in the automotive industry.”
Additional Resources:
- Save Our Cars Coalition website
- American Families Not Buying Biden’s All EV Agenda
- Slow EV Sales Delay Automakers’ Investments and Reduce EV Prices
- CAFE Compliance Will be Harder with DOE Proposed Rule Change
For media inquiries please contact:
[email protected]
Bloomberg Spending Millions To Destroy America’s Power Grid
November 17, 2023 by Leave a Comment
President Biden’s push for renewable energy in the generating sector and the billions that Biden and philanthropists like Michael Bloomberg are spending to rid the U.S. of coal plants and to drastically reduce natural gas plants will destabilize the U.S. electric power grid, damaging transformers and causing long-term outages, experts say. Michael Bloomberg pledged $500 million in September toward shifting electricity production in the United States to wind and solar energy and shutting down its coal- and gas-fired plants. That donation adds to the $500 million Mr. Bloomberg pledged in 2019 to “finish the job on coal” and “accelerate the clean energy transition to reach the goal of 80 percent of total electricity generation” from renewables, according to an official statement. Bloomberg Philanthropies stated, “With 372 of 530 coal plants announced to retire or closed to date—more than 70 percent of the country’s coal fleet—this next phase will shut down every last U.S. coal plant.” The effort also slashes natural gas plant capacity in half, and blocks all new gas plants.
Europe has tried to transition from fossil fuels to wind and solar power and its efforts have failed. For instance, twenty years ago, Germany instituted “Energiewende” (energy transition) and has discovered the cost of electricity has skyrocketed. Germany spent hundreds of billions of euros to build wind and solar facilities since 2002, doubling its power generation capacity and boosting the share of renewables in the generation sector to 60 percent from about 10 percent. Despite the capacity increase, its electricity production has remained flat and the promise of lower electricity rates has not materialized. Instead, Germany’s “Energiewende” has delivered an increasingly unreliable electric system at a cost to consumers that is higher than virtually every other developed country. Germany is now in the process of de-industrializing and searching out lower cost energy countries to manufacture the products they once proudly did.
Because wind and solar power have significantly lower capacity factors than fossil fuel and nuclear plants, a greater amount of capacity is needed to produce the same amount of power. Also, as wind and solar power are weather-driven and intermittent, expensive battery back-up is required, which politicians do not consider when they push renewable energy, telling the public that wind and solar are almost free as they have no fuel cost. As Germany’s prices show, this is not the case.
Capacity Factors
The capacity factor for wind and solar is about 35 percent and 25 percent, respectively, compared to roughly 92 percent for nuclear and 85 percent for coal and natural gas when they are allowed to operate 24/7 and not just to back-up solar and wind plants. Wind and solar facilities are dispatched before coal and gas plants because they have no fuel cost and are therefore cheaper to operate once built.
The Closure of Coal and Gas Plants Is Eroding Reserve Margins
Reserve margins measure the amount of unused available capacity of an electric power system as a percentage of total capacity, i.e. the amount of capacity over expected peak demand. At one time and before the current trend of closing coal plants, electric utilities typically ran their power generation systems with a 20 percent installed reserve margin over expected peak demand. That reserve margin was to ensure that consumer demand would be met even during unpredicted events. The reserve margins, however, have been eroded with the transition to renewable energy as dependable plants have been shuttered. According to the Energy Information Administration, coal and natural gas plants will account for 98 percent of plant closures in 2023. Electric utilities have shuttered an average of 11 gigawatts of coal-fired capacity per year between 2015 and 2022.
If electricity supply does not match demand, the grid’s hardware could be severely damaged, leading to long-term outages. Because wind and solar power are unpredictable sources, an auxiliary source of power is needed to balance it and most of that balancing power currently comes from natural gas. Many U.S. utilities are expanding their wind and solar capacity but not adding reliable backup facilities, hoping that they can draw on other regions when there is a shortfall. They are also drawing on emergency reserves, using the reserve as the auxiliary to balance their wind and solar projects.
Experts warn that operating so close to the margin is very dangerous. In 2015, former CIA Director James Woolsey was asked what would happen to Americans if the electric grid went down for an extended period. He testified before the U.S. Senate that there are two estimates on how many people would die from hunger, starvation, lack of water, and social disruption. “One estimate is that within a year or so, two-thirds of the United States population would die. The other estimate is that within a year or so, 90 percent of the U.S. population would die.”
Even the North American Energy Regulatory Corp. (NERC), which monitors America’s grid reliability, has warned that large segments of U.S. electricity infrastructure could become unstable because of a too-rapid retirement of dispatchable fossil fuel plants.
Wind and Solar Incentives
Despite the failings of wind and solar power, the Biden administration has increased their subsidies. The Inflation Reduction Act, passed entirely by Congressional Democrats and signed into law by President Biden, provides nearly $400 billion in grants, loans, and investment tax credits to build facilities and production tax credits to subsidize the energy they produce. On top of that are state laws and mandates that force utilities to prioritize the purchase of wind and solar power over coal and gas. New Environmental Protection Agency (EPA) rules mandate carbon dioxide (CO2) emissions limits and carbon capture requirements that will force utilities to transition away from coal and gas. Biden’s climate agenda includes a carbon-free power sector by 2035 and net-zero emissions economy no later than 2050.
Electric Bills Increase Even With Incentives
According to a 2022 study by McKinsey, “The transformation of the global economy needed to achieve net-zero emissions by 2050 would require $9.2 trillion in annual average spending on physical assets, $3.5 trillion more than today.” That means as the transition to renewable energy accelerates, consumers will continue to see their electric bills rise.
As North Carolina-based Duke Energy began to shutter its coal plants and build out a renewable infrastructure, utility bills quickly jumped by 20 percent. Wyoming residents are protesting a 29 percent increase in their electric bills, as their utility, Rocky Mountain Power, is transitioning to renewable energy. Wyoming is America’s top coal producer. However, its share of coal generation in 2022 dropped to 71 percent of electricity generation from 97 percent. At the same time, the share of wind power rose to 22 percent. Rocky Mountain Power claims that the price increases are because of higher coal and gas prices, but the residents are not believers.
In addition to the cost of a duplicative generation system, whether using gas plants as back-up or expensive batteries with energy obtained from excess wind and solar power, there is the cost of building a massive transmission network to connect urban areas where the electricity demand is concentrated to remote locations where it is windy or sunny with ample amounts of land to harbor enormous facilities. These costs are passed on to consumers in the form of higher energy bills.
According to Mark Mills, a senior fellow at the Manhattan Institute, the cost to store energy in grid-scale batteries is about 200-fold more than the cost to store natural gas to generate electricity when it is needed.” He said that “$200,000 worth of Tesla batteries, which collectively weigh over 20,000 pounds, are needed to store the energy equivalent of one barrel of oil.” “Even a 200 percent improvement in underlying battery economies and technology won’t close such a gap.” To top it off, China controls the world’s battery manufacturing industries, along with the supply chains that feed them.
Not All Countries Are Joining onto Biden’s Climate Agenda
The United States reduced its carbon dioxide emissions to about 5 billion metric tons in 2022, from about 6 billion in 2005. During that time, China nearly doubled its CO2 emissions to 11.5 billion metric tons from 6 billion metric tons and has announced plans for 100 new coal-fired plants in the coming years that easily produce power for 40 to 60 years. India also doubled its CO2 emissions during this time to a current level of 2.5 billion metric tons, and is continuing to use coal. For example, its coal production increased 19% year-over-year this October.
Advocates pushing renewable technologies, however, are not taking into account the CO2 emissions from mining and processing the critical minerals needed to manufacture the “green” technologies. Nor is there an accounting for the environmental damage from using often pristine land and seascapes to install and operate wind turbines and solar panels. According to the Brookings Institution, “Wind and solar generation require at least 10 times as much land per unit of power produced than coal or natural gas-fired power plants, including land disturbed to produce and transport the fossil fuels.”
Conclusion
The process of shuttering coal and nuclear plants has left the country at the whim of the weather, and dangerously short of dependable power that can be adjusted to meet fluctuations in demand. Besides the risk of outages, the transition to wind and solar power is increasing electric rates as more transmission lines are needed to get the power from windy and sunny areas to demand centers and as expensive battery back-up is required. The true cost of wind and solar power are not being reported by the Biden administration and other politicians that want to push solar and wind power. It is also all for naught as whatever the United States reduces in carbon dioxide emissions will be quickly made up for by developing countries, particularly China and India, who are continuing to develop their economies with coal power.
The Unregulated Podcast #157: Direct Communications Stated Directly
November 17, 2023 by Leave a Comment
This week on The Unregulated Podcast Thomas Pyle and Mike McKenna are joined by Travis Fisher, the director of energy and environmental policy studies at the Cato Institute, for a wide ranging discussion energy issues in the news.
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American Families Not Buying Biden’s All EV Agenda
November 14, 2023 by Leave a Comment
With slower than expected sales in electric vehicles, automakers are questioning their multibillion-dollar investments in new factories and raising doubts about the effectiveness of Biden’s federal incentives. General Motors delayed plans to expand its electric pickup truck production at a plant in suburban Detroit, and canceled a program with Honda to sell electric vehicles for around $30,000. Ford paused its $3.5 billion EV plant in Marshall, Michigan and $12 billion of its planned $15 billion EV investment, citing market conditions. Despite $1.7 billion of promised taxpayer incentives for the plant and site readiness, Ford is not confident it can run the Michigan plant competitively. Further, as electric vehicles are sitting unsold on dealer lots, automakers and dealers are slashing prices and piling on discounts to clear out the unsold inventory. High inflation and high interest rates are making vehicle purchases difficult for everyday people. Auto executives are worried that many consumers have hit their limit.
EV Prices Reduced through Rebates and Lease Deals
EV sales promotions have taken different forms. Some automakers, such as Hyundai Motor and Ford Motor, are offering cash rebates as high as $7,500 on top of the federal tax credit on some models. Others are offering aggressive lease deals that offer cheaper monthly payments or shorter contract lengths to attract buyers. Many car companies are offering low-interest rate promotions to make pricey electric vehicles more affordable. On average, customers received about a $2,000 discount on an electric vehicle in September, compared with a year prior when they paid a $1,500 premium. Industrywide, shoppers paid around $930 less than the sticker price in September. As wealthier EV adopters have already purchased an electric vehicle, the industry is now confronted by a more reticent group of consumers, who are being squeezed by high interest rates and rising costs.
Electric vehicles are now some of the slowest sellers on dealership lots. In September, it took retailers over two months to sell an electric vehicle, compared with around a month for gas-powered vehicles and only three weeks for a gas-electric hybrid. That trend is expensive for dealers who take out loans to finance their fleet. The longer a vehicle sits on the lot, the more it eats into potential profit. At the end of September, automakers had 88 days’ worth of EV inventory, compared to 56 days for conventional models.
The discounting activity is helping to bring down the cost of battery-powered cars, which on average sold for about $50,683 in September, down from more than $65,000 last year. By comparison, prices overall for new vehicles remained at about $48,000. According to car executives and dealers, the discounts will likely continue for now, especially in the form of lease offers.
The discounts are threatening to exacerbate problems at startups, which are swiftly burning through their remaining cash. Luxury electric-vehicle maker Lucid in August marked down the price of its vehicles by up to $13,000, due to weakening demand. EV startup Fisker said that it was lowering the price of its Ocean Extreme SUV, a brand-new model that went on sale this year, by $7,500 in response to “competitive realities.” Fisker’s vehicles do not qualify for a federal tax credit because they are built outside the United States.
Climate Law Pushed Manufacturers into EVs
President Biden’s climate law, the Inflation Reduction Act (IRA), stimulated a surge of investment in electric vehicle production across the country, including tens of billions of dollars on battery plants across the South and new assembly lines near the Great Lakes. Under the law, companies get lucrative tax credits for investing in electric vehicle production and component parts like advanced batteries. But, the climate law has not drastically affected trends in electric vehicle sales. Expectations are that Americans will buy one million electric cars and trucks this year, continuing a steady trend of increased market share for electric vehicles, but not close to what is being manufactured. Even Tesla is considering abandoning its $1 billion investment in a plant in Mexico despite seeing a grow rate of 51 percent in revenue last year.
The reality is that electric vehicles are too expensive for the American public. A Ford F-150 Lightning starts at about $50,000, before federal tax credits of $7,500. A base model gasoline-powered F-150 starts at less than $37,000. GM’s Chevrolet Blazer starts at around $37,000, but the electric version costs a minimum of $56,000 before tax credits. Even with those price differences, Ford says it is losing over $60,000 for every electric vehicle it makes for a total of $4.5 billion this year. Without an American supply chain, however, electric vehicles cannot qualify for the full $7,500 consumer tax credit. Without the full credit, a typical electric vehicle remains much less affordable than a conventional automobile. President Biden’s climate advisor Ali Zaidi has admitted that the administration’s programs include reducing Americans’ reliance on cars, i.e. speeding the process of getting Americans out of their personal transportation choices.
Those IRA requirements, however, do not apply to the leasing market, which explains a shift in consumer preferences. Many car shoppers lease electric vehicles instead of buying them because a Treasury Department regulation enables auto dealers to avoid the law’s made-in-America requirements for cars that they buy and lease to customers. The regulation allows shoppers to obtain the full federal tax credit for models that otherwise would not qualify. The auto dealers association calculates that more than half of electric vehicle transactions in the United States — excluding Teslas, which are not sold through traditional dealership models — are leased, a large increase from a year ago, when it was around 30 percent.
China in the Driver’s Seat
The vehicle transition is effectively subsidizing China, which leads the world in electric-car manufacturing and battery technology and is home to vast stockpiles of critical minerals needed for batteries and other components. The United States has been slow to invest in raw materials and parts needed for batteries, including mines producing minerals like cobalt, and factories making chemicals that go into batteries, partly because of Biden’s anti-mining actions. U.S. companies have even sold their interests in cobalt companies in the Democratic Republic of the Congo to Chinese companies. China is decades ahead of the United States in these endeavors, meaning it may be impossible to catch up because China’s control means it can flood markets and drop prices for minerals whenever a prospective mine is announced elsewhere, undermining the mine’s economic viability.
Chinese electric-vehicle-battery firms are becoming major export players. Contemporary Amperex Technology (CATL) and carmaker BYD are the top two producers of EV batteries in the world. Chinese battery manufacturers, however, lag behind South Korean rivals outside China, but that could change due to CATL’s growth numbers. Chinese firms are eyeing big new factory expansions in Europe and in U.S. free trade partners as a way to sidestep current and future U.S. import restrictions—much like Japanese carmakers did in the United States in the 1980s. Chinese firms have announced overseas investments of more than 200 billion yuan, $27 billion, in batteries and materials with more than 80 percent of that in Europe. China has also become the world’s top exporter of electric vehicles.
Despite China’s monstrous lead, the Biden administration is expected to issue more rules about when parts can be sourced from China and other countries, hoping for a renaissance in EV battery and vehicle manufacturing in the United States. He already has proposed regulations from the Environmental Protection Agency and the National Highway Transportation Safety Administration that encourage automakers’ investment in electric vehicle production by requiring that two-thirds of all new passenger cars sold in the United States be all-electric within a decade. If the regulations are implemented and auto manufacturers do not meet the standard, they will need to pay fines, causing vehicle prices to increase.
Conclusion
While the battery-powered vehicle market is still expanding, the pace of growth has slowed considerably. As a result, legacy automakers that had been spending heavily to build their electric car businesses due to incentives from Biden’s climate law, are now taking a more cautious approach to investments. And, they are offering discounts on electric vehicles as dealer lots are overflowing. Ford and GM are losing tens of thousands of dollars for every electric vehicle produced and sold and they have just given big raises to the United Auto Workers union. Biden’s climate law and proposed regulations pushing electric vehicles just might result in automakers needing another multi-billion dollar taxpayer bailout.
John Mozena, president of the Center for Economic Accountability, said this is a “great example” of central planning. “This is a great example of what happens when government central economic planning runs face-first into the real world of consumers having inconvenient opinions and making actual decisions. At the end of the day, it doesn’t matter how many EVs automakers build. Rather, it matters how many EVs consumers want to buy and drive.”
