Should We Scrap Federal Tax Credits for Electric Cars?

Studies have shown that an even larger tax credit might be necessary to make up for the higher cost of electric vehicles, especially with gasoline’s current low price.

by Michael E. Kraft, Tribune News Service / November 12, 2015

(TNS) -- Electric vehicles are among the most promising of green technologies, offering cleaner air and lower greenhouse gas emissions than those produced with gasoline-powered vehicles.

But they continue to face consumer resistance in many parts of the country, especially because of the relatively low range of miles they can travel between charges. Federal and state economic incentives in the form of tax credits are one way to help advance the technology and build consumer confidence.

These incentives differ from those that applied previously to hybrid vehicles. The new tax credits — up to $7,500 is available in federal incentives, and up to $5,000 in state credits can be claimed in some places — are only available for newly purchased, fully electric or plug-in hybrid vehicles.

The amount of the credit depends on the battery size, and it is phased out as sales increase. That is, the credit is designed to push a new technology, not to permanently subsidize electric cars.

Some complain that the tax credits are unnecessary because they benefit affluent buyers who can afford costly electric vehicles. This may be true for buyers of the Tesla Model S or the BMW i8, but the credit also is available for less expensive models, such as the Nissan Leaf, Chevy Volt and Ford Focus Electric.

Others object to the seemingly high value of the tax credits. Yet studies have shown that an even larger tax credit might be necessary to make up for the higher cost of electric vehicles, especially with gasoline’s current low price.

Sales of electric vehicles have been rising but remain low, registering at about 10,000 per month compared to the 1.4 million conventional cars and light trucks sold in the same time. Thus, electric vehicles constitute less than 1 percent of the market. If we want that market to grow, with the benefits of reduced air pollution, improved public health and lower greenhouse gas emissions, we need to continue the credits or offer comparable incentives.

Why should government favor one technology over another through economic incentives? The idea is to foster a transition to greener energy sources.

That’s also the reason to encourage many new transportation technologies, especially in states like California that otherwise cannot hope to achieve national clean air standards. A combination of cleaner cars and better mass transit alternatives could have a major impact on urban air quality.

Yes, the electricity that runs electric vehicles may come from power plants fired by coal and natural gas, but those generating facilities typically are not located in urban cores.

And as a greater percentage of electricity is produced from wind and solar energy, and as coal-fired power plants are phased out or cleaned up, the overall contribution to air pollution and greenhouse gas emissions should come down.

Consider also that we rely overwhelmingly, about 83 percent, on fossil fuels as our energy source today, and those fuels remain heavily subsidized. There is no completely free market here.

As one example, the federal gasoline tax has not been increased since 1993 even though it now fails to generate sufficient revenue to pay for highway maintenance. States also are reluctant to raise the gas tax. Yet continued low gas taxes are another subsidy for drivers of conventional vehicles.

Ultimately, the question of whether to continue the electric vehicle tax credit comes down to what we want to achieve and how we prefer to do it.

Some favor subsidies for green technologies to promote their development and use even if some economic inequities result. Others think we ought to tax polluting technologies instead, such as through a carbon tax on fossil fuels.

A carbon tax is the smarter choice and it could stimulate sufficient market forces to promote many different green technologies, including electric vehicles. However, at the moment, it lacks sufficient political and public support. Until that environment changes, keeping the electric vehicle tax credit makes sense.

©2015 Michael Kraft Distributed by Tribune Content Agency, LLC.