How Sustainable Are Federal Subsidies to Tesla?

A shift from heavy reliance on fossil fuels toward renewable energy aided by subsidies is essential to limit the risks that climate change poses for the environment, public health and the economy.

by Michael E. Kraft, Tribune News Service / July 28, 2016

(TNS) -- Should federal subsidies for Tesla and other electric vehicle makers be ended? For some, the answer is a resounding yes. They dislike such subsidies intensely.

Others of us think these and related subsidies are vital to jump-start the electric vehicle market and thus help to put the nation on a solid path to sustainable energy use.

A shift from heavy reliance on fossil fuels is essential to limit the risks that climate change poses for the environment, public health and the economy.

Critics of such subsidies say that we ought to let the free market reign. In general, they are right. Governments should let competitive markets do their job and foster the kind of innovations and economic changes we need.

Most economists would acknowledge, however, that normal market forces are unlikely to promote effective solutions to collective action problems such as climate change, where most of the negative effects occur decades from now.

Moreover, there is no level playing field in energy use, even in the short term.

Free-market competition has been greatly restricted by the dominant fossil fuel industry that supplies about 80 percent of our energy. In addition, that industry long benefitted from far more generous federal subsidies than those now given to renewable energy enterprises.

The bias does not end there. We heavily subsidize highways over other transportation alternatives, such as urban light rail systems.

Doing so contributes to wasted energy, highway congestion, lost time and poor air quality. These are hardly positive social outcomes.

Current low gasoline taxes further distort the market. The federal government has not raised the gasoline tax since 1993. Even in the face of enormous backlogs of needed highway improvements, politicians are loath to raise the gas tax to fund such projects.

Persistently low gas taxes in effect subsidize use of fossil fuels. If we taxed carbon-based fuels to reflect their full social costs, even if all revenues are returned to the public, we could correct these market failures and encourage use of competitive renewable energy sources.

Where do the so-called Tesla subsidies come into the picture? Current federal financial incentives for all electric vehicles were designed to promote one of the most promising of green technologies, offering cleaner air and lower greenhouse gas emissions than produced with gasoline-powered vehicles.

These subsidies were to help establish a new technology, not permanently subsidize electric cars. To that end, the electric vehicle tax credits are phased out as sales increase. In light of the pre-orders for its Model 3, Tesla’s credits may soon disappear.

Other federal and state incentives, such as building of electrical charging stations, benefit Tesla and other electric vehicle makers.

Current incentives also encourage development of new energy storage technologies, which are critical to further expansion of wind and solar generating facilities.

Electric vehicles cannot achieve their full potential as long as we produce the electricity that fuels them by burning fossil fuels.

Are these subsidies justifiable? The critics say no. But we should ask whether these and other subsidies meet a common-sense test of serving the larger public interest.

That’s not an easy question to answer. We would have to weigh the full array of both short-term and long-term benefits in comparison to the cost of subsidies.

If done fairly, such an assessment would likely justify keeping the “Tesla subsidies” because of the enormous costs that use of fossil fuels imposes on society.

Greatly expanding use of renewable energy resources is very much in our nation’s interest, and governmental stimulus through well-targeted subsidies and improved market forces should help steer us in the right direction.

They also may produce substantial economic gains by fostering development of new technologies and products that create jobs and that we can sell in a competitive global marketplace that takes climate change seriously.

©2016 Tribune Content Agency, LLC

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