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The government should pay people for driving electric cars, not for buying them

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The government should pay people for driving electric cars, not for buying them

A new study suggests that replacing broad subsidies with targeted ones offers a bigger carbon-savings bang for the public buck.
June 13, 2023

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The current design of government subsidies for purchasing electric vehicles (EVs) isn’t economically efficient, according to a new analysis. The study suggests that replacing broad-based subsidies with more targeted rather ones would offer a bigger carbon-savings bang for the public buck.

Cars, vans, and SUVs are responsible for almost half of transportation-related greenhouse gas emissions. Governments from Canada to Norway to China aim to lower these emissions via subsidies for the purchase of EVs. In the United States, the subsidy takes the form of a $7,500 tax credit.

EVs are more expensive than gasoline cars, so such policies have an obvious logic. But digging into the details paints a different picture. “Subsidizing any and every electric car is far from the most cost effective way to lower emissions,” says study team member Ashley Nunes, director of federal climate and energy policy at the Breakthrough Institute.

Nunes and his colleagues set out to evaluate the carbon emissions saved per dollar of government spending on EV subsidies. Good governance requires maximizing this return on investment, they argue.

The team assembled a variety of sources of publicly available data on the costs, resale value, manufacturing emissions, and fuel emissions for both EVs and gasoline cars. Unlike many previous studies, however, they also folded in an analysis of battery replacement, which adds a hefty chunk to both the cost of ownership and the emissions burden of EVs.

 

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The return on investment depends on two major variables: how many miles EVs are driven and how often their batteries must be replaced, the researchers report in the journal Sustainable Cities and Society.

Miles driven matter because EVs are more carbon-intensive to manufacture than gasoline cars, but less carbon-intensive to drive. So EVs have to “pay off” this carbon debt from manufacturing with miles on the road.

The more miles an EV covers, the better it looks in comparison to a gasoline car. But EV batteries degrade both with miles traveled and, especially, with time. So if an EV isn’t driven very many miles in a year, the need for new batteries will make it harder and harder to pay off the carbon debt of manufacturing.

The upshot is that existing EV subsidies aren’t a very good deal—neither for the government nor for the EV owner—when they facilitate the purchase of cars that aren’t driven many miles per year. And there’s evidence that the subsidies often result in the purchase of second cars that are used as a “backup” by relatively wealthy households.

The analysis also suggests that the cost—to both the government and individual car owners—remains surprisingly high even with a decarbonized electrical grid. “EV proponents often talk about cleaning up the grid as a way to make EVs even cleaner,” Nunes says. “Our work shows you could have a grid that was 100% renewable, and EV subsidies would be economically inefficient.”

Nunes and his colleagues argue that rather than broad-based subsidies available to all buyers, EV subsidies should be targeted to people who drive a lot of miles—taxi or ride-share drivers, or single-vehicle households. These subsidies are more likely to reduce emissions and have net financial benefits for owners, their analysis suggests.

“Rewarding utilization—not just ownership—is crucial, if EVs are to deliver on the green promises. We don’t want consumers just buying these cars, we want these [cars] to rack up miles on that road that would otherwise be covered in a gas car,” Nunes says.

Targeted subsidies would also deliver more benefits to people with lower incomes and people of color, who are disproportionately represented among taxi and ride share drivers. Making EV subsidies refunds rather than nonrefundable tax credits would also help people lower on the income scale and encourage EV adoption by these households.

The general findings likely apply to other countries as well, says Nunes, “because EVs are—compared to [gasoline] vehicles—cleaner to drive, not to manufacture. So the more you drive the EV, the more climate benefits you rack up.”

Source: Woodley L. et al.  “Targeted electric vehicle procurement incentives facilitate efficient abatement cost outcomes.” Sustainable Cities and Society 2023.

Top Image: Francesco Foianesi via Flickr.

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