Effects of Electric Vehicle Subsidies Good or Bad?

Over 90% of motorized transportation relies on burning fossil fuels as an energy source.  However, the end of such massive oil consumption may be in the foreseeable future.  Although there are several emerging technologies with the goal of conserving energy resources, this paper will focus among alternative fuels, electrification of passenger vehicles has the potential to address three of the most critical challenges of our time; reduce greenhouse gas emissions through the use of plug-in vehicles when powered by electricity instead of gasoline, depending on the electricity source; reduce and displace tailpipe emissions that negatively affect the environment; and reduce gasoline consumption to help diminish foreign dependency on oil and help to diversify transportation energy sources.  To encourage development and deployment of electrified transportation, current federal policy offers tax credits to purchasers of new plug-in hybrid electric vehicles.  The following text examines this policy in closer detail and offers an alternative approach to reducing negative externalities from energy use.

The current problem exists due to humanity's great dependence on motorized transportation.  This necessary facet encompasses almost every aspect of life in wealthier countries and is increasingly so in poorer ones (4).  Internal combustion engine vehicles (ICE) use a standard heat engine powered by gasoline or diesel fuel for propulsion which produces tailpipe emission.  Electric vehicles for personal transportation has the potential to reduce emissions and oil consumption.  Several electrification technologies exist to help achieve these goals.  Hybrid electric vehicles (HEVs), such as the Ford Fusion Hybrid, use an internal combustion engine or other propulsion source that runs on conventional or alternative fuel and an electric motor that uses energy stored in a battery.  Plug-in hybrid electric vehicles (PHEVs) such as the GM Volt, use batteries to power an electric motor and use another fuel such as gasoline or diesel, to power an internal combustion engine or other propulsion source.  All-electric vehicles (EVs) such as the Nissan Leaf, use a battery to store the electrical energy that powers the motor.  EVs are sometimes referred to as battery electric vehicles (BEVs).  EV batteries recharge by plugging the vehicle into an electric power source.  It may, however, be difficult for plug-in vehicles to penetrate the market anytime soon.  The most difficult challenge for the market adoption of electric vehicles for personal transportation is its affordability at an acceptable performance.  Currently the battery is the single largest cost item for electric transportation (5).  We will discuss batteries more in the sections to follow.

U.S. fuel economy standards are to be substantially tightened over the next several years, from the required manufacturer's fleet average of about 25.0 mpg in 2010 to an average of 35.5 mpg by 2016 (7).  The increased regulation will favor hybrid ICE-electric vehicles, especially for urban and inner-city use (4).  Additionally, Internal Revenue Code 30D, provides a credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks.  Qualified vehicles must have at least five-kilowatt hours (kWh) of battery capacity with the credit amount starting at $2,500, and increases $415 for each kWh of battery capacity up to $7,500 (2).  Recently, President Obama proposed increasing the credit to $10,000 to help meet his administration's target of one million plug-in vehicles on the road by 2015 (3).   Current and proposed subsidies both provide larger payments to vehicles with larger battery packs.  Larger battery capacity vehicles displace more gasoline, so at first one might conclude subsidizing larger battery packs benefits the environment and oil security.  However, larger batteries are more expensive and produce more manufacturing pollution.  Additionally, efficiency decreases due to the added weight, therefore increasing battery size has diminishing returns (3).  It is important to note that future plug-in vehicles with large battery packs may offer the largest benefits at the lowest cost if the right factors are present.  These factors include low-cost batteries, low-emission electricity, long battery life, and a high gasoline price (3).  A scenario like this may take decades to realize and is not guaranteed due to uncertain factors such as economic, technical, and political.

Government subsidies may allow PHEVs and EVs to gain a foothold commercially.  However, for EVs to be commercially viable, the economics must be self-sustaining.  General Motor's vice-president said, "Hybrid automobiles were being developed and deployed only to ensure compliance with fuel economy regulations, they would never comprise more than 10 percent of the U.S market, and that the price of ICE-only vehicles would have to be raised to offset their high cost of manufacture" (8).  Plug-in vehicles must lower ownership costs to offer a realistic mass-market alternative.  A recent study on EVs published in Issues in Science & Technology compared all damaging externalities with total costs and yielded these results: "If we add up all of these costs, we find thousands of dollars of damages per vehicle (gasoline or electric) that are paid by the overall population rather than only by those releasing the emissions and consuming the oil.  These costs are substantial.  But, importantly, the potential of plug-in vehicles to reduce these costs is modest, much lower than the $7,500 tax credit and small compared to ownership costs.  This is because the damages caused over the lifecycle of a vehicle are caused not only by gasoline consumption, which is reduced with plug-in vehicles, but also by emissions from battery and electricity production, which are increased with plug-in vehicles" (3).  Smaller battery capacity HEVs and PHEVs provide more air-emissions reduction and oil displacement per dollar, and offer lifetime costs competitive with ICE vehicles.  It is not clear that directing short-term subsidies toward vehicles with large battery packs would produce superior results on any of the energy objectives (3). Plug-in vehicles must lower ownership costs to offer a realistic mass-market alternative (6).  Research and development to improve batteries may be the solution.

"Batteries are the big bottleneck between our world and a green future" (9).  Electric vehicles were more common at the beginning of the twentieth century than ICE-powered vehicles.  They were recognized, and still are, as being superior in every respect except those associated with the storage capacity of their batteries (4).  The economic viability for plug-in vehicles is contingent upon the availability of cost-effective batteries with high power and energy density.  A Canadian industry-government task force estimated acceptable BEVs cost roughly twice that of a comparable ICE vehicle almost entirely because of battery costs.  Also in the estimation, a projection based on technology improvements and economies of scale still had BEVs costing 50% more than conventional vehicles (10).  Increased government funding to battery research and development could potentially improve electrical energy storage, resulting in more energy efficient transportation.

Current policy on subsidizing EVs does not achieve the desired effect, and revisions must be made.  The plug-in vehicle tax credit incentivizes consumer behavior in a way that does not reduce the negative externalities from energy use.  This research suggests government increase funding to electric-energy storage advancement.

References

1. United States Department of Energy.  Energy Efficiency and Renewable Energy.  U.S. Department of Energy, n.d. Web. 10 Mar. 2014

2. Internal Revenue Service IRS.gov. n.d. Web 14 Mar. 2014

3. Michalek, Jeremy J., Mikhail Chester, and Constantine Samaras.  "Getting The Most Out of Electric Vehicle Subsidies."  Issues In Science & Technology 28.4 (2012): 25-27.  Academic Search Premier.  Web.  17 Apr. 2014.  

4. Gilbert, Richard.  "Grid Connections, Batteries, And On-Board Generation:  Sources For Electric Traction."  Journal Of Urban Technology 17.3 (2010):  53-66.  Academic Search Premier.  Web 17 Apr. 2014.

5. Viswanathan, Vilayanur V., and Michael Kintner-Meyer. "Second Use of Transportation Batteries:  Maximizing The Value Of Batteries For Transportation And Grid Services."  IEEE Transactions On Vehicular Technology 60.7 (2011):  2963-2970.  Academic Search Premier.  Web. 17 Apr. 2014.

6. Michalek, Jeremy J., et al.  "Valuation Of Plug-In Vehicle Life-Cycle Air Emissions And Oil Displacement Benefits."  Proceedings Of The National Academy Of Sciences Of The United State Of America 108.40 (2011):  16554-16558.  Academic Search Premier.  Web. 17 Apr. 2014.

7. White House, Press Background Briefing on White House Announcement on Auto Emissions and Efficiency Standards by Senior Administration Official (Washington, D.C.:  Office of the Press Secretary to the President, May 19, 2009), http://www.whitehouse.gov/the_press_office/background_briefing_on_auto_emissions_and_efficiency_standards/.  Accessed January 26, 2011.

8. Terlep, "GM Exec:  Hybrids Unlikely To Take More Than 10% Of US Market," Wall Street Journal (February 13 2010), http://www.marketwatch.com/story/gm-exechybrids-unlikely-to-takemorethan-10-of-us-market-2010-02-3.  Accessed January 26, 2011.

9. Blankenhorn, "Battery Evolution Overwhelms Mass Production," SmartPlanet (February 2 2010), http://www.smartplanet.com/technology/blog/thinking-tech/battery-evolution-overwhelmsmass-production/2937/.  Accessed January 26, 2011.

10. EVTRM Task Force, Electric Vehicle Technology Road Map for Canada (Ottawa:  Natural Resources Canada, 2010), http://canmetenergycanmetenergie.nrcanrncan.gc.ca/eng/transportation/_electric_vehicles/evtrm.html.  Accessed January 26,, 2011.