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Sunday, September 23, 2012

CBO on Electric Cars – Don’t Buy Them!

The Congressional Budget Office (CBO) did a good job of shredding the electric car industry and the government’s role in its evolution with this report (Link):

 

I’m not knocking electric cars, I’m knocking DC’s role in this industry. Washington has provided the loot necessary for research on battery design, it has committed to up to $25Bn of soft loans to the auto industry and it is subsidizing every electric car that is sold. Without the massive support from our “rich” Uncle Sam there would be no electric car industry in the USA. The question is, “Is this money well spent?”

The government’s role with electric cars goes back to the 2009 emergency spending program ARRA (American Recovery and Reinvestment Act):

ARRA provided $2 billion in funding to the Department of Energy (DOE) for grants under that program. Of that amount, $1.5 billion was awarded to battery producers, intermediate suppliers for those producers, and recyclers of vehicle batteries; the other $500 million was awarded to manufacturers of components for electric vehicles and intermediate suppliers of that manufacturing.

DOE’s Transportation Electrification Initiative has made commitments for $400 million in grants for demonstration, deployment, and education projects involving electric vehicles. (Party Time!)

I think it’s important to note that the original objective of supporting electric car production was that it was a plain old economic stimulus. This was dropping money from a helicopter in the hope that it (and all the other money) would stabilize a rapidly declining economy. Another motivation for the federal investment/subsidy was that it created a back-door support package for the auto industry that was falling off a cliff back then.

Washington also agreed to provide $25Bn in cheap loans to the companies who make electric cars. So far, $8.4Bn has been committed. The rest of the money will be doled out before 2019. The money is being lent by the Federal Financing Bank (FFB). Because the loans are guaranteed by DOE, there is no risk of repayment to FFB. As a result, the loans are excluded from the calculation of the debt limit. The 25 ‘large’ is all “off balance sheet”. A very neat trick indeed!

Who is getting the billions of soft loans? What are the terms for these advances? From the FFB (Link):

 

 

 

The CBO has concluded that electric cars are not a “smart” choice for consumers. From the report:

Because of differences in vehicle design and technology, electric vehicles cost thousands of dollars more to purchase than conventional vehicles of comparable size and performance.

Okay, the cars cost too much. What does the government do? It subsidizes the inefficiency. It pays a cash incentive for each vehicle sold. The subsidy is based on the size of the battery; it ranges from $2,500 to $7,500. But the subsidy is still not enough to make electric cars competitive:

Given current prices for vehicles and fuel, in most cases the existing tax credits do not fully offset the higher lifetime costs of an electric vehicle compared with those of an equivalent conventional vehicle or traditional hybrid.

 

CBO concluded:

 

The tax credits would still need to be about 50 percent higher than they are now to fully offset the higher lifetime costs of an all-electric vehicle.

 

I know that someone is thinking that gas prices are going up, and when they do, electric cars will prove to be a smart thing. I’m not so sure. The CBO provided a breakeven on this line of thinking. If gas prices go north of $6, electric starts to make sense. When gas goes to $10, all of the vehicles break even to conventional autos. The problem I have with this line of reasoning is that if gas were to go to $8, the US economy (and the rest of the world) would come to an economic halt. In that environment a fellow would be grinning if he had an electric car, but he would probably be out of work, and most of the stores he would want to drive to would be closed.  What good does the electric car create for him if things go very bad? Not much.

There is a final argument that could be put forward in support for the mega investment the taxpayers are making in electric vehicles. The environment. Electric cars are “good” for the environment because they don’t produce CO2 gases, right? Actually, that’s wrong. The conclusion from the CBO:

 

  •  In the short term, the tax credits are likely to have little or no impact on total gasoline consumption and greenhouse gas emissions.

  •  In the long term, the credits might decrease gasoline use and emissions, but how cost-effectively they would do so is unknown.

 
DC is on all sides of this mess. It is paying subsidies for inefficient and over priced cars. It is creating free grants to support an uncompetitive product. It is lending very big money (with long maturities and at low rates) to industry players. Please don’t tell me that car companies don’t go bankrupt. These loans go out to 2034.
 
The CBO had a few recommendations on what to do with Washington’s headache with electric cars. The one that will probably be adopted is this one:
 

A larger tax credit is needed to make electric vehicles cost-competitive with higher-fuel-economy conventional vehicles.

 
That’s the solution? It’s just sending more money down a rat hole.
 
 

Comments

  1. Small.Business.Guy.1 says:

    Our federal government would have been a hell of a lot smarter if we had taken that $25 bil and done the following:
    1) Everybody in the last 4 years who had bought a 3-D Printer or CNC unit (individuals & businesses less than $5 mil a year in annual revenue) is eligible.
    2) Every one of them gets $250k per, NO strings attached. Limited to the first valid 100k individuals/corporations. Limit 1 check per. Use it however you want. Want to go to Vegas, that’s fine. Put some dealers at the tables back to work. Put a smile on Harry’s face.
    3) 50% of the money will be wasted, 30% will be used and maybe something good will come out of it. But it’s that last 20% that you live for. Those folks will do all sorts of wildly creative stuff, and vastly advance the technology.
    4) $25 Bil / $250k = 100,000 checks for $250k each.

    What do you want to bet will get us a better return on our $25 bil in money? – 3-D/CNC for the Masses, or Electric Cars?

  2. good info,but not much new to me,been a mechanic my whole life(63).When toyota first came out with Prius some bragged how it was “green”.Problem was is that when the battery was replaced the disposal of old battery made it dirtyer than a FULL size SUV as far as carbon footprint goes.On top of that the cost of the new battery cost far more than the gas it saved.And to make matters worse,everyone has seen a burning car on the side of road because of an electrical malfuction,that black smoke you see,so can you imagine the fire with these electric cars that they suposedly train fireman to deal with.You are putting your family in danger ir you put them in an electric car.I could go on,but you get the point.Thanks government motors.

  3. There is another, insidious boogeyman in the equation: “Smart Meters.” Most electric companies are lying to, or misleading, customers about the real intent of these meters. They are not to save the relative pittance of meter readers and vehicles. They are to establish “Demand metering” at residences that mimics the way electricity is billed to large commercial customers. Its other name is “time of day” metering or billing.

    Utilities have to have enough generation capacity to be able to meet the highest usage of the day even if it does not last very long. That is why many utilities keep gas-fired generators in reserve. Bottom line: if you use electricity during peak-demand hours at a volume (think analogous to water flow) higher than what you use during the rest of the day, or higher than some pre-set amount, your charge per kilowatt hour will be much higher than that for the rest of the day. It is a logical method of balancing load, by disincentivizing commercial consumers (factories in particular) from using regular production power ding peak hours. Hence many such business have generators to shed load during that time.

    Now we get to Screw the Retail Consumer. What time of day do you think electric-car drivers are likely to plug into changing stations? Mmmm… say, dinner-time? Remember, arrival-at-work time won’t cut it once the number of cars outstrips the number of charging stations, so morning charging at the office is very iffy. The Nanny solution will be to send a signal to your charging station, turning it on at the best time for the utility. Just hope that either you don’t have a medical or other emergency during those hours, or that you have enough juice to unplug and bail. Regardless, your choice about when you use electricity is about to evaporate, unless you are willing to pay a stiff penalty in order to use it whenever you wish.

    • Rick, time of day metering was always coming to the electrical industry. Why should you not pay more to run your air conditioner at full bore during a heat wave? Utilities have to buy power in advance of when they need it to get premium pricing. Spikes in usage beyond what was expected mean the utility has to purchase on the spot market (see also, laws of supply and demand) where the price can be VERY high. No one can predict the weather, so peak power on a hot day can cost an enormous amount.

      If the utility has to purchase extra power on the spot market, why should they not pass that cost on to you, the user? Why are you a special snowflake and that business on Main Street isn’t?

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  5. rick,been at same place 30 years,meter worked fine till they put new type in that reader drives by,gets signal.Next thing i know electric co. gives me PRORATED bill saying theyre meter malfunctioned and then changed meter.I smell a rat

  6. One thing I seldom hear mentioned in these electric car debates is the source for the electric power itself. This clean electric power myth is just that, a myth. The electric power itself has to be generated, and that process is anything but clean. All of the power generating methods have their own dirt associated with them. Most people are blissfully ignorant of the fact that a mjority of our electricity is generated by coal and oil. So all you’re doing with an electric car is replacing one source of “dirty” energy, with aother source of “dirty” energy, but with a nice disguise. If I hear another person brag about how nice and green their electric car is, I might just have to puke on their $1,000 Italian leather loafers.

  7. Jim,MtnViewCA,USA says:

    The link below has a roundup of interesting articles on this topic. I snipped a bit from one article that describes the impact of gov’t money–our tax dollars–…in the service of crony capitalism:
    http://pjmedia.com/instapundit/151422/
    “….[venture capitalist Paul Holland] described his feelings when heard about the billions up for grabs.
    “He came in to do his talk and opened his talk with, ‘I’m Matt Rogers I am the Special Assistant to the Secretary of Energy and I have $134 billion that I have to disperse between now and the end of December,’” Holland told the audience. “So upon hearing that I sent an email to my partners that said Matt Rogers is about to get treated like a hooker dropped into a prison exercise yard.”

    Holland continued: “And I had the lack of judgment to go up and share that with him and the other people who were all standing around him…Fortunately for me they all laughed and thought it was funny.”

    Hey, it’s not like it was THEIR money being wasted on this carp.

  8. And how much would gasoline really cost if that wasn’t subsidized and bought with fiat dollars?
    What happens to oil and gas prices when the dollar loses it’s reserve status?
    While it’s true an electric car is not cost effective now,who knows if it would be in a true free market environment.The real problem is we don’t have a true free market, everything is manipulated and interfered with by our mighty rulers in Washington.

    • Jim,MtnViewCa, USA says:

      Subsidized gas?
      Depending on the state you live in, aren’t the taxes paid on gas a double digit percentage? Couldn’t gas be substantially cheaper if Feds, state and local gov’s were willing to reduce their cut?

      • True cost of gas should, but does not, include the cost of the $800B defense budget, without which we would not have access to all of this ‘cheap’ oil.

  9. To Robert F: Great point, very seldom made. The cost and “carbon footprint” of electricity generation needed for electric cars is widely ignored

  10. Why is when subsidies for alternatives to dirty old tech are discussed everyone conveniently forgets the massive subsidies the oil & gas industry gets from the Feds?

    • Small.Business.Guy.1 says:

      Cool. Deal. Let’s do the following:

      1) Get rid of all subsidies for both oil and gas, plus all the subsidies for ‘alternative’ energy.
      2) Let’s also get rid of all the federal taxes charged on end users (read: consumers) of oil and gas. Say, all federal taxes on gasoline.

      In simple terms, level out the playing field. Figure out the true costs of each type of energy production at the consumer level.

      Bet we’ll find out that those ‘massive’ subsidies to the oil and gas industry turns out to only be a portion of the amount of federal taxes applied at the consumer level to oil and gas products (like gasoline taxes). The rest is all a rakeoff to support a massive, semi functional federal bureaucracy.

      IMO, the results will be:
      1) Consumers get a big win.
      2) Auto industry gets a big win.
      3) Federal government takes it in the shorts
      4) The entire oil & gas business gets a big win, because their federal paperwork (read: federal tax compliance departments) just got to be a whole lot less. And their product prices are no longer being artificially inflated by the application of federal government taxes.
      5) The alternative energy business just got kicked to the curb, because now they are really uneconomic, and no subsidies.
      6) Instead of the federal pols having a giant slush fund of federal MFT money to play with, the money stays in the private sector to be used productively.

      Where’s the bad?

    • Why is it that liberals refer to legitimate deductions from taxable income for the cost of producing oil “subsidies”, but want to call federal gifts of other people’s money to non-workers “compensation” as if the unemployed somehow earned that money?

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  13. @Small.Business.Guy.1 “1) Get rid of all subsidies for both oil and gas, plus all the subsidies for ‘alternative’ energy.”

    I agree! But why stop there? Get rid of all subsidies, including farm subsudies, as well as all legal tax loopholes, such as the “I dig it” loophole that Romney used to give $100 million to his children and grandchildren and avoid all gift and estate taxes:

    http://www.bloomberg.com/news/2012-09-27/romney-i-dig-it-trust-gives-heirs-triple-benefit.html

    (That seems fair after his remarks at a May fundraiser about the nearly one-half of Americans who pay no income taxes are “dependent upon government” and “believe that they are victims.” He pays his full 14%! What a guy! ;^)

    If the U.S. could end all subsidies & tax loop holes and cancel all entitlements, the entire debt crisis would evaporate! (There could be some unintended consequences, though. Americans might start rioting like the Spanish and Greeks. ;^)

    • You may think Romney underpaid at 14%, but it doesn’t change the fact that he was entirely accurate in his comments, and that nearly half of all tax filers in the US didn’t pay one thin dime in federal income tax last year. Romney paid millions in federal income tax while 47% got a free ride.
      The Top 1%, whom all the liberals are fond of crucifying, made 13.4% of the 2009 income and paid 26.7% of all the federal taxes that year, including income, sales and corporate taxes too. That’s almost exactly double their proportionate share of the income in taxes.
      There’s a lot of interesting data in the CBO report at this link:
      http://www.cbo.gov/sites/default/files/cbofiles/attachments/43373-06-11-HouseholdIncomeandFedTaxes.pdf

  14. Gas already costs more than $8 a gallon in other parts of the world. $25B is a small cost (and it’s earning some interest on the loans so it’s not lost money) for the increase in R&D that will benefit us all in the future.

    Let’s get rid of FED printing, lower the defense budget, and rain in medicare/caid before we get too bent out of shape on loans that spur development.

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