Congressional Budget Office Says More Electric Car Subsidies

Tax and rebate have helped many buy electric cars, but will more incentives drive a wider mass adoption of electric cars?

Tax and rebate have helped many buy electric cars, but will more incentives drive a wider mass adoption of electric cars?

The Congressional Budget Office, CBO has recently released a report saying we need to more than double subsidies in order to make electric cars cost competitive.

The Congressional Budget Office estimates that federal policies to promote the manufacture and purchase of electric vehicles will have a budget of about $7.5 billion through 2019. One fourth of that budget goes to tax credits for buying electric vehicles, and according to the CBO are likely to have the greatest impact on vehicle sales. The CBO defines electric vehicles as Plug-in hybrid vehicles powered by an internal combustion engine that can run on gasoline or other fuel that feed an electric motor powered in part by an externally rechargeable battery, the rest is All-electric vehicles, also known as battery electric vehicles that run entirely on battery power.

CBO Feels EVs Too Expensive. The CBO’s calculations are based on today’s energy prices and feels at the current electric vehicle and energy prices, the lifetime costs are generally higher than those of a conventional vehicle or traditional hybrid, even with the tax credits. What this seemingly fails to address is the ever-rising price of petroleum.

With this logic, an average plug-in hybrid vehicle with a 16 kWh battery pack is eligible for the maximum tax credit but would require more than $12,000 to have roughly the same lifetime costs as a comparable conventional or traditional hybrid vehicle.

The cost logic to the government is calculated by electric vehicle purchases using less gasoline and producing fewer emissions than traditional cars, thanks to the tax credit. The cost to the government of those reductions in gasoline consumption and emissions can vary widely and is explained in a graph. The graph basically points to a longer-term strategy that reduces stress on the economy and the government.

Tax Credit 101. The tax credit available starts at $2,500 for a 4 kWh battery vehicle, which increases $417 for every kWh, up to a maximum of $7,500. The tax credit is subtracted from the federal income tax owned, but is not a refundable credit. Buyers won’t receive the difference as a refund if the tax credit exceeds their tax liability making those with little income tax only receiving a small proportion of the credit. Confused yet?

So do we need more tax credits in order to spur cheaper to operate electric vehicles in the long run? If the drain is less on government and overall budget than just drilling for more and more difficult to reach petroleum, this would be a an easy case but in an election year of particularly low IQ, we can expect the Congressional Budget Office numbers will be twisted around.