The Folly of Electric Vehicle Mandates and Subsidies

All-battery electric vehicles (BEVs) have been hailed as a breakthrough innovation that will end the reign of inefficient, emission-spewing gasoline-powered vehicles — in the same manner that gasoline-powered vehicles put the horse and buggy out to pasture at the turn of the last century. While a nice metaphor, the view reflects a lack of understanding of the economics of electric vehicles.  

First, electric vehicles are nothing new. Dating back to 1884 (a decade before the first gasoline-powered vehicle), they lost out to gas-powered vehicles due to their limited range, lack of a charging infrastructure, and high price tag. Interestingly, even with the recent resurgence of electric vehicles due to advances in electric motors and battery technology, those limiting factors still exist today. 

Second, electric vehicles (as can also be said for the once venerable horse and buggy) lost out in a competition with gasoline-powered cars in a free market. By contrast, electric vehicles today don’t exist in a free market, so arguing that they will supplant gasoline-powered vehicles because they are the product of groundbreaking innovation is simplistic at best. The truth is electric vehicles are heavily subsidized by federal and state governments. And government mandates for the conversion to electric vehicles, with short timelines of a decade or two, have forced automobile manufacturers to produce far more electric vehicles, often at huge losses, than the free market would absorb on its own. While consumers may get great deals on electric vehicles through subsidies, there are massive hidden costs being borne by taxpayers who are subsidizing these deals. 

A few numbers illustrate the magnitude of these costs. According to a recent report authored by Brent Bennett and Jason Isaac of the Texas Public Policy Foundation, the cost of electricity and charging equipment for a battery electric vehicle (BEV) averaged out over 10 years and 120,000 miles is equivalent to about $2.59 per gallon. However, if the costs of the hundreds of billions of dollars of federal and state subsidies are added, the true cost of fueling a BEV rises to the equivalent of $17.33 per gallon equivalent — paid for in part by the BEV owner, but much more by taxpayers who don’t even own a BEV. This patently unfair arrangement argues strongly against giving politicians a say in what types of vehicles Americans should purchase. 

If a product is truly exceptional, the market will adopt it once consumers see its tangible benefits. For BEVs, these benefits include their providing a “clean sheet” to designers to produce new, reimagined interior designs built on top of a flat battery pack with no driveshaft tunnel, along with motors that can be placed somewhere other than the traditional gasoline engine. From an exterior design perspective, designers are no longer constrained (for example, by large grilles needed for cooling a gasoline engine, catalytic converters, or exhaust manifolds), which allows them to implement new designs that provide larger interiors in smaller vehicles. Another advantage to consumers is they can charge their BEVs at home, which is often considerably cheaper than fueling their gasoline-powered cars. So these are a few positive benefits of BEVs. 

However, BEV owners most often cite protecting the environment as a major reason for purchasing a BEV – which is also the primary reason for government mandates. The claim, however, is highly misleading. According to the Alternative Fuels Data Center of the U.S. Department of Energy (DoE), the national average annual emissions per BEV is 2,727 pounds of CO₂ equivalent (the BEV doesn’t produce any emissions on its own, but the source of its energy usually does). This is a significant reduction from that of a fully gasoline-powered vehicle, which produces an average of 12,594 pounds of CO₂ equivalent.  

But what is not factored into the DoE’s calculations above is the energy intensive process of producing the lithium-ion battery which, for a relatively small 80 kWh battery, is estimated to be between 2.5 and 16 metric tons of CO₂ for each battery pack (2.5 metric tons is equal to about 5,500 pounds, and 16 metric tons is equal to about 35,000 pounds). This means that during the battery production process an average BEV can generate anywhere from 8,227 to 37,727 pounds of CO₂ equivalent before it is driven.  

So with the goal of reducing carbon emissions while also considering the cost to consumers, are there other alternatives available? Thankfully, there are two viable options: the full hybrid vehicle (which produces 6,898 pounds of CO₂ equivalent), and the plug-in hybrid vehicle (PHEV) (which produces 4,763 pounds of CO₂ equivalent). With a full hybrid, an electric motor powered by a larger lithium-ion battery (charged by the gasoline engine and regenerative breaking) can move the vehicle short distances on electric power only, which helps significantly reduce fuel consumption and CO₂ emissions. Another type of hybrid, called a mild hybrid, features a small battery that assists the gasoline engine when accelerating. Fuel and CO₂ emissions savings are small relative to a full hybrid so that’s why it is not recommended here. Like a full hybrid, however, it doesn’t require charging. 

Relative to a full hybrid, a BEV would have to operate for 2 to 9 years before any savings in CO₂ emissions can be realized. Compared to PHEVs, an even longer period of 4 to 19 years would be required for the BEV to produce lower overall emissions — i.e. potentially the practical lifetime of the vehicle! This is, indeed, the “dirty little secret” that you rarely hear from BEV advocates. 

In truth, PHEVs and full hybrids are excellent options to reduce CO₂ emissions relative to BEVs. Both eliminate the BEV’s range anxiety and critical dependence on a home or public chargers. As mentioned, full hybrids have no charging requirements and are best for those who don’t have a dependable charging source or simply don’t want the added responsibility of charging their vehicle. While PHEVs operate most efficiently and are more economical to fuel when regularly charged, in the absence of a charger the gasoline engine can charge the car when operating at higher speeds (this is generally not recommended, as a PHEV effectively becomes a far more expensive full hybrid when not regularly charged). 

One could argue against subsidies and mandates for motor vehicles of any kind. Though well meaning, they distort price signals that lead to the efficient allocation of resources and thus lower overall prosperity, punishing those who either don’t or are unable to participate. To a large degree,  electric vehicle subsidies are a transfer of wealth from lower income taxpayers to higher income individuals. However, if the government is going to mandate that consumers purchase BEVs, then the government needs to ensure there is adequate infrastructure to fully support BEVs. They have not. They have put the proverbial cart before the horse by subsidizing BEV purchases instead of building (or ensuring) a robust charging infrastructure that would make BEVs more attractive for consumers without involving subsidies. 

Had the federal government and states instead promoted PHEVs or full hybrid vehicles, then the consumer would have benefited without being inconvenienced. Full hybrids provide superior gas mileage to all-gasoline powered vehicles, and PHEVs provide even greater benefit due to their larger batteries that can be charged at home inexpensively and can power the average daily commute entirely under electric power. Politicians who wish to protect the environment and effectively serve their constituents would do well to shift their focus to PHEVs and full hybrids, allowing the currently nascent public charging infrastructure to grow at its own pace to serve PHEVs and BEVs over time based on market demand instead of ideologically driven government mandates.