• Dec 6th 2010 at 4:35PM
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Can Governments Afford To Incentivise Electric Cars?

Live in the right part of California and work for the right company and you might be able to buy the new Nissan Leaf for as little as $12,500, as Autoblog has reported, due to the raft of incentives that are available for buyers of the little battery car and other high-mileage, low-emission products.

In recent years, lawmakers have been racing to come up with incentives designed to encourage motorists to migrate to clean, efficient vehicles. It's a clearly noble effort, but one that deserves a closer look in an era of fiscal restraint.

Several states are looking at a more direct form of taxation: a per-mile usage fee on battery-based vehicles.
The feds, and most states offering such incentives, have put caps on their zero-emission incentive programs, and most will vanish by mid-decade. But, ironically, if these programs do what they're intended to, the fiscal impact could be felt for years to come. It turns out that going green could plunge state and federal balance sheets into the red.

The short-term costs are already potentially significant. At the federal level, a $7,500 tax credit could drain billions of dollars a year out of the Treasury if major automakers come even close to their battery car sales targets by mid-decade.

Such cash incentives – along with other perks, such as access to California's HOV lanes – are designed to motivate the move to vehicles like the Leaf and the new Chevrolet Volt. Once momentum starts building, these givebacks can be phased out, proponents contend. But they're missing a big part of the picture.

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Paul EisensteinPaul A. Eisenstein is Publisher of TheDetroitBureau.com, and a 30-year veteran of the automotive beat. His editorials bring his unique perspective and deep understanding of the auto world to Autoblog readers on a regular basis.

Fuel taxes are a major source of government revenues. The feds take 18.4 cents for every gallon of gasoline or diesel you pump. Wisconsin adds another 32.1 cents on gasoline – the highest figure in the country, while the diesel tax peaks in Pennsylvania at 35.1 cents. A little math suggests that the nation's fleet of cars, crossover light and heavy trucks pump more than $100 billion in excise taxes back into local, state and federal budgets each year.

Put just a million battery cars on the road and you're slicing perhaps as much as $500 million out of that revenue stream. In states like California that routinely struggle to balance their budgets, the impact could be substantial.

In January, Britain's combined fuel taxes will add up to about $3.51 a gallon.
And even if the switch to battery power doesn't go quite as well as proponents plan, the push for higher Corporate Average Fuel Economy, or CAFE, standards will only complicate matters. The old 27.5-mpg mandate will hit 35 by 2016 and, if the White House has its way, that will surge, yet again, to perhaps 62 mpg by 2025. On a per mile basis, that would translate into a 60 percent reduction in the fuel tax the average motorist pays.

In Europe, where they're talking about new standards equivalent to 109 mpg, the impact would be even more massive. As much as two-thirds of what Europeans pay at the pump already goes to the government; with an increase taking effect in January, Britain's combined fuel taxes will add up to about $3.51 a gallon.

The move to greater fuel efficiency and lower emissions is a critical national goal, insisted Mary D. Nichols, Chairman, California Air Resources Board. During a preview of the Nissan Leaf, the agency boss was reluctant to let the conversation shift to the flip side, but when asked about the steady diminution of fuel tax revenues, she acknowledged, "It is an issue we will have to deal with."

How? Some have proposed the idea of raising, rather than incentivizing, registration fees and other charges for vehicles with advanced powertrain technologies. For now, at least, the momentum seems to be pushing against that.

But several states are looking at a more direct form of taxation: a per-mile usage fee on battery-based vehicles. The Oregon Department of Transportation has a task force studying just that possibility, though spokesman David House cautions that, for now, "it is nothing but a proposal, an idea."

To fully recover lost taxes might mean tacking on another 8 to 15 cents a kilowatt-hour.
How would such a fee be implemented? A motorist driving a battery car might have to show how many miles the vehicle was driven over the previous 12 months when renewing its registration. Technically, it would be possible to have the vehicle report in wirelessly at regular intervals, though that would certainly smack of Big Brother.

That approach could get complicated with plug-in hybrids like the Volt. You might put on 15,000 miles a year, but how would you know how much of that was powered by battery and how much on gasoline, where you're already paying an excise tax?

An alternative would be to levy additional charges per kilowatt hour, something easy to track on a dedicated charging system, like the Aerovironment Level 2 – or 220-volt – charger that Nissan's customers can opt for. But that might encourage owners to simply plug into a standard household outlet, instead, even if it did take longer to charge back up.

Electric vehicles are expected to get four to five miles per kilowatt-hour. For someone clocking 15,000 miles a year, that would work out to 3,000 to 3,750 KWh. To fully recover lost fuel excise taxes might mean tacking on another 8 to 15 cents a kilowatt-hour, roughly doubling the national average cost for electricity. Suddenly, the financial advantage often touted for using battery versus gasoline power wouldn't look nearly so sweet.

Incidentally, the taxman isn't the only one who likes the idea of a per-mile usage charge. If the subject starts gaining traction, you can anticipate insurance companies lending the concept their support.

[Image: Karen Bleier/AFP/Getty]

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    • 1 Second Ago
      • 4 Years Ago
      Uncle Sam will get his share one way or another.

      • 4 Years Ago
      Actually...only 1% of US electricity comes from "petro" (oil) as of 2008.

      I always get a big chuckle when "conservatives" get their panties in a bunch when their oil industry campaign donors see the inevitable wave of electric cars, solar and alternatives coming, and then bad mouth any commonsense Conservative policies to keep American dollars in America.

      Let oil pay for all it's REAL external costs (wars, links to worldwide terrorism, air and water pollution, spills, etc, etc) and it would be well over triple it current cost.

      An article about a potential 1/2% drop in the gas tax revenues from future electric vehicles belongs on Faux "news".
      • 4 Years Ago
      The government will simply shift the tax burden to electric utilities. That's the simplest solution. People using electric vehicles will use more electricity and (we all will) pay more for it. In a perfect world consumers using electric cars would realize a savings in terms of fuel costs over gasoline and governments would replace some of their lost gas revenue by through higher utility taxes.

      We don't live in a perfect world so it's very, very likely that the government will f* things up but it's a nice little fantasy.

      Thoughtful governments would probably find all sorts of other cost benefits as well. In the USA unintended consequences might include reduced defense and foreign policy costs as our dependence on foreign oil decreases so does our need to prop up oil rich dictatorships that either encourage or directly sponsor terrorism.

      Wait, wait... the carbon monoxide is getting just thick enough here so that I'm really starting to have daydreams...
      • 4 Years Ago
      It amazes me how quick people are to volunteer other peoples money to more Federal taxes. Why don't you folks just right an extra check to Uncle Sam at the end of the year and leave me out of it!
      • 4 Years Ago
      There is no such thing as a free lunch.
      • 4 Years Ago
      Maintain the revenue. Raise gas taxes. Modernize the system. Starve the petro beast.
        • 4 Years Ago
        A good portion of our electricity is produced using petro, half from coal. Some more from natural gas.

        With that said, electricity should not be the end all be all. Haven't we learned from our dependence on petro?
      • 4 Years Ago
      Don't expect the gov't to come up with a solution.....after all they have been giving 6 billion/yr in subsidies to ethanol which is MANDATED to be used. How stupid is that?

      Tax on one end and give it away on the other.

      • 4 Years Ago
      There is a simple solution to this that involves no big brother type snooping, simply tax electricity more. Now, I want to explain that I'm not FOR a price increase on electricity, but it'll spread out the cost over millions of households and probably sting a lot less in the pocketbook than the per-mile tax that is being suggested.

      Personally, I think they'll tax electricity since it's a simple solution that requires a minimum of paperwork and allows freedom of movement. It's "acceptable" to everyone, even if it'll tick most people off.

      Hrm... I always said that electric cars would raise the price of electricity. Greenies laughed. Bet they won't be laughing in ten years.
        • 4 Years Ago
        That is why I never felt electric cars were the solution, but that seems to be the new "energy saving fad".
      • 4 Years Ago
      Damn, people, here's how you do it. Infrastructure automatically gets a set amount of revenue from gas taxes. Whatever's left over goes into green research and incentives. But tax based on price, not gallons. Then, if prices or usage are high, tax revenue helps bring both back down. Voila, a second order negative feedback control system.

      This solution also takes into account most of the factors that could be controlled with registration fees. Older vehicles, vehicles that cause lots of wear and tear on the road, and vehicles that pollute a lot generally all have poor fuel economy, so the gas tax would hit them hardest.
      • 4 Years Ago
      Ok Paul, I'll take you at your word that your article is not politically driven. But the political allies of the oil and gas industry on both sides of the ailse will stop at nothing to delay the inevitable conversion to alternatives. From opensecrets.org...

      "Political action committees affiliated with oil and gas companies have donated $238.7 million to candidates and parties since the 1990 election cycle, 75 percent of which has gone to Republicans"

      And yes, as of August 2008 Obama had taken almost 400K from the industry, which was more than tripled by McCain at 1.33 million...most given immediately after his sudden reversal on offshore drilling in the summer of 2008.

      Once again, let the REAL external costs be borne by fossil fuels and nuclear, and it's game over...forget the extremely minor distraction of a 1/2% reduction in the gas tax revenue AFTER one million electric vehicles are on the road.

      • 4 Years Ago
      Pointless, alarmist link bait. Numbers are irrellevant for years to come. 500M is less than 1% drop in the taxes. A simple 1% tax increase on gas would cover it.
      Paul Eisenstein
      • 4 Years Ago
      Jeff, 360, et al,
      I'm glad to see so much discussion arise from this piece. Do recognize that this is AutoBlog, not the New Yorker, New Review, or wherever you might read the much longer and more expansive article that covers so many of the other topics. As my first reply, above, points out, there are numerous other issues the switch to higher mileage -- with or without EVs -- can raise, including such diverse matters as defense spending and subsidies to energy providers, both conventional and alternative.
      I wouldn't presuppose, by the way, what my views are on energy-related subsidies. That for another column.
      The critical messages from this story:
      1) Most immediately, that such a dramatic transition can have a tremendous impact on issues, such as taxes;
      2) That even the most enlightened moves, eg to reduce our use of fossil fuels, must be studied very carefully, as there will undoubtedly be significant consequences we might not even think about. It's good to see our readers bringing up so many of them. They often go ignored in the mainstream discussion of "electrification."

      Paul A. Eisenstein
      Publisher, TheDetroitBureau.com
        • 4 Years Ago
        @Paul Eisenstein

        Since you have admitted that there are much larger issues at play on the use of fossil fuels in the American economy, how does presenting only one side of side of the story add anything of value to the discussion?

        On your first point, you chose to present an extremely negative view of reduced fuel consumption on state level taxes while ignoring any positive impacts such a move would make.

        On your second point, what course of action would you suggest we take? Since fossile fuel is a finite resource, how do you suggest we prepare for the inevitable rise in fuel prices if we do not try to conserve what we have now?
        • 4 Years Ago
        @Paul Eisenstein
        I simply think the gas tax needs to go up to more accurately reflect the cost of consuming that resource. There's no denying that burning gasoline causes a lot of problems and I think this should be reflected in the cost. Besides, this is a finite resource that should be preserved for uses that don't have alternatives (materials, jet fuel - i don't see electric planes any time soon). Letting supply and demand dictate the price of fossil fuels and just consuming to our heart's content reeks of a lack of foresight, talk about the grasshopper and the ant. Rationing a valuable and limited resource is a pretty basic concept. A $6 gallon of gas where 50% is federal taxes is 3$ staying in your country for every gallon. Sure it's out of your pocket, but with a few notable exceptions (international conflict, possibly related to oil consumption??) that money is staying within your borders. That's that much more money for your government to provide you with quality roads, bridges, schools, parks, public transit, hospitals.
        Otherwise, 10-20 years down the road, when you've consumed enough of the stuff such that supply and demand dictates that it actually is worth $6 a gallon, that's $6 leaving the country and going straight to the pockets of the already wealthy owners of this ever rarer resource. I think option 1 sounds a lot smarter.
        • 4 Years Ago
        @Paul Eisenstein

        Why not just continue to encourage alternative sources as we have? As the number of hybrids and electrics continue to grow, the technology will only get cheaper, and continue to improve, making such vehicles more and more practical.

        When that happens, the average driver will gladly switch, but when the government gets all involved in raising taxes, that, as many have mentioned exacerbates the issue of declining tax revenues.

        My argument is that change will occur when alternative fuel vehicles become more practical and affordable to the average person. Raising gas taxes in some attempt to coerce consumers into buying cars they don't want, will do more in creating inflation, resentment, and ultimately more problems down the road. It would become another addition to a never-ending saga.
        • 4 Years Ago
        @Paul Eisenstein
        I'm glad this is finally going into the mainstream it's like one of those bad apples you don't want people to discover....people just seem to act with out thinking things through these days and wait to deal with the consequences once they become apparent; that's a foolish policy....

        • 4 Years Ago
        @Paul Eisenstein
        Well said, thanks for the response, Paul.
        @Dr. Truth, I think what he's getting at in his response is that he's not taking any sides in the "should we use less fuel" debate, but rather that since it appears we will be consuming less fuel in the future, we need to figure out how to account for the decrease in gas tax revenues. Personally, I think that any kind of shift of these taxes towards EV's is a bad call, at least for quite a few years. Burning less fuel is a good thing, so if anything we should increase the economic benefits to the end user of burning less fuel, ie let gas get more expensive, keep electricity at more or less the same price. Once EVs have really started to penetrate the market and mass-adoption is safely underway, then you can start to look to getting more money out of them, I'd say simply by increasing taxes on electricity.
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