Can Governments Afford To Incentivise Electric Cars?

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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]