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Are plug-in vehicle incentives distributed correctly?

Apparently not. A study conducted by Carnegie Mellon University (PDF) suggests that by subsidizing vehicles with big battery packs (that is, bigger than 16 kWh), the return on investment (in terms of reducing gas/diesel consumption and lowering emissions) is less than if the $7,500 tax credit subsidized vehicles with meager battery packs (i.e. the Toyota Prius Plug-in Hybrid).

How's that possible, you ask? The logic behind the study is actually rather simple and makes some cents sense. Massive batteries are expensive, require significant energy to manufacture and take ages to recharge. And because they're so damn costly, few consumers can afford to buy vehicles fitted with them. That's why subsidies are essential, right?

But even with the $7,500 tax credit factored in, the Chevy Volt is still fairly expensive, meaning that consumers aren't yet lined up 'round the corner to buy one. And because the subsidy is huge ($7,500 a unit), the U.S. government is unlikely to extend its incentive program once the cap of 200,000 qualifying vehicles per manufacturer is met. This means that there's a chance that fewer total vehicles will be subsidized via the program. Additionally, budget cuts in Washington could someday abruptly end the incentive program, perhaps well before that 200,000-unit cap is hit. But, if $7,500 were slashed off the price of the significantly cheaper Prius Plug-in (base MSRP $32,000), it would become a raging bargain and almost guarantee immediate sales at massive levels. And that would reduce petroleum use in a big way.

Carnegie Mellon University's Jeremy J. Michalek, concludes:
Given the major spending cuts under debate in Washington, it is important that we get the most benefits out of spending designed to improve the environment and energy security. In the near term, HEVs and plug-in vehicles with small battery packs offer more cost-effective benefits. More research on batteries – especially lowering cost – and a transition to a cleaner electricity grid are needed to pursue a future where large battery packs may also be able to help address climate change, air pollution and oil dependency at competitive costs.
Like most all studies, Carnegie Mellon's should be taken with a bit of caution. And since there are a lot of assumptions at work here, it's difficult to accurately evaluate the University's results. What's your take on Carnegie Mellon's evaluation of plug-in subsidies?
Show full PR text
Carnegie Mellon Study Finds Benefits of Plug-in Vehicles Depend on Battery Size

PITTSBURGH-Thinking about buying a new plug-in vehicle? You may want to check the size of its battery first.

Carnegie Mellon University's Jeremy J. Michalek and co-authors report that plug-in vehicles with small battery packs and hybrid electric vehicles (HEVs) that don't plug in can reduce life cycle impacts from air emissions and enhance oil security at low or no additional cost over a lifetime. But plug-in vehicles with large battery packs are more costly and may have higher or lower emissions than HEVs depending on where and when they are plugged in.

In a study appearing this week in the Proceedings of the National Academy of Sciences, Michalek argues that electrified vehicles with smaller battery packs are more efficient in reducing societal costs for health care, environmental damages and oil consumption.

"Current government policy provides larger subsidies for vehicles with larger battery packs, assuming that larger is better," said Michalek, an associate professor of engineering and public policy and mechanical engineering at CMU. "While larger battery packs allow plug-in vehicles to drive longer distances on electric power instead of gasoline, they are also expensive and heavy, they are underutilized when the battery capacity is larger than needed for a typical trip, they require more charging infrastructure and they produce more emissions during manufacturing."

U.S. policy has been pushing the auto industry to investigate alternatives to fossil fuels. The American Recovery and Reinvestment Act of 2009 provides up to $7,500 in tax credits for up to 200,000 plug-in vehicles.

"Because vehicles with larger battery packs are more expensive, fewer of them can be subsidized, and that can result in lower total benefits," said Michalek, who recently received a $400,000 grant from the National Science Foundation (NSF) to analyze how public policy could help determine the types of vehicles built in coming years and how consumers might respond to these vehicles.

"It's possible that in the future plug-in vehicles with large battery packs might offer the largest benefits at competitive costs if the right factors fall into place, including sufficiently low cost batteries, high gasoline prices, low emission electricity and long battery life," said study co-author Mikhail Chester, assistant professor of sustainable engineering at Arizona State University. "But such a future is not certain, and in the near term, HEVs and plug-in vehicles with small battery packs provide more emissions benefits and oil displacement benefits per dollar spent."

"With increasing energy and environmental constraints, transitioning from conventional gasoline vehicles to hybrid and plug-in vehicles offers an opportunity for improving energy independence and air quality while helping to address global warming," said study co-author Constantine Samaras, an engineer at the RAND Corporation.

Michalek's research is aimed at understanding tradeoffs in the capabilities of new technologies and to predict what near- and long-term strategies should be.

"Given the major spending cuts under debate in Washington, it is important that we get the most benefits out of spending designed to improve the environment and energy security," Michalek said. "In the near term, HEVs and plug-in vehicles with small battery packs offer more cost-effective benefits. More research on batteries - especially lowering cost - and a transition to a cleaner electricity grid are needed to pursue a future where large battery packs may also be able to help address climate change, air pollution and oil dependency at competitive costs."


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    • 1 Second Ago
  • 113 Comments
      Spec
      • 3 Years Ago
      "As the data shows, 15 miles range battery can cover majority of the trips." Of course that is completely pointless . . . you need to cover the driving BETWEEN CHARGES. If you got to the bank (trip 1) and then go to the store (trip 2) but the battery is dead on trip 2, you got zero benefit from the battery. And the short distance the Prius can go cannot be full speed.
      usbseawolf2000
      • 3 Years Ago
      Your bank is 15 miles away? Mine is within a few miles as well as the stores that I go to. It is better to charge often than paying for expensive bigger battery upfront just to lug it around on most frequent short trips. Having the cleanest 49 MPG range extender vs. substandard ULEV 37 MPG that requires premium gas, makes a huge difference. The more public charging stations we have the better the plugins with smaller battery. Why does it bother you so much when both powertrains are used for full acceleration? Do you actually need a full acceleration with half the hybrid powertrain?
      Emc2
      • 3 Years Ago
      Be aware that this is a conclusion valid only for the short term. As battery costs are reduced and more electricity is generated from cleaner sources, PEVs with large batteries will be closing the gap. Furthermore, if subsidy policy were to be changed as recommended by the study, then the opportunities for getting cheaper automotive batteries will be seriously diminished. Therefore, the recommendations from this study should not be taken at face value.
      Spec
      • 3 Years Ago
      That would be simply be handing a huge profit to Toyota for a product that was built by hobbyists 7 years Toyota could be bothered to push it out. The point of the program is reduce battery manufacturing costs by causing mass manufacturing scale for batteries. So we want more batteries build.
      George Voll
      • 3 Years Ago
      How much did Carnegie Mellon get in subsidies to create this report?
      Marco Polo
      • 3 Years Ago
      The problem isn't "is it right for governments to subsidise the development of new industry?". ! All governments reserve the right to invest the taxpayers money in the development of National assets or economic advantage. The taxpayer, have empowered governments with the responsibility of prudent investment on the nations behalf. The difficulty begins when the government attempts to invest effectively! IMHO, the real problem is that no one is very clear about the objectives, and priorities? One glance at the 80 posts on this thread, gives an indication of the diverse views interested factions express. On one extreme is EVgenenerd who argues, (with some merit) that all subsidies are bad! (especially on borrowed money). The other extreme is Dan Frederiksen who claims that governments should start a Factory to make cars of his design, and abolish all others! (we would have heard more, but he'd been put down for his afternoon nap). In between, there are those who squabble about who, should get what. The EV purist cry,"we are the future, all else is heresy!", the Luddites grumble "Crap, no one wants low range, battery powered golf carts" and the Hybrid/EREV faction smugly point out, that with over 3 hybrids million vehicles sold, hybrids are clearly the most effective, and deserve subsidy! But effective at what? What is the real objective? Here again different factions compete for priorities. The EV purist has become so fixated on EV's as a technology, that he's forgotten the overall purpose. The Anti-Oil ideologue, has become so consumed with 'anti-ism' he's forgotten that it's a solution, not a revolution, that Joe Public is seeking! The amateur economist (aren't they all!), is living proof that a little knowledge is dangerous, wants a self-sufficient economy, but with no practical plan of how to achieve such a utopia ! Finally, those who think that EV's are just a fun, cool, new technology worth trying in the face of increasing oil prices and the threat of oil depletion! (me). But, still the objectives remain unclear in terms of priorities. Save oil ? Clearly, hybrids are most cost effective. Establish a new technology? EREV's and EV's are most likely technology (FCV's etc, are falling behind in acceptance) Bio-fuel? If the feedstock problem can solved, then the Oil companies will make bio-gasoline the dominant technology, with or without ,government assistance! Improving ICE? Automakers will do this in response to regulations, Stop Pollution? Not effective, better to spend the money on subsidising 1% of merchant ships to stop operating on Marine Grade No.6 (bunker oil). This would reduce Biosphere pollution by 50 times road vehicle pollution. Far more effective and much cheaper. Who should receive the subsidy? This is a uniquely US problem. Most countries have already solved the problem by simply instituting incremental tax increases at the pump. Painful, but effective.
        EVnerdGene
        • 3 Years Ago
        @Marco Polo
        "Most countries have already solved the problem by simply instituting incremental tax increases at the pump. Painful, but effective." YES ! none of these kiddies have even pondered that when you pick winners and losers; you make the welfare receipient winners into fat and lazy; and the losers are handicapped in many ways, like an unlevel playing field, and the impression(?) that their technology or ideas are not as good because they weren't picked by the all-knowing 'experts' that work for the government. Nissan Leaf, Tesla, and Frisker could have raised all the money they needed in private markets (or had the money in Nissan's case). Why did we borrow money from china to finance these ventures ? ***you'll have to show me where in our Constitution it says that government should subsidize private industry
          EVnerdGene
          • 3 Years Ago
          @EVnerdGene
          at EVSUPERHERO France's economy will collapse before the US's read what a shambles PIGS, , , F Portugal, Italy, Greece, Spain, , , France
          EZEE
          • 3 Years Ago
          @EVnerdGene
          Nerd's point is a constitutional one. Now, you can point out other government subsidies, but that is also where political contributions, favors, crony capitalism start (which we do not like on the right either). Why did the banks make awful loans? They were told too (and Fannie Mae and Freddie Mac underwrote them). Why did Goldman Sachs make risky investments? Because they knew from prior experience they would be bailed out. If there is no net, you are a lot more careful on where you walk.
          EVSUPERHERO
          • 3 Years Ago
          @EVnerdGene
          Nerd, Marco has pointed out several times that Nissan/Renault have been financed by the French government. He further states that they would not be going so heavily into EV's without the French governments backing. We back GM and EV's were called for but instead we get the Volt because GM convinced our government it was a EV and that real EV's would not sell.
          EVnerdGene
          • 3 Years Ago
          @EVnerdGene
          EZEE we're on the same page. every aspect of the real estate collapse can be traced to bad policies by our government, like coercing banks to give loans to the un-qualified. I have never found in our Constitution where it is a right to buy home (or be given shelter for that matter). DF - read that in Denmark, homebuyers must have 20% down payment of their own money, a JOB with paycheck capable of re-paying the loan, and all home-owners pay the same interest rate - a fixed rate. Guess what - their housing values didn't collapse like in the US and UK and ? as Reagan said - " government is not the solution to our problem; government is the problem "
      Michael
      • 3 Years Ago
      "...U.S. government is unlikely to extend its incentive program once the cap of 200,000 qualifying vehicles per manufacturer is met." - From the article "Because vehicles with larger battery packs are more expensive, fewer of them can be subsidized, and that can result in lower total benefits," said Michalek - From the Press release Apparently Michalek doesn't understand that each manufacturer can get 200,000 vehicles subsidized. The cap is on the number of vehicles sold, not the total value of the subsidy to the manufacturer.
      JP
      • 3 Years Ago
      This study has some major flaws. From another poster on another board: "Michalek's paper just keeps getting better - he has a 3% annual inflation on the price of $2.75 a gallon gasoline. Michalek is also using a 8% discount rate. which is a about double that used for car financing. http://bit.ly/oFy5Ng so in summary Michalek relies on a) battery size of 66.1kwh vs market size of around 24kwh b) gasoline price of $2.75 vs market price of around $3.60 http://bit.ly/oFOyxI c) future oil price of inflation of 3%pa vs prior decade of oil price inflation about 15%pa d) a discount rate of 8% vs a new car financing rate of about 4% " If you use proper numbers and Michalek's own criteria EV's come out on top.
      Roy_H
      • 3 Years Ago
      "Because vehicles with larger battery packs are more expensive, fewer of them can be subsidized, and that can result in lower total benefits," said Michalek, who recently received a $400,000 grant from the National Science Foundation (NSF) He doesn't say how this is done. Either you subsidize 200,000 vehicles or you don't. Both GM and Nissan will make and sell their 200k vehicles in the next couple of years. He wants the government to subsidize Toyota instead, and argues that Toyota will get 200k plug-in Priui sold faster that people will buy Volts and LEAFs. Maybe, but so far there is no indication that Toyota will produce that many Priui any faster. This isn't about market demand, it is about production capability. He admits that larger batteries will produce greater benefits in the long run, but claims that manufacturers could get vehicles with smaller batteries on the road quicker and therefore benefits would happen sooner. However this is less cost-effective if the aim is to accelerate battery price reduction. Battery prices will come down as the number manufactured goes up. Each $7500 spent now gets another 16kWh or larger battery on the road. How does using the money to get smaller batteries on the road drive up the demand for more batteries??? This guy is either on coke or the NSF is paid for by Toyota.
        EVSUPERHERO
        • 3 Years Ago
        @Roy_H
        The subsidy really should have been on a per kwh basis. For instance $300 dollars per kwh. Making GM's car $4,800. Nissan's would then be $7,200. Cap it at $7,500.
        Dave D
        • 3 Years Ago
        @Roy_H
        Bingo, you nailed it Roy. The goal is to accelerate the price reduction of batteries!!!
      Dave D
      • 3 Years Ago
      This goes back to what Roy H said in the first post: "the aim is to accelerate battery price reduction." There is no way that the government can buy enough packs to get everyone on the road with any kind of battery electric vehicle. The point is to accelerate the decline of battery prices so people can buy more of them and they chose to do it on the demand side. Perhaps it would have been less controversial to give grants to battery makers so people wouldn't be screaming the "S" word: SUBSIDY Of course, in reality that would mean the gov't picking the winners from the supply side and deciding which battery makers and/or technology to support with that same total $$$. Personally, I prefer this method as it means makers have to put together the best overall vehicle that people want and find what really works in the market. If people don't like the Leaf or Volt, we'll find out next year when production really ramps up. And to avoid the trap we find ourselves in with ethanol (AND OIL), the subsidies need to be stopped within 5 years because if the batteries can't stand on their own by then they never will. Of course, it's LONG past time to stop subsidies on oil and corn ethanol already!!!
      usbseawolf2000
      • 3 Years Ago
      So the tax credit should depend on the miles the plugin run on electric. That'll encourage the efficient usage (not just the size) of the battery as well. As the data shows, 15 miles range battery can cover majority of the trips. The graph is not linear but the tax incentive is! That is the root point CMU report is showing. There is a diminishing return because the EV miles that the battery can cover is not linear. http://www.bts.gov/publications/omnistats/volume_03_issue_04/html/figure_02.html
      • 3 Years Ago
      Subsidizing on battery sizes was better than a flat subsidy ($2500 per car, no matter how big or little the battery pack), but perhaps a subsidy based on MPGe as evaluated by the EPA is a better idea? The difficulty there is evaluating MPGe based on people's driving habits - someone who drives right around the AER will see the most benefit. Otherwise they aren't driving enough or are driving too much.
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