Big Oil likes its own subsidies, but not electric’s free rides
You may not have heard, but electric vehicles are just another one-per-center boondoggle, Jay Gatsby’s cream-colored Rolls Royce reincarnated and partly paid for by you, the toiling masses, via various subsidies.
As an argument, it is tailor-made for an era of anger at “elites.” And it’s one with which I’ve become familiar reading recent letters from organizations such as Koch Industries Inc., affiliates of the American Petroleum Institute and Americans For Prosperity, urging federal and state bodies to forgo support for electric vehicles or their chargers. If wealthier types wish to buy them, so be it, but they should pay for it themselves.
They aren’t wrong about one thing: Subsidies for EVs tend to accrue to the wealthy. A paper published in 2015 by Severin Borenstein and Lucas Davis of UC Berkeley found exactly that. One explanation is that, even subsidized, today’s EVs are usually more expensive, so they are bought by wealthier people.
This is clearly unfair. But as Berkeley’s Borenstein and Davis wrote in a blog post summarizing that same paper: “We find that tax credits are less attractive on distributional grounds than pricing (greenhouse gases) directly … Whereas tax credits go disproportionately to high-income households, a carbon tax would be paid disproportionately by high-income households. “
This uncovers the main problem with the whole elitist EVs argument: If not these subsidies, then what?
Addressing climate change means encouraging a switch away from emitting vast quantities of greenhouse gases into the atmosphere in order to power our societies. Leaving aside the unfortunate desire of certain parties to ignore or obfuscate the science framing that threat, the central question is how to encourage that switch most efficiently. In general, handing out regressive subsidies based on the government elevating this or that technology doesn’t meet that objective.
A far-more efficient method is to put a price on the stuff you want less of and then let capitalism do its thing, pushing consumption away from the undesirables and investment toward innovative alternatives. All these letters demand government officials stand back and let the market do its thing — except their version of the market leaves out one essential element.
Greenhouse gases and the threat they pose are everyone’s problem, but the individual generating them at any given moment doesn’t pay toward dealing with that. Dump your garbage on your neighbor’s lawn and you’ll wind up paying to have it removed. Release 20 pounds of carbon dioxide into the atmosphere, and it’s a freebie.
This is an enormous effective subsidy for fossil fuels and makes a mockery of market piety. Using Yale economist and recent Nobel-prize winner William Nordhaus’s $31-perton estimate of the social cost of carbon, it amounted last year to $107 billion for energy-related emissions from oil and natural gas. Within that, emissions from transportation enjoyed a free ride worth $59 billion.
The cost of the federal tax subsidy for EVs is $2 billion at most across the lifetime of the current program, according to a study, “Costly Subsidies For The Rich”). You may have noticed, too, the U.S. oil and gas industry is not exactly hard up. A quick scan of the Bloomberg Terminal indicates listed companies are forecast to make a collective net profit of $81 billion this year. What was that about handouts to elites?