Advocates of various energy technologies have long argued that major barriers, either government or market derived, stifle the development of their favored technology. They then infer that the current level of their preferred technology is suboptimal, necessitating some form of governmental intervention.
That seems to hold true for New Mexico Gov. Michelle Lujan Grisham, who wants state tax credits and mandates on the purchases of electric vehicles (EVs). New Mexico already has a stringent clean car rule that requires that by 2031, 82% of all new vehicles delivered to the state be zero emission. Her agenda is a double whammy for gasoline/diesel-powered vehicles: make EVs more economically attractive with taxpayer-funded subsidies and restrict the number of gasoline/diesel-powered vehicles New Mexicans can buy. She is essentially forcing EVs on New Mexicans faster than what they prefer.
Perhaps the most pathetic part of her agenda is that she hopes to trim down the number of gasoline/diesel-powered vehicles in the state without knowing whether that is what the residents of New Mexico want. (Car owners are wary of EVs for various reasons, including: their high upfront costs; range anxiety, i.e., their fear of not making it to the next charging station; and their inherent skepticism of new technologies.) How arrogant is that? She is telling New Mexicans that as governor, she knows better what types of vehicles they should purchase than they do. She is ignoring the wishes of her constituents to purchase different vehicles: Today, only about 1% of the vehicles in New Mexico are EVs.
She desires to fundamentally reshape the car industry via regulations, mandates and subsidies. Added to the insult is her requirement that taxpayers pay for her “all-electric” scheme when the majority of residents don’t stand to benefit.
So far, purchasers of EVs are mostly in the high-income category, and that will likely hold for the foreseeable future. That means tax credits and other subsidies will benefit the well-to-do and be paid for by folks who are less financially well off. One study remarked that “The US academic literature indicates that up to 90% of EV purchase incentives adopted by the federal government have flowed to the richest one-fifth of households.”[1] This also suggests many of the purchasers would have bought an EV in the absence of government incentives. This behavior means (1) the reduction in greenhouse gas (GHG) emissions attributable to the incentives are overstated and (2) the incentive is essentially a windfall gain to higher-income households paid for by less-well-off ones.
And what is in it for the residents of New Mexico and other jurisdictions inducing EV purchasers with subsidies and mandates? Zilch! What almost always gets ignored is the fact that no matter how many EVs New Mexicans or people in other jurisdictions buy, the effect on climate change is negligible.
A mandate to require that a certain percentage of vehicles be EVs represents a policy with intrinsic distortions. It is a highly blunt instrument, draconian and expensive relative to other ways to mitigate GHG emissions (which is the manifested rationale for the governor’s all-electric mandate).
Probably most serious, banning or artificially restricting goods or services reflects governmental action that dictates consumers find a substitute that presumably is inferior to the alleged objectionable product that is banned, or else such action would not be necessary. A ban forces consumers to do something they otherwise would not do. For example, vehicle owners could hang on to their old, less fuel-efficient vehicles longer than otherwise — a perverse outcome that could lead to higher GHG emissions.
By reducing options for vehicle owners, driving will become more expensive in New Mexico. Perhaps this is the intent of those who are anti-car. As warned by energy expert Mark Mills of the Manhattan Institute, “they’re coming for your cars.”
Government controls over GHG emissions directly affect goods and services, such as electricity and transportation, whose costs will likely escalate. If controls include banning or severely restricting fossil fuels like gasoline, the costs could be substantial. We have an abundance of fossil fuels at affordable prices, which explains why over 80% of the world’s energy still comes from fossil fuels. This raises the question of whether we want to or can wean ourselves from fossil fuels over the next two or three decades without suffering severe economic consequences.
The governor’s actions presume that EVs are a winning technology — but this is highly presumptuous, as there is much uncertainty over the future of EVs. Mandates carry risks. Mandates require policymakers to pick winners and losers, which is inherently almost impossible, and often results in failure, given the limited knowledge of policymakers (which, of course, they don’t want to acknowledge) and their propensity to serve special interests. The problem is particularly acute for new technologies with a high level of uncertainty over cost and performance. For example, a policy that mandates EVs as a preferred option can turn out disastrously if the price of gasoline falls sharply or if EVs fail to develop economically and technically as advocates hope.
A better way to make EVs more attractive to consumers is to have them compete against gasoline/diesel-powered vehicles. When regulating or legislating away their main competition, it becomes more likely that EVs will continue to be inferior to gasoline/diesel-powered vehicles. This is just one example of the unintended consequences sprung from a policy whose prime intent is to promote a particular technology.
What is particularly perplexing is the rationale behind the governor’s intent to accelerate the purchase of EVs by New Mexicans through tax credits and mandates. She argues that the tax credits will make EVs more affordable to middle- and low-income households. But one cannot ignore the evidence showing that the subsidies will disproportionately benefit the wealthy at the expense of those less well off. So far, 90% of EVs in the U.S. have been purchased as a second or third car by high-income households. [2]
It’s not even clear that replacing gasoline/diesel-powered vehicles with EVs will have a positive environmental effect. Similar to many other batteries, the lithium-ion cells that power most electric vehicles rely on raw materials (like cobalt, lithium and rare earth elements) that have triggered grave environmental and human rights concerns. Cobalt has been especially problematic. The environmental effect, of course, also depends on what energy sources are used to produce electricity. Currently, much of the electricity generated at night (when charging occurs for most EVs) comes from fossil fuels.
Even if EVs lower GHG emissions, studies have shown they are an inefficient way in terms of the costs per unit of avoided emissions. Other alternatives, such as nuclear power and natural gas are more cost-effective. One study claimed that EVs are among the most expensive tools government can use to lower GHG emissions, measured as dollars spent to achieve a given amount of GHG reduction.[3] What would seem to be a preferred social policy is to impose an efficient tax on GHG and tailpipe emissions.
I believe that what is driving EV frenzy is the anti-fossil fuel agenda or virtue signaling (by both EV purchasers and EV advocates). EV advocates probably know EVs would have a minuscule effect on climate change but long to see the extinction of fossil fuels; I can’t think of a more plausible explanation.
To wit, most climate activists view fossil fuels as a barrier to achieving deep-decarbonization targets deemed essential to protect against alleged catastrophic climate change. They consider electrification of buildings and transportation with clean energy sources as part of a policy portfolio to achieve these targets. What they don’t say is that their proposals for government intervention will fail a cost-benefit test and are regressive by benefiting the well-to-do at the expense of others. How can they then defend their pro-EV advocacy with such anti-social results?
I want to conclude by saying that I think EVs are a remarkable technology that I hope will succeed on its own without government assistance. Both for equity and economic-efficiency reasons, government inducements — whether to hasten the number of EVs or charging stations through perverted policies — are a bad idea. Governments can better spend taxpayers’ monies. EVs have a promising future. Technological advancements in batteries and the other sides of production, as well as in charging stations, will ultimately decide the fate of EVs, as they will determine consumers’ demand for EVs and manufacturers’ profits from EVs. Their success is more likely if government steps out of the way and allows EV providers to address market demands to lure consumers with price reductions and better vehicle performance — not with subsidies and mandates.
Kenneth W. Costello is a regulatory economist and independent consultant.
[1] Fraser Institute, https://www.fraserinstitute.org/sites/default/files/review-of-electric-vehicle-consumer-subsidies-in-canada.pdf.
[2] Energy Institute at Hass, https://energyathaas.wordpress.com/2021/09/20/three-facts-about-evs-and-multi-vehicle-households/.
[3] International Monetary Fund, https://www.imf.org/en/Publications/fandd/issues/2019/12/the-true-cost-of-reducing-greenhouse-gas-emissions-gillingham.