EV Production Line on Advanced Automated Smart Factory. High Performance Electric Car Manufacturing. Car Batteries Installation on Electric Vehicles on Assembly line. Automotive Plant.
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The U.S. has been subsidizing electric vehicles (EVs) since 2009 and hybrid vehicles for even longer. Recent Congressional actions have substantially changed this policy.
As part of the reconciliation package, Congress rolled back the $7,500 federal EV tax credit ($4,000 credit for used EVs) as well as the EV battery production tax credits. Using the Congressional Review Act (CRA), Congress has also curtailed a California plan to phase out the sale of gas-powered cars, trucks, and SUVs by 2035.
California has a unique ability to impose environmental policies that are more stringent than federal standards. With the blessing of the Biden Administration, the state has been implementing a gradual ban on gas powered cars. Other states have the option to adopt California’s environmental policy and 12 states plus Washington D.C. did just that.
Consequently, nearly a third of the U.S. population would have been subject to a ban on gas powered cars by 2035. No longer. The recently passed CRA revoked the EPA waiver that enabled California to implement its plan.
Despite the substantial rollback, EV subsidies persist. And advocates claim that these preferences are still necessary to encourage greater EV adoption, especially by lower-income families. Advocates will also claim that EVs are superior to gas-powered vehicles and have lower lifetime costs of ownership. These statements are contradictory, of course. If EVs offer superior performance and lower lifetime costs, then why do they need subsidization?
The answer is: they don’t. EVs should be competing in the market based on whether consumers are willing to cover their full and unsubsidized costs. Nevertheless, EVs are traversing an all-too-predictable pathway.
This pattern starts with the declaration that a specified industry is crucial for securing the future. The government then provides subsidies to help the companies scale up their operations. Eventually, the companies are supposed to gain the necessary scale which allows the government to end the subsidies. All too predictably, the subsidy rollback never happens.
And so it is with the subsidies provided to EVs and the EV infrastructure. The federal and state governments continue to provide billions of dollars in preferences to the industry even with the recent federal actions. For example, the limits on greenhouse gas (GHG) emissions imposed by the Regional Greenhouse Gas Initiative (RGGI) in the Northeast (established in 2009) and California’s Cap-and-Trade Program (established in 2013) simultaneously subsidize EVs and penalize gas powered cars.
And while California’s EV sales mandate won’t increase to 100% by 2035, its waiver to implement its original Advanced Clean Cars regulations “remain intact”. While not a complete ban, this ban still forces 22% of all new vehicle sales to be electric. Automakers who fail to hit that target are required to buy compliance credits. These costs get passed on to consumers who purchase a gas-powered car or truck.
At the federal level, the Administration is not enforcing civil penalties on the overly stringent Corporate Average Fuel Economy (CAFE) standards, which once demanded 54.5 miles per gallon. Yet the program still exists and the potential for a return to an overly restrictive regulatory framework remains.
These continued subsidies are particularly troubling because there is growing evidence that EVs are not an environmental panacea. As I document in a recent Pacific Research Institute publication, EVs are not cheaper than gas-powered vehicles, impose significant disposal costs to avoid the batteries potential environmental hazards, and create significant fire risks.
California’s own grid problems exemplify another problem created by EVs. Just layering on the additional electricity demand required to meet California’s EV mandates, the state’s energy system will fall 21.2% short of its future electricity needs – and that does not include the increased demand from AI or any other low emission mandate.
Congress deserves credit for repealing several visible EV subsidies. But they must finish the job. That means repealing California’s Clean Cars I waiver, holding aggressive oversight hearings, and investigating the backdoor schemes that quietly redistribute wealth from gas-powered drivers to EV companies and consumers.
Allowing electric vehicles to compete without subsidization is the best way to promote continued innovations (including lower lifetime GHG emissions) and lower costs for consumers. The federal government’s job isn’t to force every American into an electric vehicle. It’s to get out of the way and let individuals decide which cars best suit their individual needs.
