Are tax credits the best path to auto electrification?
Would plug-in subsidies be better spent on battery R&D?
Not according to Germany’s plug-in plans
In the next 10 years, Germany would like to add 1 million electric vehicles to its current fleet of 40 million vehicles. Consequently, Germany plans to spend about $2.8 billion on plug-ins by 2013, mostly on research and development into new battery technologies.
However, tax incentives to buy electric cars will not be part of the plan.
“A premium to buy isn’t the right answer,” said Chancellor Angela Merkel according to the AFP.
Instead, road tax exemptions, for instance, would be created for cars able to emit less than 50 grams of CO2 per kilometer – something only electric cars would be capable of achieving. Additionally, the government would change tax programs for businesses so there would be an incentive for businesses to purchase electric cars. Likewise, the government will convert at least 10 percent of their fleet into electric vehicles.
Nevertheless, Merkel acknowledges that achieving 1 million EVs over the next decade will “not be easy”.
To tax credit or not
So, are tax credits the best path to auto electrification? Or would plug-in tax credit money be better spent on battery R&D, for instance?
I’ve definitely argued for plug-in tax credits, as well as hybrid tax credits. Undoubtedly, tax credits helped increase hybrid sales early on. Nevertheless, they didn’t lead to the mainstreaming of hybrid cars, as most consumers are simply unwilling to pay upfront for long term fuel economy savings. Therefore, how successful were hybrid tax credits really?
Unfortunately, the case for plug-in tax credits could be a bit more difficult to make. Already, several battery studies, for instance, have suggested that the current plug-in tax credit program is too focused on battery size, but not on actual electric range for instance. Consequently, plug-in tax credits aren’t necessarily rewarding the most efficient battery applications.
Considering that R&D is still now the key to eventual cost-effective plug-in vehicles – a task that will probably take until at least 2025 if pursued aggressively according to the likes of Argonne research – is pumping a big chunk of money into immature, inefficient battery technologies a little premature? Might that money be better spent on battery research? Is that a chicken and egg question?
Additionally, there is an argument that putting plug-in vehicles like the Chevy Volt and the Nissan Leaf on the road today will help shape consumer psychology – another major part of plug-in adoption.
Inevitably, whether current plug-in purchase tax credits are the most effective electrification policy or just feel-good posturing seems a bit debatable. Regardless, it seems that without addressing the far cheaper costs to guzzle oil – despite the national security and pollution costs that are not recovered at the pump – it’s going to be very hard for any plug-in incentives to be very successful.
[...] Interestingly, Germany recently suggested the same sort of car subsidy-free approach to promoting plug-ins. [...]
If we want to adopt the German philosophy on EV credits, we have to factor in gasoline tax rates as well.
In Germany the high gasoline taxes are already providing an incentive for purchasing electric vehicles.
In the US, however, since it is impossible to pass even a one cent increase in gasoline taxes, the only available incentive is an EV tax credit.
I used to argue for that Larry, but it just seems an issue that no politician wants to tackle. Tax might be the most dirty word in the American vocabulary.
Nevertheless, I found it interesting that Germany was so against incentives for plug-in buyers. I wonder, is there research suggesting they are ineffective? Is it purely because R&D is more important for now? Is it simply better to keep EV development tax incentives purely in the business world until the costs are brought down because its more cost-effective? Is it just a German thing?
the interesting thing is that with a gas tax of $4.71 Germany probably could pay incentives.
We could do that here. Boost the tax to a buck a gallon and use the money for incentives for hybrids…
[...] plug-in tax credits for any vehicle, regardless of size, really the path forward, as questioned in Are tax credits the best path to auto electrification? Or is a Manhattan Project-like R&D effort into batteries all that really matters right [...]