Why Governments Need to Stop Throwing Money at EV Buyers

Subsidies for EV buyers are popular but woefully inefficient.

Episode Summary:

The slow pace of CO2 emissions reductions in the face of global uncertainty and COVID has driven a frenzy of fresh political activity as Paris Accord deadlines loom.  

Drastic reductions in fossil fuel use—over timelines on the order of half a decade—are now required to even come close to the levels specified by the Accords. On the ground, however, the necessary infrastructure and alternate energy products are not available, not affordable or both.  

Electric vehicles are one way to tackle the transportation component of the emissions issue, and governments around the world are anxious to convince motorists to make the switch. One of the tools they are using are generous subsidies for EV buyers. But are those subsidies an effective way to tackle the issue? Jim Anderton doesn’t think so. 

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Transcript of this week’s show:

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Electric vehicles are so dominant in the engineering news cycle these days that literally not a day goes by without two or three news items crossing my desk. Whether it is new models, new factories, new batteries or the infrastructure challenges associated with increased electric demand, the electrification of transportation is the hottest topic in engineering today.  

The media talks about it as if it is a done deal, but the truth is somewhat different. Electric vehicle market penetration is still very low, for three primary reasons: electric vehicles are too expensive, electric vehicle charging times are inconveniently long and there still is not enough charging infrastructure to make EV’s convenient or practical for many, many users.  

But politically, governments everywhere want people to buy EVs.  

To address problem number one, purchase incentives are a popular strategy. But has anyone actually run the numbers on whether those programs work? A recent paper published by a Canadian think-tank, the McDonald-Laurier Institute, has done just that. In it, author Jerome Gessaroli examined the actual costs of government subsidies to EV purchasers—and he has revealed some surprising numbers.  

The figures refer to Canadian dollars, but the principle translates well to the U.S. and Europe. The study showed that every new EV purchased reduces greenhouse gases over the vehicle lifetime, by about 28.2 tons compared to an internal combustion engine car. The Canadian federal EV subsidy program spends $355 to reduce each ton of greenhouse gases. Provincial subsidies increase those costs to between $500 and $1,000, depending on jurisdiction.  

According to the federal government, the social cost of carbon emissions are priced at $50 per ton. By their own metric, Canadian governments spend between $500 and $1,000 to lower societal costs by $50. Even worse, electric vehicles are currently so expensive that even subsidies have little effect on sales volumes and only act as a subsidy for car buyers affluent enough to afford the full purchase price anyway.  

And even if electric vehicle MSRPs were affordable, there is nowhere near enough global production capacity to supply the market. This is especially true as European jurisdictions impose harsher carbon remediation regimes, causing automakers to prioritize that continent for increased output. This doesn’t even begin to address questions like where the charging infrastructure will come from, how the electricity will be generated and how governments will replace the income stream from fossil fuel taxes.  

This is what happens when politicians try to do the work of engineers: between $500 and $1,000 spent to save the 50 bucks.  

If we consider the opportunity cost, it is even worse. What else could be done with that kind of subsidy money? Would it be better spent incentivizing high-efficiency furnaces and better insulation in homes? Or a “cash-for-clunkers” program that would pull gas-guzzlers off the road in favour of higher-efficiency internal combustion engine vehicles? Or even used to develop an EV charging infrastructure that can be in place ahead of the projected lower unit costs that will inevitably come from higher volume production of electric vehicles? Photovoltaic panels can be bought for a dollar a watt or less today.  

There many more sensible ways to allow market forces and consumer choice to give people lower cost transportation that is also cleaner. In Canada, no one in government is apparently listening. Unfortunately, I don’t see any indication that the situation is any different in America or in Europe, either. And of course, unless China and India come on board, the entire discussion is essentially moot.  

If money is spent to accelerate the development of clean energy technology that is lower in cost than fossil fuels, the entire planet will switch—and quickly. Instead, governments flush billions of dollars down the drain worldwide, then wonder why climate targets aren’t met. Again, it is time to ask engineers, not politicians.  

Written by

James Anderton

Jim Anderton is the Director of Content for ENGINEERING.com. Mr. Anderton was formerly editor of Canadian Metalworking Magazine and has contributed to a wide range of print and on-line publications, including Design Engineering, Canadian Plastics, Service Station and Garage Management, Autovision, and the National Post. He also brings prior industry experience in quality and part design for a Tier One automotive supplier.