The U.S. federal government will spend $7.5 billion on policies to boost electric-car industry over the next seven years, Congressional Budget Office (CBO) said in a report issued on Thursday.
Consumer tax credits for buying electric cars, which can run as high as $7,500 per electric car, will account for about 25 percent of the $7.5 billion cost, the CBO said.
Yet the tax credit is unlikely to make electric cars affordable in the near term, the report argued. Even with the tax break, an average plug-in hybrid would still cost about $4,500 more over its life span than a comparable conventional car, assuming gasoline averages about $3.60 per gallon.
In the report, analysts said the lifetime costs of owning an electric car are still “generally higher than those of a conventional car or traditional hybrid of similar size and performance,” estimating a plug-in car costs, on average, between $16,000 and $19,000 more than a comparable gas-engine car.
For example, an average plug-in hybrid car with a battery capacity of 16 kilowatt-hours would be eligible for the maximum tax credit. However, that car would require a tax credit of more than $12,000 to have roughly the same lifetime costs as a comparable conventional or traditional hybrid car.
While drivers of these cars use less gasoline and emit less greenhouse gas such as carbon dioxide, the cost to the government can be high, the CBO found.
At current levels of subsidies, the cost to the government works out at around $3-$7 per gallon saved and $230 to $4,400 per metric ton reduced in CO2 emission, through the use of electric cars. The CBO said it compared similar-size electric and gasoline-engine cars with average fuel economy ratings.
What’s more, for the next several years at least, the electric-car tax credit will have “little or no impact” on America’s overall gasoline consumption or greenhouse-gas emissions, the report said. That’s because of how the credits would clash with the Obama administration’s new fuel-economy standards.
U.S. government standards mandate that by 2016, each automaker is to meet a CAFE standard of 35.5 miles per gallon, up from the current average of 29.7 mpg. By 2025, the CAFE standard is to be 54.5 mpg or about 39 miles per gallon in real world driving.
Increasing consumer tax credits would increase the cost to government for any reduction in gasoline use, so instead CBO recommends further revision to the CAFE standard’s system of credits so that in the long term, electric cars don’t inadvertently fund low fuel economy cars.
In the long run, the tax credit could reduce fuel consumption if it helps build support for the electric car industry — and allows regulators to set even stricter fuel economy standards.[wzslider height=”400″ lightbox=”true”]
