Plug-in hybrid subsidies are a bad deal for taxpayers

Friday, December 18, 2009

VICE PRESIDENT Biden brought tidings on Wednesday of a new Obama administration push to more than triple an existing $2.4 billion tax credit for the manufacture of advanced energy technologies, including batteries for use in plug-in electric hybrid vehicles. Mr. Biden has become something of a spokesman for the Obama administration's plug-in push. In October, he presided over the announcement of a half-billion-dollar loan to help plug-in maker Fisker retool an idled Delaware auto plant. And he traveled to Michigan in August to announce the first round of funding from a $2 billion federal battery research grant program. Yet even as Mr. Biden was making his latest visit to Detroit, new data emerged showing that plug-in hybrids, which promise to run for dozens of miles on battery power before needing help from a gas engine, are anything but the wave of the future.

An Energy Department-funded analysis by the National Research Council, a congressionally chartered body, has concluded that plug-in electric hybrid vehicles probably will not produce significant savings in either greenhouse gas emissions or fuel consumption for at least another two decades -- even with massive government subsidies. The key problem is the high cost of batteries. Mr. Biden's new program is designed to address this challenge, but according to the study, "the potential for dramatic reductions appears limited" because lithium-ion batteries "are already being produced in great numbers and are well along their learning curves."

Therefore, plug-in hybrid vehicles will remain extremely expensive -- the gas savings more than canceled out by their sticker price. They'll probably account for only about 13 million of the 300 million vehicles on the road in the United States by 2030. Not until 2047 is it probable that the fuel savings of the entire fleet of plug-in hybrids would balance out the subsidies necessary to make them cost-competitive with conventional vehicles. And the government will have to spend $303 billion to get to that point.

The National Research Council did not say so, but it is nevertheless true that these massive subsidies will substantially benefit upper-income people -- that is, the sort of people who can even contemplate buying, insuring and maintaining a car that is more expensive than usual. Fisker's government-backed plug-in is supposed to hit the market at $40,000 (after a $7,500 federal tax credit), Chevrolet's planned four-seat Volt is projected to cost as much as a BMW. Tesla, which also receives government aid, is planning an all-electric family model that tips the scales at $49,900.

Yet the National Research Council report does include the finding that merely improving the efficiency of conventional hybrid and internal combustion cars could reduce projected gasoline consumption by 40 percent over the next four decades. Not too shabby -- and surely a lot easier on the taxpayers. Politicians prefer plug-in electric hybrids and other flashy vehicle technologies. Pouring on subsidies makes it look like the government is doing something effective about unemployment, energy independence and environmental pollution. The recent evidence, however, suggests otherwise.

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