Over the next seven years, the federal government will spend $7.5 billion on policies to boost the U.S. electric-vehicle industry. But a new report by the Congressional Budget Office casts doubt on whether these programs will achieve all of their goals.
The report looked at the $7,500 tax credit that the government offers to consumers who buy plug-in hybrids such as Chevrolet’s Volt or all-electric vehicles such as Nissan’s Leaf. This credit, the CBO estimate, will cost $2 billion between now and 2019.
Yet the credit was 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 vehicle, assuming gasoline averages about $3.60 per gallon.
What’s more, in the short run, the tax credits would have “little or no impact” on America’s overall gasoline consumption or greenhouse-gas emissions, the report said. That’s because of the way the credits would clash with the Obama administration’s new fuel-economy rules.
Under those rules, automakers must ratchet up the average fuel economy of the cars they sell — their new car fleets are supposed to average 54.5 miles per gallon by 2025. Yet automakers are unlikely to exceed that target, which means that for every electric vehicle they sell, CBO expects them to offset it with a lower-fuel-economy car.
In the long run, the tax credit could reduce fuel consumption if it helps build support for the plug-in industry — and allows regulators to set even stricter fuel-economy standards.