washington dc

The Congressional Budget Office recently released a dour report on the cost of federal policies designed to promote electric vehicles and the role they will play in reducing national gasoline consumption over the next several years. Consumer tax credits for electric vehicles, which can run as high as $7,500, will make up about 25 percent of the $7.5 billion these policies will cost through 2019, the CBO says, and they will have "little or no impact" on overall gasoline consumption.

The CBO looked at tax credits for plug-in hybrid electric vehicles (like the Chevrolet Volt) and fully battery-electric vehicles (i.e., Nissan Leaf), and compared them to similar-sized conventional gasoline-engine vehicles with average fuel economy ratings. These EVs are using little or no gasoline and produce less greenhouse gas emissions, but the cost to the government can be high, the CBO found. For each gallon of gasoline not burned as a result of a consumer driving an EV, it will cost the federal government anywhere between $3 and $7.

The federal tax credit may not be enough to offset the higher price of EVs compared to high-mileage conventional cars. The costs of electric vehicles are much higher than similar-sized gasoline vehicles, and the federal tax credit of $7,500 per vehicle is not enough to bridge the gap, the CBO said. And, the bigger the battery, the greater the cost disadvantage for buyers of plug-in vehicles and conventional vehicles.

Part of the problem in meeting gasoline consumption reduction targets is that upcoming federal fuel standards could cancel out gains made by federal tax credits, the CBO study said. The corporate average fuel economy mandate begins with automakers meeting 35.5 mpg by 2016 and 54.5 mpg by 2025. "Increased sales of electric vehicles allow automakers to sell more low-fuel-economy vehicles and still comply with the federal standards that govern the average fuel economy of the vehicles they sell (known as CAFE standards)," the CBO said.

Beyond consumer tax credits, where will the remaining 75 percent of that $7.5 billion cost to the federal government come from? About $2 billion is going into grants to the battery industry and around $3.1 billion is expected to come from unpaid portions of the $25 billion in loans to manufacturers of advanced vehicles.