States should stop subsidizing costly electric vehicles for the rich

When it comes to taxpayer handouts for wealthy early adopters and businesses seeking to purchase electric vehicles (EVs) and innovative trucks, Coloradans should look to Georgia, not California, for inspiration.

Currently, Colorado taxpayers provide the most generous EV tax credit in the country, a $5,000 giveback available at the point of sale, on top of a $7,500 federal incentive program designed to improve salability of EVs and increase market share. Under current law, the subsidy won’t sunset until 2022.

{mosads}Two states with similarly structured incentives, Georgia and California, provide a glimpse at the market distortions—the effects of government picking winners and losers in any given sector—and the results are anything but peachy or golden for EVs. Or state taxpayers.

Georgia ended its $5,000 state tax credit in the middle of 2015. EV sales in Georgia plummeted 89 percent in just two months. The state added an EV registration fee of $200 to cover infrastructure maintenance costs, since the vehicles did not pay gasoline taxes.

In defending the subsidy, a Georgia activist said it gave consumers the incentive “to do the right thing.” But consumers have preferences that the most generous government handouts can’t surmount.

In contrast, California’s clean vehicle rebate project produced many EV sales over the last few years. In 2016, more than half of the entire country’s new zero-emission vehicle registrations came from the state. But for proponents touting the ongoing success of the program, the results have been mixed. The in-state share of hybrids fell 19 percent, from 5.8 percent to 4.7 percent in just one year. EV sales were flat, year-over-year, from 2015.

Meanwhile, a state sponsored report found that roughly 94 percent of California’s EV tax credit rebates have gone to consumers who did not live in “economically disadvantaged” census tract areas. The data collected by the state showed that the overwhelming profile of prospective EV consumers leaned heavily toward those making more than $100,000 per year in annual household income (77 percent), but also male, white, and aged 45 and older. The state twice reduced the income cap–first to $250,000, then to $150,000 in annual income–over the past two years, and raised tax credits for those with lower incomes, to provide more balance.

But rather than correct a program skewed toward over-representation for the wealthy, California instead actually increased the total amount going to, you guessed it, the state’s wealthiest purchasers by the end of 2016.                                                                                                               

California New Car Dealers Association president, Brian Maas, told The San Diego Union-Tribune in February that vehicle consumers were ambivalent about EVs, even with the tax credits on the table.

“For many consumers, still, making the switch to a ZEV or a plug-in doesn’t make economic sense at the time of the purchase,” Maas said, pointing to current economic conditions and low gasoline prices on purchase behavior. 

In free markets, consumers express their choices and make the best decisions for themselves and for their families. Current California market conditions have neutralized the effect of the tax credits, whose ostensible purpose is to increase EV adoption. In 2016, they merely propped up flagging sales. California should provide a cautionary tale for legislators and industry insiders seeking to maintain the current tax credit scheme in Colorado.

No state should be in the business of subsidizing vehicles for consumers, much less their second or third vehicle. Colorado’s own EV buyer profile, according to the Colorado Energy Office, is strikingly like California’s. While median household income in Colorado was approximately $61,000 in 2014, most EV owners made six figure incomes.

The same CEO study found 93 percent of Colorado’s EV owners lived along the Front Range, where the state’s most populous and wealthiest counties are located. Nearly all the tax credits were going to six of the state’s biggest counties, meaning Colorado’s rural taxpayers were subsidizing the urban driving habits of wealthy Denver-area residents, while critical infrastructure, a key battle at the state Capitol this legislative session, goes underfunded.

EV tax credit policy, like the states they represent, are all over the map. This year alone, Utah voted to end its own tax credits citing the program’s cost. Meanwhile New York announced the creation of a $70 million EV rebate program.

State policies that tilt the scales in favor of wealthy consumers and corporations eager for handouts are not only a roadmap to failure, but ultimately a distraction from innovation that will make EVs more competitive without subsidies, and a regressive draw on less wealthy taxpayers who would prefer road maintenance to filling the garages of their neighbors with vehicles they themselves can’t afford.

Michael Sandoval is senior energy policy analyst at the Independence Institute, a free market think tank in Denver.

The views expressed by contributors are their own and are not the views of The Hill.