CBO Issues Study on Effect of Federal Tax Credits on the Purchase of Electric Cars (and related topics)

The Congressional Budget Office has released a study on the effect of federal tax credits on the purchase of all-electric cars and plug-in hybrids. (A summary of the study is here, and the full study and underlying data can be accessed from here.) The tax credits can be as much as $7,500 per car. That is, if a car dealer charges you $40,000 for an electric car, you may be able to get a tax credit against your federal income tax that effectively reduces the car's price to as little as $32,500.

The study finds that (1) the credits will cost the taxpayers around $7.5 billion through 2019, but have yet to make electric cars cost-competitive with other cars; (2) in the short-term, the credits will have little or no effect on fuel consumption (ironically because the inclusion of electric vehicles in the calculation as to whether a manufacturer meets the federal fuel-economy standards allows that manufacturer to sell more gas-guzzlers); and (3) subsidizing the purchase of electric cars may reduce fuel consumption in the long term because greater sales of electric cars may push lawmakers to make fuel-economy standards more stringent.

The CBO's detailed summary of the report's findings appears after the jump.

CBO estimates that federal policies to promote the manufacture and
purchase of electric vehicles (including some policies that support
other types of fuel-efficient vehicles) will have a total budgetary cost
of about $7.5 billion through 2019. Tax credits for buying electric
vehicles—which account for about one-fourth of that budgetary cost—are
likely to have the greatest impact on vehicle sales.

Today CBO released a study on the effects of federal tax credits for the purchase of electric vehicles. CBO finds that:

  • At current vehicle and energy prices, the lifetime costs to
    consumers of an electric vehicle are generally higher than those of a
    conventional vehicle or traditional hybrid vehicle of similar size and
    performance, even with the tax credits, which can be as much as $7,500
    per vehicle. That conclusion takes into account both the higher purchase
    price of an electric vehicle and the lower fuel costs over the
    vehicle’s life.
  • The direct effect of the credits is to subsidize purchases of
    electric vehicles—including purchases that would have been made even
    without the credits. Those people who purchase electric vehicles because
    of the tax credit use less gasoline and produce fewer emissions of
    greenhouse gases than would otherwise be the case. The cost to the
    government of those direct reductions is somewhat higher than the
    comparable costs of other policies aimed at the transportation sector.
  • However, the tax credits have other, indirect effects: 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). Consequently, the credits will have little or no
    impact on the total gasoline use and greenhouse gas emissions of the
    nation’s vehicle fleet over the next several years.
  • Over the longer term, the tax credits can affect total gasoline
    consumption and emissions if future revisions to CAFE standards are
    influenced by current sales of electric vehicles and expectations about
    future sales. Moreover, if the credits play an important role in helping
    the U.S. electric vehicle industry become self-sustaining, their effect
    on vehicle sales might continue to affect CAFE standards—and the
    resulting amounts of gasoline use and emissions—for many years after the
    tax credits themselves have run out.

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