Introduction
At both the federal and state level, governments in the United States are using policy to increase the use of electric vehicles (EVs) over gas-powered cars. Some of these policies are subsidies in the form of tax credits for those who purchase EVs, while others take the form of mandates without an economic incentive. One example is California’s Zero Emission Vehicle (ZEV) Sales Requirement program, which states that “automakers will have to gradually electrify their fleet of new vehicles, beginning with 35% of 2026 models sold, increasing to 68% in 2030 and 100% for 2035 models.” Transportation currently accounts for 29% of American CO2 emissions, and switching to EVs is one way to reduce transportation’s environmental impact.
However, the transition to electric vehicles has met resistance. Even though they may be cheaper in the long run, EVs present a higher upfront cost for consumers than gas-powered cars. In addition, most automakers manufacture primarily gas-powered cars, and moving to electric vehicles would incur high costs in research and development as well as new manufacturing processes.
Arguments in Favor of Subsidizing Electric Vehicles
Proponents of EV subsidies argue that increased EV use will bring about important environmental benefits. EVs reduce emissions and improve air quality, which would slow the progression of climate change because CO2 is the primary greenhouse gas responsible for global warming. An analysis of the CA ZEV mandate shows that the increased EV use “will result in cumulative avoided health impacts worth nearly $13 billion… [and] in 2040, greenhouse gas emissions from cars, pickups, and SUVs [will be] cut in half.” Electric vehicles are also cheaper for consumers in the long run, as electricity is less expensive than gasoline. In fact, the economic benefits of the mandate are expected to outweigh the costs by approximately $383 billion, more than half of which comes from savings on gas.
Furthermore, subsidies that incentivize EV use may address consumers’ and companies’ economic concerns about switching to EVs more directly than mandates do. Tax credits for EV purchases alleviate the higher upfront costs of EVs as opposed to gas-powered cars. Furthermore, subsidies can also decrease America’s reliance on foreign manufacturing, a significant concern not only for electric vehicles (EVs) but also for other renewable energy infrastructure, such as solar panels. The Inflation Reduction Act (passed in 2022) includes tax credits for EVs, but contains specifications on where the components must be manufactured in order for the vehicle to qualify. Mandates, on the other hand, usually do not address the higher upfront cost of EVs or increased demand for foreign components.
Arguments Against Subsidizing Electric Vehicles
Critics of EV subsidies point to the potential negative impacts created by these policies, both environmental and economic. An increase in demand for EVs would also cause an increase in the demand for EV batteries. Currently, these batteries require metals such as lithium, nickel, and cobalt, whose mining is very energy-intensive and often leads to high levels of water and air pollution. Additionally, the environmental benefits of EVs are dependent on how the electricity they run on is produced. Current US electric grids mainly use a mixture of renewable and fossil fuel sources. An increase in EV usage would put high demands on the electric grids, prompting concerns about lack of infrastructure to accommodate these demands and how electricity production can be increased.
Additionally, even among those who support the transition to EVs, there is disagreement about whether subsidizing EVs is the best way to bring it about. Subsidies have been shown to mostly benefit rich and progressive drivers (with the proportion of EV ownership currently much higher in households which earn over $200,000 per year). This limits the potential benefits since these drivers would tend to buy an EV regardless of tax credits or use more fuel-efficient vehicles and drive less. On the other hand, drivers who tend to use the most gasoline have more average income levels, and as such are less likely to make use of a subsidy such as an EV tax credit. Subsidies for EVs may also have detrimental economic consequences, as they distort the marketplace and may disincentivize American EV manufacturers from innovating or lowering prices.
Looking Forward
Ultimately, the future of EVs will be shaped by both environmental and economic forces. California’s ZEV mandate program will be fully implemented by 2035, and can serve as a model for other states to increase EV use as well. Environmental concerns such as increased warming and air pollution may also influence policymakers and consumers towards EVs. While the economic barrier to EVs is currently higher than for gas-powered cars, increased demand may drive prices down and spur innovation. EVs present their own environmental and economic concerns, but transitioning to more environmentally friendly transportation will soon become a necessity, whether it is achieved through subsidies, mandates, or market forces.