Sunday, April 5, 2015

Balancing the value of electric car subsidies

Some interesting news out of Georgia this week, where the state's huge subsidy for electric cars is being canned. I see multiple perspectives on this issue:

1. Electric cars are a public good: This claim is implicit in most arguments supporting subsidy programs. The true social cost of gasoline isn't priced into the typical car (climate change, asthma etc.), so the market produces more gasoline-drinking vehicles than it optimally should. Instead of taxing the negative externalities--a heavy lift politically--subsidizing a close substitute shifts the incentives for car buyers towards a less environmentally harmful car.

2. Subsidies are just leveling the playing field: Above and beyond the environmental question, gasoline vehicles benefit from a host of regulatory subsidies that artificially lower their cost to consumers and raise barriers to entry for competing technologies (military protection of trade and industrial infrastructure, convoluted retail restrictions, etc.). Understanding this, a tax credit to electric cars isn't a subsidy at all: it's a corrective for a market distortion.

3. Electric car owners should pay their fair share: Like many states, Georgia funds much of its infrastructure upkeep using gas taxes. Opponents of the current subsidies claim that electric cars are receiving an unfair pass on the shared responsibility of maintaining the roads: not only do they not pay the gas taxes, they receive extra money also. While this argument is certainly true, it rests on taking current policy as a baseline for evaluating fairness. In fact, the current funding mechanisms are broken and at odds with the public interest. The effect of fuel efficiency improvements on gas tax revenue isn't an argument for blocking technological innovation: it's an argument for shifting the funding source for infrastructure to something more sustainable and coherent.

4. This is a subsidy for rich, white, urban people: Electric cars have a certain cultural cache that signals an identity affiliation among certain groups, which tend to be richer and whiter than the general Georgia population. Due to range and recharge station limitations, electric car owners also tend to be clustered in urban areas, like Atlanta. From this perspective, the subsidy is regressive: people who can capture the subsidy are already economically better-off than those who can't.

5. We shouldn't subsidize cars in any form or fashion: While I see elements of truth in each of the above points (some more than others), I won't be bemoaning the loss of this subsidy program. In the broadest sense, this subsidy is cash going to car owners, which will on the margin increase car ownership. Subsidizing car ownership has negative spillover effects in numerous areas. Some subset of people who currently drive electric vehicles might have used alternative forms of transportation like bicycles more frequently. Perhaps some people's choices about where to live or work have been subtly distorted by the subsidy to lean more towards costly sprawl. Overall, the less that public policy does to support the implicit requirement of car ownership, the better.

Related: Georgia is moving closer to passing a mild version of the Idaho Stop for cyclists and motorcycles. Here's hoping.

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