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Why electric car subsidies are a waste of money

Incentives don?t cover extra costs, reliability and range concerns.

I think incentives for electric-vehicle buyers are dumb.

New reports from the U.S. and U.K. back that view.

Two non-partisan government agencies ? the Congressional Budget Office in Washington, D.C. and Parliament?s Select Transport Committee ? conclude that during the next decade at least, the giveaways will have little impact on sales of plug-in hybrid and all-electric vehicles, or on gasoline consumption and greenhouse-gas emissions. Their main beneficiaries: affluent purchasers who?d buy the vehicles anyway.

I?d say the same for Ontario, where, depending on battery size, the government pays as much as $8,500 on the first 10,000 plug-in vehicles sold in the province.

The American incentive is an income-tax credit to a maximum $7,500 that applies to the first 200,000 plug-in units sold by each automaker.

Britain repays 25 per cent of an EV?s price, up to the equivalent of $8,000.

The Budget Office estimates the American program could cost $2 billion to 2019. The theoretical tab for Ontario is $85 million.

Actual outlays should be lower since many vehicles qualify for less than the full subsidy and sales won?t likely hit the programs? limits by the end of this decade.

(The latest estimate from Pike Research: About 400,000 American plug-in sales by 2020.)

But the real issue is, whatever the amount, the money is wasted.

The incentives don?t move plug-ins, in part because they don?t cover the extra cost of owning most ? up to $12,000 in the U.S. ? compared with internal-combustion cars. Generally, the bigger a plug-in?s battery, the more added expense.

The incentives also don?t overcome concerns about reliability, and in the case of pure EVs, range.

With so few plug-ins on the road, and some still burning gasoline while none is free of carbon-dioxide emissions, they?ll account for only modest reductions in fossil-fuel consumption and greenhouse-gases, the reports agree.

That means, the Budget Office says: ?In the short term, the tax credits are likely to have little or no impact. . . . In the long term, the credits might decrease gasoline use and emissions, but how cost-effectively they would do so is unknown.?

Regulations that require substantial fuel-efficiency gains by 2016, and tougher proposed standards for 2025, could further weaken incentives? impacts.

As gasoline burners get more efficient, plug-ins? cost disadvantage grows.

And if plug-ins succeed, they could simply put more gas-guzzlers on the road. ?Automakers … are expected to produce a mix of vehicles that, on average, meets the standards but does not significantly exceed them,? the Budget Office explains. ?Consequently, the more electric … vehicles that are sold because of the tax credits, the more low-fuel-economy vehicles that automakers can sell and still meet the standards.

?Therefore, putting more electric … vehicles on the road will produce little or no net reduction in total gasoline consumption and greenhouse gas emissions.?

Even worse, the Budget Office says 70 per cent of plug-in sales would happen without incentives, so ?only about one-third of the credits will produce energy or environmental benefits.?

That figure also suggests the incentives mainly redistribute money upward.

Sure enough, the British report suggests most plug-ins go to affluent households as second vehicles for urban driving and the U.S. system seems designed to ensure a similar result. Since the incentive is an income-tax reduction, only those who owe the Internal Revenue Service $7,500 or more can get the full amount. That, the Budget Office says, is just the top 20 per cent of tax-filers. Only 40 per cent owe sufficient tax to receive the minimum credit, $2,500.

?Most purchases of electric vehicles,? it states, ?will probably be made by people who have enough tax liability to apply the full value of the tax credit.?

So, scrap the incentives. Next week, alternatives.