LOOMINGTON, Ind. — It would be very unwise to “pull the plug” on electric car subsidies at this time. Without the subsidies, the auto industry would be forced by unavoidable regulation to sell electric vehicles at huge financial losses.
One of the few bright spots in the current American economy, a thriving auto industry, would be thrown into turmoil.
That regulation presents a huge challenge to automakers: between now and 2025 the average fuel economy of a new car or light truck must increase from less than 30 miles per gallon to more than 50 miles per gallon while the share of “zero emission vehicles” — mostly electrics — in California and nine other states must rise from less than 1 percent to 15 percent of new vehicle fleets.
These regulations were adopted with laudable goals: reducing oil dependence, and thereby enhancing the security of the U.S. economy; and improving environmental quality by reducing smog and the greenhouse gases linked to climate change.
One can argue that these policies are overly stringent or unrealistic but they are not scheduled for reconsideration by the federal government until 2017.
Recognizing the formidable challenge imposed on industry, the federal government and the states enacted generous subsidies for the nascent electric vehicle industry — the battery suppliers, vehicle manufacturers, recharging companies and consumers. That is why, given the long lead times necessary to launch a new electric vehicle industry, this is the wrong time to do a policy U-turn, though the temptation is understandable.
Critics argue correctly that President Barack Obama’s national goal of 1 million plug-in vehicles by 2015 was overly optimistic and will not be accomplished. However, the rate of sales of plug-in vehicles from 2010-2013 is accelerating rapidly.
From 2010 to 2013 the growth rate of plug-in vehicles has already surpassed the growth in sales of conventional hybrids, including the Toyota Prius, when they were first introduced from 2000 to 2003. In the next few years, much can be learned from the experience of Oslo, Norway, where plug-in vehicles are already becoming the preferred choice of many consumers.
It is true that the first generation of plug-in vehicles, including the Chevrolet Volt, the Nissan Leaf and the Tesla sports car do not meet the transport needs of most American motorists at an affordable price. However, based on hard work that began four years ago, the second generation of plug-in vehicles is about to hit vehicle showrooms, as every auto maker from Toyota to Volkswagen will be offering some form of plug-in vehicle.
The industry has entered a healthy phase of competition where each auto maker is striving to offer the plug-in vehicle with the best combination of driving range, recharging time, performance, and price.
The subsidies that now exist can be seen as support for a large demonstration project for a promising new technology that could prove to be a breakthrough for the entire transport sector of the U.S. economy.
In the long run, the electric vehicle must win its place in the marketplace without any government subsidy. Indeed, electric vehicles should ultimately be taxed to help pay for road maintenance and repairs, just as owners of gasoline-powered vehicles now pay a tax on gasoline and diesel fuel.
But the right time to reconsider tax policy and subsidies is 2017, at the same time that the federal regulatory system is scheduled for refinement.
John Graham is dean of the Indiana University School of Public and Environmental Affairs.