Electric Vehicles Versus Hybrid Vehicles

Biden Administration policies and tax incentives favoring electric vehicles over hybrid vehicles will backfire. The subsidies are too expensive, the demands on the electric grid too high, the dependence on foreign sources of lithium problematic, and the battery disposal problem unresolved.

Current environmental policy in the United States, both subsidies and regulations, favor the growth of electric vehicles over hybrid vehicles.  

Is this focus on EVs over hybrids misguided?  

Have policy makers underestimated economic and environmental costs associated with the use of EVs and the transition?  

Would subsidies for hybrid vehicle provide a quicker more economically efficient path to a clean energy future?

Background on Incentives and Regulations:

This IRS bulletin describes a new clean vehicle tax credit with a new tax credit, up to $7,500 per vehicle, for new clean EV vehicles purchased after 2023.  Certain vehicles including foreign built vehicles and vehicles with prices above a cap are ineligible.  Electric vehicles (EVs) are more likely to be eligible for the clean vehicle tax credit than plug in hybrid electric vehicles (PHEVs).  Car and Driver reports that 7 PHEVs are eligible for the clean tax credit compared to 15 EVs.  Hybrid vehicles without a plug in feature are not eligible for the clean tax credit even though they get excellent gas mileage.    

The infrastructure law included $5.0 billion in funds for states to build charging stations for EVs and an additional $2.5 billion for grants administered by communities.  These subsidies benefit plug-in vehicles but do not benefit non-plug-in hybrids.

California emission rules requires that all vehicles sold in the state by 2035 will be zero emission vehicles (ZEV).  ZEV vehicles include EVs and plug in hybrids but do not include non-plug-in hybrids.   The super ultra-low emission vehicles on this list will no longer be available for sale in California or on states with emission standards linked to the California standard.

Analysis of incentives and regulations:

The EPA strongly supports the transition to EVs despite evidence indicating benefits of EVS relative to hybrids are low and the adoption of EVs will be slower and more costly to the economy than the adoption of hybrid vehicles.

Some hybrid vehicles like the Prius have a fuel efficiency of over 50 miles per gallon and this article indicates the difference in EV and hybrid emissions is small. EV emissions are likely higher than hybrid emissions in states where the electricity is obtained from coal-powered plants.

The manufacture of EV batteries creates substantial emissions, which partially offset the lower tailpipe emissions.

Pollution from lithium mining has had devastating environmental impact on the developing countries that are the source of this material.

Currently, around 5 percent of EV batteries are recycled.  Unless recycling is increased there will be substantial health and environmental problems associated with battery disposal.

The limited range of EV batteries would result in multi-vehicle households using a traditional EV on longer trips, thereby, reducing the lifetime emission reductions from the purchase of EVs.

There are wide differences in opinion on the likely adoption rate of EVs.

Despite very large subsidies and favorable regulations described above, some recent evidence supports the view that EV adoption will be slower than anticipated.  This CNBC article found two reasons — concern about public charging and the EV range on long trips – for low EV sales.  Companies like Hertz have overstocked EVs given current demand.

A rapid adoption of EVs could lead to electricity outages if the grid is not improved and expanded.  Again, the environmental gains from the growth of EVs depends on the growth of clean energy sources, which is uncertain.   Failure to expand the electricity grid will slow the rate of EV adoption and increase cost of their use.

China is the major source of most materials used in EV batteries.  The growth in the adoption of EVs could increase the dependence of the United States on China.  An increase in the cost of materials like lithium used in EV batteries could slow the rate of EV adoption and increase costs.

It is highly possible that a smaller subsidy targeting hybrids and ULEVs over EVs will lead to a faster transition to cleaner vehicles than the current approach.

Concluding Remarks:  Most EV buyers and recipients of EV subsidies are relatively affluent.  I would guess that the average Tesla buyer is wealthier than the average Prius buyer.  The Prius buyer did not have to be bribed to reduce her carbon footprint.  I have a hard time justifying government subsidy for clean cars when some important health care subsidies phase out in 2024.  A likely scenario from current policy is large subsidies leading to increased debt, which provide only modest environmental benefits. 

Authors Note:  LinkedIn members should subscribe to Insightful Memos.  Many posts like this one on the difference between the cost of living and inflation can be found at Finance Memos.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.