Tuesday, December 21, 2010

The Value of Electric Vehicle Subsidies

Electric Vehicle (EV) subsidies are short term means of accelerating the introduction of low emission vehicles so that they can benefit from economies of scale. Direct subsidies or EV tax credits can be phased out when the technology is a bit more mature and volume production is lowering prices.

According to a poll by Ernst & Young, thirty-four percent of US respondents said they would be willing to subsidize charging stations for hybrid and electric cars.

Governments around the world are subsidizing EV development. In Ireland, the Government wants to see 10% of vehicles running on electric power by 2020. To support the increase in EVs, the Green Party minister for Energy, has announced a scheme to deploy 1,500 electrical recharging stations.

In a bid make Britain "the European capital for electric cars," the then UK Prime Minister Gordon Brown pledged £100 million in government money to support greener cars including electric and hybrid vehicles. In July 2010, the UK also announced it would subsidize buyers up to 25% or £5000 for EVs starting in January 2011.

As of June 2009, consumers in Japan who purchased an electric vehicle can receive subsidies for as much as one third of the car's cost. EVs and hybrids, are also exempt from taxes for three years in Japan.

Critics tend to exaggerate the cost of EV subsidies without considering the advantages. It is absurd that the oil, coal, and gas industries that are responsible for global warming get vastly more public funds than zero emission electric cars.

Although it makes sense to clean up the power grid, even when charged with electricity that partly comes from coal plants, EVs are still cleaner than internal combustion engine cars.

Subsidies for electric vehicles are needed, says auto industry analyst George Magliano, of IHS Global Insight. Acceptance of electric cars "will not occur without some sort of incentives, unless the price of the technology changes," he says. "People who are buying them today are basically people that want to make a statement. And without the push from the government, this is a difficult sell."

"Our own expectation is the costs will come down as we go through what engineers [call] 'generations of learning," Mike Robinson, GM's vice president for environment says. "We'll go through that on the battery technology; the motor technology; it will help drive costs down. And if the customer doesn't see value at the end of this, we won't be successful."

Subsidies will help to reduce the price of EVs so that they can penetrate the market and achieve economies of scales. This will also help fund research and development for technological breakthroughs.

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Chris said...
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