The View from an EV State

Washington, the state where I live, plans to subsidize the buyers of electric cars. Already the federal government offers a $7,500 tax credit under the grossly misnamed Inflation Reduction Act. On top of this, in August the state of Washington will offer instant rebates of $2,500 to buy a used EV, $5,000 to buy a new EV, and $9,000 to lease a new EV for at least three years.

For years, state and local government here have tried to get people out of their cars. It’s refreshing, in a way, that they are finally cheering for private cars, even if it’s only the ones that run on batteries. I am not against EVs. In Seattle, my town, EVs are all over. There is one on my block. Clearly, most owners like them. In Washington state, more than 100,000 of them are on the road, and California has more than 900,000 of them. Don’t make the libertarian mistake of denouncing EVs as nothing more than the spawn of a subsidy. Most EVs on the road had an original sales price of more than $40,000 before the subsidy, and some of them double that. People buy EVs because they believe in them, not because of a $7,500 tax credit.

The state-level figures tell a story. In 2022, the top five states in EVs and plug-in hybrids per 1,000 residents were these:

• 27.55  California
• 15.43  Hawaii
• 14.50  Washington
• 13.88  Oregon
• 12.55  Vermont

All these are Biden states. There is not a Republican senator among them, and only one Republican governor, Vermont’s Phil Scott (whom the right calls a RINO). Contrast this with the five states at the bottom of the list of EVs and plug-in hybrids per 1,000 residents:

• 2.02   South Dakota
• 1.55   Wyoming
• 1.55   Louisiana
• 1.31   North Dakota
• 1.15   Mississippi

All Trump states. Not a Democratic senator or governor among them. The political difference is not the only one. California and Washington are heavy with tech workers who drive EVs as a badge of their tribe. North Dakota and Louisiana are oil-and-gas states, and Wyoming is a coal state. Owning an EV is a badge of identity.

The argument for EVs is that they are saving the earth: “The planet we live on is dying thanks to our continued plunder and destruction of its resources and bounty,” goes a typical assertion, “and we have to act today.” Discount the oh-my-God alarmism, and there remains a truth. The earth is warming. Glaciers are shrinking; the sea level has crept up 4 inches since 1993.

Don’t make the libertarian mistake of denouncing EVs as nothing more than the spawn of a subsidy.

Most of the scientists say the culprit is mainly the increase in atmospheric carbon dioxide from humans burning oil, gas, and coal.

I’m not going to argue with them. But are EVs part of a proper response? Their emissions are clean, which is good. But where they plug in is often not. Here’s how America gets its electricity:

• Natural gas: 43%
• Coal: 16%
• Nuclear: 19%
• Wind: 10%
• Solar: 4%

That’s the country as a whole. The states are all different. These days, California gets 37% of its electricity from solar, wind, and hydro. You can think of an EV in California as a three-eighths “green” car and an equal part natural-gas car. Only 2% of California’s power is from coal. In West Virginia and Wyoming, where almost all the electricity is from coal, an EV is a coal car. In Washington, Oregon, and Idaho, it’s mostly a hydro car. In South Carolina, it is about one-third a nuclear car, and in Hawaii it’s mostly a petroleum car.

An economist would ask not where a state gets the power it uses today, but where its next kilowatt is coming from. In my hydro-lucky home state, additional power won’t be coming from dams. The tribes won’t allow it on account of the salmon, and the best spots for dams have been taken. The Evergreen State has been supplementing hydro with natural gas, but it also emits CO₂. The greens have renamed it “fossil gas” to put a stink on it, and the legislature in Olympia has banned it in new construction. (Buy a heat pump!) Nuclear is out of fashion. Coal has been told to stay in the ground. I think we’re going to need nuclear, but that’s another argument.

That leaves wind and solar. A decade from now, the EV on my block will effectively be a wind-and-solar car. Wind and solar have come down in price dramatically in the past 15 years, thanks partly to innovation and partly to 10 years of near-zero interest rates, and partly — a lot, actually — to tax subsidies. Subsidies included, wind and solar are now the utilities’ cheapest choices. Adding the cost of battery storage for when the sun is down and air still, wind and solar are not so cheap. Still, they have attracted big new investments, and they remain the utility industry’s preferred options — and what the utilities buy, their customers pay for.

The all-EV future involves problems other than generating electricity. Transmission lines need to be upgraded, which brings fights with a certain breed of environmentalist. Another problem is providing the charging stations. People will want to charge when they’re at home, and who will pay for chargers in apartment buildings?

An economist would ask not where a state gets the power it uses today, but where its next kilowatt is coming from.

Then there are the batteries. To manufacture batteries requires cobalt, lithium, and graphite, as well as twice the copper as a traditional car and three times the manganese. The International Energy Agency estimates that meeting the climate goals in the Paris Agreement over the next two decades will require a 40% increase in output of copper and rare earths, a 60 to 70% increase in the production of nickel and cobalt, and almost a 90% increase in the production of lithium. This will require huge investments, some of them in places unfriendly to investors. There’s also a problem of disposing of worn-out batteries and their unhappy ingredients.

All these problems are presumably solvable at a cost. Until the past year, the market swept the worries aside and EVs were in a huge boom. The companies overinvested. Ford and other companies have lost billions on EVs, and Tesla, which has been profitable for several years, has disbanded its Supercharger development team. EVs are risky, and there have been bad investments, but that does not mean that the future is something else.

The federal government is behind it, and so are the states, though with different decibels of enthusiasm. Tooling around the internet, I find an Energy Department tally of all the goodies and compulsions for “alternative fuels” and “advanced vehicles,” state by state. With each carrot or stick counting as one, here are the top five states on that scale:

• 171  California
• 73   Washington
• 67   Colorado
• 61   Massachusetts
• 60   New York

And the bottom five:

• 16   West Virginia
• 15   Ohio
• 13   Arkansas
• 13   Wyoming
• 12   Idaho

It’s tempting for a libertarian to say, “See! This EV fad is all a creation of the state.” Not really. What’s happening is that in “blue” states, “blue” voters are electing “blue” politicians and hiring “blue” bureaucrats to come up with “blue” compulsions, incentives, and plans. The driving force is what people believe. State policy can affect the market, but consumers are buying the cars they want.

Even with the $7,500 federal credit, the customer still is paying more for his or her EV than for a petroleum-powered car. But the tax credit comes with strings. Federal law requires that to claim the $7,500, much of the minerals and battery components be sourced domestically. It requires that the car’s final assembly be in North America, and that the $7,500 credit be limited to individuals with an adjusted gross income of not more than $150,000, or $300,000 for couples. There are arguments for each of those provisions, but they are not environmental arguments. They are adding new objectives to the program and blurring its focus.

State policy can affect the market, but consumers are buying the cars they want.

The state of Washington’s EV subsidies are aimed even more at nonenvironmental goals. Washington will offer $4,000 more to lease an EV than to buy one. The idea is to push the cost of leasing the cheapest EVs below $100 a month, so that lower-income buyers can have new cars. These are people who otherwise would be buying used cars. Part of the idea of favoring leasing is to flood the used-car market with EVs for their benefit, three years down the road.

The state doubles down on its social goals by saying it will pay no subsidies to people whose incomes are above 300% of the federal poverty level. In Washington the cutoff is $45,180 for individuals or $93,600 for a family of four. But the rule is window dressing only. Unlike applying for the federal $7,500 tax credit, applying for Washington’s cash rebates won’t require proof of income. The California consultants who designed Washington’s program talked to car dealers about that. The dealers said that customers resent having to show their IRS Form 1040s, so under Washington’s program, they won’t have to do it. Customers will merely have to attest that their income is under the limit. According to the consultant who devised the program, 5% of the applications will be audited to see if people are lying, so that the state can judge how the policy is working. But no one who lied to get a grant will have to pay the money back.

The car dealers will know that, too.

Washington’s cash giveaways will be popular. And note that the rebates — cash, not tax credits — are authorized by a Democratic governor and a Democratic legislature. They will be funded by a $45 million grant from a Democratic administration in Washington, DC. Note also that the giveaways begin three months before the November 2024 elections. The thought rises that the timing is not an accident.

There’s more. Recall that to promote “alternate energy” my state has piled on 73 policies, laws, subsidies, and regulations. I have no idea what most of them are, but here is one. In its “cap and invest” program, Washington limits total industrial emissions of carbon dioxide statewide and auctions off the permitted amounts. Gasoline refiners, who need to buy permits to continue operating, have had to bid hundreds of millions of dollars for these permits.

And that has affected the price of gasoline. On June 16, 2024, the national average price of regular was $3.45 a gallon. The lowest average, $2.93 a gallon, was in Mississippi, The three most expensive states for regular gas were:

• $4.84 California
• $4.73 Hawaii
• $4.35 Washington

Set Hawaii aside; it’s in the middle of the ocean, and prices of almost everything are higher there. In California and Washington, gasoline prices are high partly because those two states impose the second-highest and third-highest gas taxes in the country, 51 cents and 49 cents a gallon respectively. But Pennsylvania’s taxes (58 cents per gallon) are even higher, and its average price for regular is just $3.65. So $5-a-gallon fuel involves more than gas taxes.

The big reason is that California and Washington are the only two states that extract billions from the refiners by auctioning off CO₂ permits.

These are statements for today. What the states actually do will depend on the situation then.

The idea for using the market to put a price on CO₂ came from the economists. State officials are proud of that; they are quick to call the auction of CO₂ permits a “market-based program,” though the permits are defined by the government and the refiners are essentially compelled to buy them. The economists’ original idea was a tax on carbon. Back in the 1990s, they argued for this as a replacement for other taxes. If you tax a thing, they said, you get less of it. That being so, it makes more sense to tax things you don’t want, such as pollution, rather than things you do want, such as income and capital gains. I liked that argument a lot, but even then the cynics were saying that the politicians would never reduce the old taxes. Now that it comes to it, the cynics were right.

In Washington the “cap and invest” money has paid for all kinds of stuff: EV charging stations, battery-powered school buses, state-agency cars, heat pumps for poor people, sidewalks for the unsidewalked and free transit rides for kids. Each one of these things can be labeled “green,” but they also grease Democratic constituencies who expect free stuff from the government.

California and Washington have also declared that no new petroleum-powered cars will be sold after 2035. These are statements for today. What the states actually do will depend on the situation then.

Finally comes the question of whether the transition to EVs should be a matter of state policy at all. A few days ago, I heard the head of the Department of Ecology in Olympia praising Washington’s “cap and invest” program, which has raised the price of gasoline here by something like 50 cents a gallon. Washington was showing the way, she said. It was doing its part. A few days ago, I paid $50 to fill the tank on a Honda Civic. By paying $4.95 a gallon for regular gas, was I doing my part to fight climate change? If I bought a Tesla, would that matter more? My state has less than one-tenth of 1% of earth’s population. California is bigger; it has a little more than half of 1%. Fill both states with Teslas: would the earth care? If the whole globe is getting warm, shouldn’t the whole globe be in on the effort to cool off?

EVs and hybrids have been gaining market share in Europe, where almost all the governments offer subsidies to buy them. The leader in EVs per capita is Norway, which not only dropped its Value Added Tax for EVs, but for several years gave them free parking in municipal garages. (Are Norwegians are seeking atonement for all the oil they pump from under the sea?) The world leader in total EV sales is China, where new EVs are available for as low as $12,000. The Chinese company BYD (“Build Your Dreams”) has surpassed Tesla in production of electric cars.

Viewing all this, I have to concede that EVs look very much like the automotive future. I haven’t bought one, myself. I’m fond of my old gasoline-burner. I feel no guilt about it, and I doubt if I would help the earth by selling it to somebody else.