There are better alternatives to Maryland's electric vehicle subsidy
Originally published in the Baltimore Business Journal
From Tesla to the Chevrolet Bolt, electric cars have become increasingly popular over the years.
Maryland began offering an electric vehicle subsidy in 2011, a credit of up to $3,000 for electric vehicle buyers depending on the capacity of their vehicle’s battery. This credit is justified as a way to lower greenhouse gas and other air pollutant emissions, though the cars are ultimately only as environmentally friendly as the power plants that charge their batteries.
This year, Maryland passed House Bill 1246, which doubled the total amount that the state can hand out in electric vehicle subsidies for fiscal 2020 to $6 million. Due to the subsidy’s popularity, the program ran out of $6 million just a few days after the new fiscal year began on July 1.
But this raises a question: if electric vehicles are so popular, why is the electric vehicle subsidy necessary? It would seem to be a taxpayer handout to people who were planning to buy an electric vehicle all along.
According to Z. Andrew Farkas, director of the National Transportation Center at Morgan State University, over 80% of Maryland’s electric car owners are well-educated and affluent people with household incomes over $100,000. This isn’t surprising: the average price for an electric vehicle is $8,000 more than the average sized gasoline car and $22,000 more than the average price of a small gasoline car.
This raises equity issues, since Maryland’s low- and average-income taxpayers end up subsidizing the car purchases of wealthier Marylanders who can afford electric vehicles without subsidies. To make matters worse, electric vehicle drivers pay little to no motor fuel tax, the tax that funds the state’s transportation trust funds. Subsidizing drivers who already get fuel tax breaks exacerbates the unfairness problem.
Even though Maryland’s electric vehicle subsidy is designed with good intentions — to help Maryland reach its clean air goal of 300,000 electric cars by 2025 — the distributional consequences of the program are undesirable. There are far less controversial ways for Maryland to protect the environment than subsidizing the state’s electric vehicle buyers beyond fiscal 2020.
According to a survey, eight in 10 Marylanders are already environmentally concerned citizens who believe in anthropogenic climate change. These Marylanders would likely do their parts to protect the environment and reduce carbon emissions with or without financial motives to do so.
Given this, Maryland government should stop subsidizing electric vehicle buyers and empower Maryland’s consumers to make independent and informed decisions about whether driving an electric vehicle is the most efficient way to protect their environment. The conclusion may be otherwise: a study by the Manhattan Institute found that electric vehicles will reduce energy-related U.S. carbon dioxide emissions by less than 1 percent by 2050.
On the other hands, if enough consumers, including low-income residents, are convinced about the environmental benefits of electric vehicles and demand them, electric vehicle manufactures would price-compete more heavily on their electric vehicles, including manufacturing less expensive models. To some extent, this is already happening: Tesla, for instance, announced earlier this year that it will lower prices because its products are “still too expensive for most people.”
Maryland could reallocate the millions of dollars of electric vehicle subsidies it budgets each year, directing the money to such uses as research into other ways to meet the state’s environmental goals such as innovative recycling technologies or ways to encourage Marylanders to use public transits more often to commute. After all, little progress can be made by switching to electric vehicles alone if Marylanders continue to litter and drive to work every day.
All in all, to suggest that Marylanders need government handouts to do the right thing is an insult to Marylanders who believe in protecting their environment. For the smaller fraction of Marylanders who do not believe in global warming, spending millions on electric vehicle subsidies would do little to convince them that their actions do matter.
Carol Park is a senior policy analyst in the Center for Business & Economic Competitiveness at the Maryland Public Policy Institute. She can be reached at email@example.com.