Oil Industry Cons About the EV Tax Credit

The oil industry is engaged in an all-out lobbying assault to kill the consumer tax credit for plug-in electric vehicles (EV tax credit), even though it enjoys permanent tax credits that cost American taxpayers billions each year. In fact, the value of fossil fuel subsidies completely dwarfs the value of EV subsidies. If Congress is wary about the costs of extending the EV tax credit, it could repeal some of the oil industry giveaways to pay for it.

The oil industry’s arguments against EVs are misleading and based on old data from 2014. The EV market has changed dramatically in the last five years—batteries are improved, EV range has expanded, and battery prices continue to fall. In fact, over three times as many plug-in vehicles were sold in 2018 compared to 2014, and a bevy of new EVs entrants are coming to market. More manufacturers are coming out with new EV models in car and truck product lines. In 2014 there were 11 plug-in EV models that were cheaper than the average price of a vehicle in the United States; now there are 23.

Source: Bloomberg

EV sales are growing, but they still represent only 1 to 1.5 million out of roughly 260 million total vehicles on US roads. In addition to facing the economic challenge of dislodging a mature and deeply entrenched technology, the internal combustion engine, the EV industry also has to confront dark political headwinds in the form of oil industry lobbying that enjoys permanent tax credits.

Given the long list of economic and environmental benefits that EVs can provide for the United States, it shouldn’t be surprising that there is broad and diverse public stakeholder support for the EV tax credit. Especially when compared to the permanent tax credits enjoyed by the oil industry, the temporary EV tax credit is clearly a better deal for the country. The oil industry knows this and that is why it is lobbying so hard against EVs right now.

The EV Tax Credit Makes EVs More Affordable and Delivers Many Additional Benefits

The biggest claim oil industry front groups make is that the EV tax credit is a “gift to the affluent.” They say most EVs are luxury vehicles, and most households claiming the EV tax credit are wealthy.

Here are some facts about EVs:

  • Many EV models on the market right now are cheaper than the average price of a new car. As one example, in some states, one can lease a 2019 Hyundai Ioniq Electric for about a $100 per month.
  • More EVs are leased rather than purchased, a trend that attracts more middle income buyers and leads to a larger market of very affordable, lightly used EVs.
  • EVs are cheaper to drive than gas powered cars. Drivers save thousands of dollars over the lifetime of their EV by liberating themselves from the gas pump.
  • EVs are dramatically cheaper to maintain than gas powered cars.
  • The purchase price of EVs is expected to reach parity with gas powered cars in the early 2020s.

These facts tell a much different story than the one the oil industry is trying to spin: The average car buyer can afford an EV, and EV owners will continue to benefit from their EV’s lower costs over the lifetime of the vehicle.

The EV tax credit has helped make this possible. But given that EVs still only constitute less than 2 percent of total U.S. auto sales, it remains a nascent technology that deserves continued support, especially when it is competing on an uneven playing field against big oil. Gas-powered vehicles have had a 100-year head start and have been supported by federal tax subsidies during that entire time.

Compared to Oil Tax Credits, the EV Tax Credit Is Cheap

Another false argument still circling out there by EV opponents—that the EV tax credit is too costly for the federal government to afford—is wrong too. Let’s put that into perspective by comparing the EV tax credit to tax credits for the oil industry.

First, the EV tax credit is temporary while oil tax credits are permanent. Second, there is only one tax credit for EVs while the oil industry has many.

The EV tax credit, which is provided to consumers who purchase the vehicle, is designed to phase out once a manufacturer sells 200,000 EVs. Tesla and GM were the first companies to reach the 200,000-unit threshold in 2018. Other established car manufacturers will reach the cap soon too, and EV start-ups such as Rivian are expanding into larger EVs by producing EV pick-up trucks, SUVs and delivery vehicles.

Consumer preference for full-size pickups and SUVs has resulted in the most expensive and polluting vehicles sold today. If it fails to expand the EV tax credit, Congress loses an opportunity to displace higher emission vehicles with zero emission ones, forgoing the most environmental benefit on a per-incentive basis.

American EV manufacturers who take risks, innovate, and invest in keeping the United States at the forefront of an increasingly competitive global auto market should not lose a subsidy while their competitors get to keep theirs.

To avoid punishing first movers and to keep the cost of the tax credit in check, a bipartisan bill, the Driving America Forward Act (S.1094), has been introduced in the Senate to raise the manufacturing cap to 600,000 units and reduce the credit after 200,000 units to $7,000. The bill is supported by over 120 organizations, including the NRDC, and its House companion (H.R.2256) has over 130 cosponsors. This bill expands the EV tax credit, but it remains temporary, unlike current tax credits for the oil industry.

The Joint Committee on Taxation (JCT) estimated the EV tax credit cost the US government about $2.2 billion between 2011 and 2017 and would cost about $7.5 billion between 2018 and 2022 if left unchanged. Though there isn’t an official JCT score for the Driving America Forward Act, a study commissioned by the American Fuel & Petrochemical Manufacturers (AFPM)—a major oil industry lobby—estimated the bill would cost about $15.7 billion over 10 years.

This study should be viewed skeptically given the source of funding. It even cautions the reader itself that its numbers are overestimated, assuming the unlikely scenario where all credits are used. But even if we take that analysis as fact, that number is trivial compared to how much the United States has spent on tax credits for Big Oil, some of which have been around since the early 1900s. Not only have oil industry tax credits enabled rampant and irresponsible drilling throughout the country (see satellite image below), they cost American taxpayers much more per year than the EV tax credit.

Oil industry development in Southeast Colorado, enabled by permanent tax credits

Between 2019 and 2028, the U.S. Treasury’s loss for expensing exploration and production costs (intangible drilling costs) is $8.8 billion, percentage depletion’s loss is $6.4 billion, and short-term amortization of geological and geophysical expenses costs will exceed $2.4 billion in lost revenues. The enhanced oil recovery and marginal wells credits loses almost $9 billion more. In total, tax benefits for oil and gas production will cost the Treasury $27 billion over the next ten years—or $2.7 billion a year.

In 2018 alone, American taxpayers paid more than twice as much for just four of these permanent oil industry tax credits than they did for the EV tax credit.

And those are just the costs of foregone tax revenue. Factor in underpricing and catastrophic environmental and public health externalities—environmental damage, toxic air pollution, and climate change—and the EV tax credit becomes extremely cheap by comparison.

EVs are no longer just for the well-off anymore, but much more work remains before they can fairly compete against gas-powered cars. Congress created the EV tax credit to encourage EV adoption and spur innovation in the transportation sector—the largest source of greenhouse gas emissions in the United States. To really level the playing field, Congress can and should repeal expensive, permanent oil tax subsidies as it works to pass the Driving America Forward Act.

About the Authors

Dan West

Senior Advocate, Government Affairs

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