A Win-Win-Win-Win on EV Policy
On June 6, 2024, the Wall Street Journal published my short op/ed online (but not in print) and titled it, “How Electric Vehicles Can Make Everyone Happy.” It wasn’t an ideal title. My article was how a few major changes in EV policy could make almost everyone happier than they are likely to be with current policy.
Here’s the whole op/ed:
How Electric Vehicles Can Make Everyone Happy
Ending subsidies, mandates and tariffs would expand use of EVs while letting people continue driving the cars they want.
By
David R. Henderson
June 6, 2024 at 5:48 pm ET
One of the first things you learn about in an economics course is the concept of trade-offs: You can’t have everything you want. This is relevant in the debate about electric vehicles. U.S. auto workers want to keep their jobs. Most U.S. drivers still prefer cars with internal combustion engines. Environmentalists want Americans to buy EVs. And free traders want, well, free trade. Something’s got to give.
Or does it? There’s a path that would enable each party to achieve many of its objectives. First, end mandates and subsidies for EVs. Second, eliminate President Biden’s 100% tariff on EVs from China and allow duty-free imports. Free trade would give lower- and middle-income Americans the chance to buy relatively cheap imported EVs. More people driving EVs would make environmentalists happy. And ending mandates and subsidies would allow U.S. automakers to do what they do best: make cars with internal combustion engines. That in turn would keep U.S. auto workers employed and able to continue using their specific skills.
If we stick to our current policy path, none of these goals is attainable. For one, environmentalists can’t achieve their aims. The Environmental Protection Agency estimates that 56% of new cars would need to be EVs by 2032 to meet the agency’s emissions goals. Even with subsidies and California-style mandates, meeting that benchmark is unrealistic. According to the Energy Department, EVs and hybrids combined made up only 9.1% of all light-duty vehicles sold last year. According to the Energy Information Administration, only 1.2% of light-duty vehicles on the road in 2022 were EVs or plug-in hybrids.
There are three reasons it’s unrealistic to expect more than half of new cars sold to be EVs. First, EVs are expensive. A new EV sold in the U.S. is priced, on average, at just over $50,000, more than most drivers are willing or able to pay. Second, people are rightly worried about driving an EV a long distance and being able to reach a charging station that recharges the car quickly. Third, when temperatures fall below freezing—which happens often in much of the U.S.—it takes significantly longer to charge an EV. [DRH note: I would have challenged the editor’s insert of “or able.” The majority of drivers are able to pay $50,000; it’s just that they would have to give up so much else. But I didn’t challenge because I was focused on other parts that I wanted her to get right, which she did.]
It’s unlikely that within the next 10 years EVs will make up more than 25% of all cars sold annually. But we could likely come much closer to hitting the 25% mark in a few years, with no subsidies or mandates, simply by pursuing free trade, which would lower the first of the three barriers: cost. BYD, a Chinese manufacturer, offers some EV models that cost less than $20,000—significantly cheaper than U.S.-made EVs.
If the U.S. makes EVs more accessible and affordable by welcoming duty-free imports, environmentalists will be closer to achieving their goal of getting more EVs on the road, consumers who want to buy EVs will be able to do so more easily, and automakers can focus on making cars with internal combustion engines, which would support auto workers’ jobs.
So let’s get rid of mandates, subsidies and tariffs. There’s no perfect trade-off, but some are better than others.
Mr. Henderson is a research fellow with Stanford University’s Hoover Institution. He was senior economist for energy with President Reagan’s Council of Economic Advisers.
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