Election 2010: A Mandate Against Bailouts and "Hidden Taxes" for EVs

Last Updated Nov 3, 2010 5:44 PM EDT

It's odd that, after such a momentous election, dramatically changing the political alignment in America, one of the most important results for the future of electric cars (besides the certainty that EV companies in trouble won't get a bailout) was a positive vote on a California ballot initiative.

While they were electing Jerry Brown as their governor and re-electing Sen. Barbara Boxer (a holdout against the red tide also seen in New York), state voters were also voting "yes" on Proposition 26, a ballot initiative that could change the outlook for EVs in what is widely seen as the largest U.S. auto market, capable of assuring the plug-in rollout's success or failure.

California, with its huge stand-alone market and strict emission laws, has had disproportionate influence on the auto industry both domestically and worldwide. And that's the case now, just as the EVs that are targeting the state start to roll out.

The election, obviously, sends a number of signals for the auto industry, and one is that automakers shouldn't expect to get rescued again. TARP was a negative buzzword for voters. Steven Rattner, Obama's auto czar and the architect of the Chrysler and GM bailouts (described in his gripping new book, Overhaul), told me that the results "send the message that the public hates bailouts, and that's disappointing because I think they were a fundamental part of saving the economy. We are clearly out of the bailout business now."

Congress' new alignment is more likely to approve tax credits for EVs than direct subsidies for them, though both will probably have a harder time. As I've said, any initiative framed as helping get America off foreign oil will have a chance; if global warming is the focus, there's not much hope of passage -- there wasn't even before the election. If EVs need the crutch of subsidies, their prospects are poorer after Tuesday's election. If they can make it in the marketplace on their own, it ultimately won't matter than much.

California is currently the state with the richest EV subsidies. Consumers there can get a $5,000 cash rebate, not a tax incentive, on buying new EVs. That's the best deal in the U.S., and will result in the Nissan Leaf plug-in car costing just $20,000 there, instead of its $32,000 MSRP. That subsidy has $4.1 appropriated and may be grandfathered in, but future appropriations like it, funded by fees, are threatened by the ballot measure that just passed.

Prop. 26 represented a clever bait and switch, and it could be a sign of things to come as a way of harnessing the anger of voters. Environmental groups, including the Natural Resources Defense Council, Environmental Defense Fund and the California League of Conservation Voters, raised a huge coalition to oppose the similarly intentioned but unsuccessful Prop. 23. That initiative would have ended implementation of California's landmark greenhouse gas reduction law, AB 32 (the source of huge appropriations for EVs and alternative fuels) until the state's unemployment rate falls below 5.5 percent -- i.e., never. That was easy to explain, and unpopular.

Prop. 26, known as the "Stop Hidden Taxes" initiative, was stealthier -- it merely requires a two-thirds vote of the legislature, a so-called supermajority, for any new fees imposed on, for example, gasoline or driver's licenses. That looked reasonable enough, since nobody likes stealth taxes. According to Paul Scott, vice president of Plug-In America, few voters understood the provisions of Prop. 26, which was a late bloomer that received a bumper crop of oil company (Chevron, ExxonMobil, Shell, Occidental) funding late in the game when it became apparent that Prop. 23 was a loser (it was defeated Tuesday). Chevron alone spent $3.7 million on its campaign, and Conoco Phillips $525,000. Liquor and cigarette companies were also out in force favoring 23, because it can make new "sin taxes" go away.

"Even though I was fighting 23, I didn't even know about 26 until about three weeks ago," said Scott, who is based in Los Angeles (and sells Nissan Leafs there). "I was wondering why Chevron and the California Chamber of Commerce were suddenly professing neutrality on 23 -- I thought they were having a change of heart. But in reality they were switching their support to the more likely to pass Prop. 26."

The full effects of Prop. 26 will be known shortly, but it is clear that any environmental laws with fees attached will be facing an uphill battle. The coalition of environmental groups that opposed Prop. 26 will mount a big campaign to limit its effects in the state legislature. It's a big plus for them that Jerry Brown, a long-term friend of EVs, was elected governor rather than wild-card Meg Whitman.

When the dust settles, I'll offer a more complete assessment of the results of Decision 2010. It's interesting to note, however, that in what are likely to be three of the biggest EV markets, New York, Massachusetts and California, Democrats held on to power. But they'll have to work in new coalitions if they want to get anything done. Jon Coifman, a consultant to clean-tech and EV companies, says that politicians are going to have to brew "green tea," which sounds about right to me.

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Photos: Zan Dubin Scott (Paul Scott), Flickr/Thomas Hawk (Jerry Brown)