Federal EV Subsidies Likely Doomed by Politics

Last Updated Oct 13, 2010 3:53 PM EDT

Electric car supporters are getting what they wanted -- a Senate cloture vote on pending EV legislation that could send the bill to the floor during the lame-duck Congressional session next month. The good news is that the legislation, S.3815, coupling EV subsidies with rebates for natural gas vehicles, has been freed from problematic ties to the Bush tax cuts.

But the bad news is that even if it does come up for a stand-alone vote Nov. 17 or later, the "Promoting Natural Gas and Electric Vehicles Act of 2010" is likely to fail by a wide margin, says Robbie Diamond, the head of the influential Electrification Coalition. The problem is that oil spill money would underwrite the bill.

Electric cars usually have bipartisan support, but the sticking point this time is the funding for what would be strong subsidies (including individual grants of $100,000) to support EV deployment in certain key markets to be determined. The problem, Diamond said in an interview, is that funding for the bill, $500 million initially to support 400,000 plug-in cars, would come from the Oil Spill Liability Trust Fund, funded by Congress after the Exxon Valdez disaster.

As defined by the EPA, the trust fund is fairly narrowly designed to offset oil spill damage. But the architects of the bill tried to work around that. Stephanie Leger, legislative director for the Electrification Coalition, hastens to point out that the bill would not be directly funded out of the trust fund. "It's an offset," she said. The bill includes a provision to increase the trust fund levy on a barrel of oil from nine to 21 cents. While there might be poetic justice in that (from oil pollution comes clean cars), Diamond says, "Many Republicans and some Democrats oppose any connection to the trust fund, so it has low odds." He declined to quantify those odds.

Ultimately, the electric car bill, which also includes millions to create a cash prize for advanced battery development, would cost way more than $500 million. If passed, it would authorize spending of that amount, but it is envisioned as leveraging more than $2 billion for community grants. Authorization for that grant spending would have to make its way separately through the appropriations committee.

So if increasing the Oil Spill Liability Trust Fund is a non-starter politically, what other ideas are out there? Diamond notes there is unspent stimulus money, and many other avenues to explore. "Surely," he said, "with oil prices at $84 a barrel, it is incumbent on Democrats and Republicans to find this relatively small amount of money to offset the $577 billion that the Department of Energy estimates oil dependence cost the U.S. in 2008. These are investments the U.S. needs to make."

As I've reported, Congress has also failed to act on a less-momentous extension of the simple federal tax credit of up to $2,000 to install an EV charging station. The timing is terrible: The credit will expire December 31, just as EVs are hitting the market. It's likely that our dysfunctional Congress will extend the credit, but not until after the lame-duck session, which means it will have to be enacted retroactively. Such uncertainty makes it very difficult for businesses to accurately gauge the size of the early adopter market. Subsidies need to be reliable, not moving targets.


Photo: Electrification Coalition, Flickr/Tom Raftery