U.S. electric car policy to cost $7.5 billion by 2019: CBO

Thu Sep 20, 2012 8:01pm EDT

Nissan Leaf electric cars are being charged before the start of an electric car rally from Tallinn to Monte-Carlo in Tallinn June 1, 2012. REUTERS/Ints Kalnins

Nissan Leaf electric cars are being charged before the start of an electric car rally from Tallinn to Monte-Carlo in Tallinn June 1, 2012.

Credit: Reuters/Ints Kalnins

(Reuters) - U.S. federal policies to promote electric vehicles will cost $7.5 billion through 2019 and have "little to no impact" on overall national gasoline consumption over the next several years, the Congressional Budget Office said in a report issued on Thursday.

Consumer tax credits for buying electric vehicles, which can run as high as $7,500 per vehicle, will account for about 25 percent of the $7.5 billion cost, the CBO said.

The rest of the cost comprises of $2.4 billion in grants to battery makers and projects to promote electric vehicles as well as $3.1 billion in loans to auto companies designed to spur production of fuel-efficient vehicles.

Many of these initiatives were initiated in 2009 under President Barack Obama, but the loan program was authorized in 2007 under the Bush administration.

Producing all-electric cars and plug-in hybrids is part of the auto industry's solution to reach increasingly stringent fuel economy standards designed to cut emissions and lessen the United States' dependence on oil.

U.S. government standards mandate that by 2025, automakers to show corporate average fuel economy (CAFE) of 54.5 miles per gallon or about 39 miles per gallon in real world driving.

The tax credits will increase sales of EVs, hybrids and more fuel-efficient gas-powered models and help boost the average fuel economy of automakers' fleets, the CBO said. The federal tax credits apply to the first 200,000 electric vehicles sold by each manufacturer.

But these sales will leave room for automakers to continue to sell models with low fuel economy, the CBO said.

"The more electric and other high-fuel-economy vehicles that are sold because of the tax credits, the more low-fuel-economy vehicles that automakers can sell and still meet the standards," according to the report.

As a result, tax credits will have "little or no impact on the total gasoline use and greenhouse gas emissions of the nation's vehicle fleet over the next several years."

In the study, the CBO looked at the tax credits and other federal policies for plug-in hybrid vehicles like the General Motors Co (GM.N) Chevrolet Volt and fully battery-electric vehicles like the Nissan Motor Co (7201.T) Leaf.

The CBO said it compared similar-sized electric and gas-powered vehicles with average fuel economy ratings.

"General Motors is committed to technological innovations like the Chevy Volt and to help our customers use little or no gas and save money and the pump," said Heather Rosenker, GM spokeswoman in Washington.

"We'll keep our eyes on designing and building cars and defer the policy debate to the policy makers," she said.

CREDITS CAN'T RECOUP EV COSTS

While drivers of these electric vehicles use less gasoline and emit less greenhouse gas such as carbon dioxide, the cost to the government can be high, the CBO found. The U.S. government will spend anywhere from $3 to $7 for each gallon of gasoline saved by consumers driving electric vehicles.

Proponents of government spending on advanced vehicles say the start-up costs will be high, but U.S. consumers could still recoup much of that investment over time.

"The people the report often know the cost of everything and the value of nothing," said Dan Weiss, a senior fellow at the Center for American Progress. "They are overestimating the costs of these programs and undervaluing the benefits."

Sales of plug-in hybrid electric vehicles and vehicles that have no gasoline engines at all are so far low. In 2012, through August, 13,497 Chevrolet Volt have been sold, and Nissan has sold only 4,228 Leaf.

By 2016, each auto manufacturer is to meet a CAFE standard of 35.5 miles per gallon, up from the current average of 29.7 mpg. By 2025, the CAFE standard is to be 54.5 mpg.

CAFE is the corporate average fuel economy, the theoretical standard used to determine if each auto manufacturer is meeting fuel efficiency requirements.

However, that is not the "real world" fuel economy ratings as measured by the U.S. Environmental Protection Agency. This "real world" EPA rating is what is shown on the window sticker for new cars at U.S. dealerships.

The costs of electric vehicles -- fully electric and plug-in hybrid electric -- are much higher than similar-sized gasoline vehicles, and the federal tax credit of $7,500 per vehicle is not enough to bridge the gap, the CBO said.

The CBO said an average plug-in hybrid vehicle with a battery capacity of 16 kilowatt-hours is eligible for the maximum tax credit of $7,500.

"However, that vehicle would require a tax credit of more than $12,000 to have roughly the same lifetime costs as a comparable conventional or traditional hybrid vehicle," the CBO said.

And, the bigger the battery the greater the cost disadvantage for buyers of plug-in vehicles and conventional vehicles, the CBO said.

(Additional reporting by Deepa Seetharaman in Detroit; Editing by Bob Burgdorfer and Richard Chang)

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