Bigger Rebate for EVs Is Economically Justified

Recently California has begun to shift the benefits of electric and alternative-fuel vehicle rebates to those in lower income brackets. In a sense this is good — the boosted rebates have even more impact by virtue of constituting a larger portion of any given lower income range.

In another sense this could be better, as rebates were only boosted from “$1,500 for plug-in hybrids, and $2,500 for electric cars” to “$3,000 for a plug-in hybrid, $4,000 for an electric car, and $6,500 for a hydrogen fuel-cell car” (Edelstein 2015). The rebates could and should be higher for EVs as well as plug-in hybrids to expedite larger-scale adoption of EVs as much as possible. Given the cost of procrastination in mitigating climate change, it even makes economic sense to raise rebates for EVs and PHEVs. The President’s Council of Economic Advisers (CEA) has established that this cost of procrastination is nothing to scoff at:

“If we don’t make a concerted effort to keep the rise in average global temperature within the range consistent with modest costs and instead allow it to stabilize one degree Celsius higher, the annual additional damages would equal 0.9 percent of global output. A longer delay that added another degree would cause additional annual damages of 1.2 percent of global output. That’s a total change of 2.1 percentage points. To illustrate those annual costs more tangibly, 2.1 percent of current U.S. GDP, which is about a fifth of world output, is roughly $360 billion” (Stone 2014).

Even if the entire USA more than doubled California’s new rebate for EVs from $4000 to $10,000, and all EV purchases qualified for this rebate, the total cost (based on 2014 sales) would only be $1.23B, $738M more than the $492M you need for a $4000 rebate. Assuming the rebate would proportionately increase sales by about 100%, that brings you to ~246,000 sales and $2.46B in rebates nationwide, a $1.5B increase over the $4000 rebate scenario.

“2015 Monthly Sales Chart For The Major Plug-In Automakers”

$1.5B may seem like a lot, but if the increase in EV sales reduces and/or instigates reduction in US economic bleeding caused by climate change by as little as 0.41% — that’s less than half a percent — then the decision becomes economically justified. That is, it seems safe to say that bolder rebates for EVs ($10,000 and upward) across the US would more than pay off within the foreseeable future.

(This is without even taking into account the various other socioeconomic benefits of EV adoption.)