There are many
reasons to keep clean energy subsidies and few to discard them. I believe some
could be reduced but I think discarding would be a big mistake. We need to
support new technologies that decrease not only greenhouse gas emissions but
air pollution and water pollution emissions as well. Off hand, I can think of nine
reasons to keep EV and clean energy subsidies. I also would prefer to keep them
robust and as they are but that can be negotiated.
Reason 1 – Automakers Would Be Hurt Bad (although Tesla,
less so as Musk has quipped)
Automakers are
tooled up for EV manufacture. They are already losing money on some EV models due
to high manufacturing costs and low profit margins. Loss of subsidies could be catastrophic
to some.
Reason 2 – EVs would become Less Affordable for Some,
Unaffordable for Others
Plain and
simple, sales have already dropped and will drop even further and faster. Many
people would no longer be able to afford an EV.
Reason 3 – Planned Wind, Solar, Geothermal,
Hydrogen, CCS, and Many Other Clean Energy
Tech Developments Would be Halted
Many projects
in various stages of completion are dependent on clean energy subsidies. Many
would likely be discontinued without those subsidies.
Reason 4 – Many Companies Would Go Bankrupt
Companies
are going bankrupt even with subsidies. Swedish EV battery maker Northvolt recently
announced it was going into Chapter 11 bankruptcy. The state of many of these
companies, especially companies in the early stages of struggling to grow their market share, is
precarious. Subsidies for these early-stage companies and technologies are
especially important. It is the established companies that are much better able
to withstand a drop in subsidies.
Reason 5 – It Would Be Seen as an Extremist Move by
Opposing Political Parties and Some Allies
If Trump with
Musk’s support would be able to eliminate EV subsidies it would be seen as a
vindictive move to wreck the system for political points. Perhaps subsidies
could be reduced in a compromise but from the buyer side, I would prefer the
biggest subsidies.
Reason 6 – By Driving Up the Cost of EVs It Would
Also Drive Up the Cost of Used EVs
This one
concerns me. If EVs become unaffordable then used EVs would probably be more in
demand which would make their value and cost rise.
Reason 7 – It Would Hurt Battery Developers and Manufacturers
There are
several new battery manufacturing plants in various stages of construction and
commercialization. These require not only subsidies to succeed but also
adequate demand for their output which would drop without subsidies.
Reason 8 - Climate Change Mitigation Would Be Unnecessarily
Slowed
We have been
getting along with subsidies for a long time and the necessity of eliminating
or decreasing them is not evident. We can and should, however, do away with EV
and other clean energy mandates and bans against ICE vehicles and fossil fuel
projects. The subsidies are very helpful for mitigating climate change.
Mandates and bans go too far. Consumers like choices and don’t like it when
those choices are taken away.
Reason 9 – Dropping EV Subsidies Could Increase Oil
Demand, Fuel Prices, and ICE Vehicle Costs
Dropping
EV subsidies could make ICE vehicles cost, oil demand and fuel costs rise.
These would affect consumers. Thus, in the end, dropping subsidies would likely increase
consumer costs for both EVs and ICE vehicles, at least in the near term.
Elon Musk Clearly States That Getting Rid of EV Subsidies
Would Hurt Tesla but also help Tesla by Eliminating the Competition
I admit I was shocked
when I read that Musk said this and that he supports getting rid of EV
subsidies. Tesla was built on government subsidies. Their current position in
EV manufacturing and battery manufacturing is mature compared to most other
companies. That gives it a great advantage in weathering the storm of de-subsidization
while those other companies would succumb to ‘bad market timing’ one might say,
but the real reason would be de-subsidization. I suppose Tesla would go back to
catering to the ultra-rich, their original and still significant clientele,
since EVs would be rendered inaccessible to the middle class, at least until
coming new tech such as solid-state batteries and in-line non-magnetic electric
motors become widespread and lower EV prices by a comparable amount, which is
possible in maybe 5 years or so. Due to uncertainties in the cost of metals,
materials, and labor, that is a big if.
EV Subsidies Likely Can be Lowered and Dropped in the
2030s
EVs are on the
cusp of improvements that can make range and powering times comparable to ICE
vehicles. They are also in some cases on the cusp of cost parity (with current
subsidies). When those new cost-saving technologies are fully commercialized in
the 2030s they will be able to compete with ICE vehicles without subsidies. Thus,
EVs are nearing both performance parity and cost parity. In some ways, they are
superior in performance and if battery and electric motor improvements continue,
they will likely improve performance even more and could overtake them in both
cost and performance. Arguments that EV growth can’t be supported due to minerals
availability and cost, mostly for lithium, copper, and nickel, as well as some REEs,
may need to take into account some of the new battery chemistries that require
none or less of these minerals. Rooftop solar tax credits have dropped and were
set to continue to drop as general economics have improved. Those subsidies are
still needed but a gradual phase-out has been effective. Just like that EV
subsidies could be gradually phased out. I would delay the main phase-out to
begin around 2030.
References:
An EV
battery maker that raised $15 billion from investors including Goldman Sachs
filed for bankruptcy protection after almost running out of cash. Will Martin.
Business Insider. November 22, 2024. An
EV battery maker that raised $15 billion from investors including Goldman Sachs
filed for bankruptcy protection after almost running out of cash
Critical
Minerals for EVs – Webinar AAPG Academy. November 20, 2024.
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