State and federal financial incentives are considered to be among the key factors that could contribute to a faster adoption of electric vehicles, bringing down the costs of buying an electric car, making them more affordable to low-income consumers. But, as it turns out, the only ones who benefit from EV incentives, which include tax credits and rebates, are wealthy consumers, who are usually able to afford the price premium of electric vehicles even without the financial support provided by the U.S. government.
According to a report published recently, EV tax credits mostly benefit high-income households, which suggests that incentives are not exactly fulfilling their primary goal. The Energy Institute at Haas, at the University of California, Berkeley, has conducted a study to see how U.S. Clean Energy tax credits are being distributed and what their effect on EV adoption is, and found that federal incentives have gone mostly to wealthier car buyers.
A Mere 10 Percent of Tax Credits Going to Low-Income Families
Severin Borenstein and Lucas Davis, the authors of the study, analyzed tax return data of U.S. households from 2006 to 2012, and found that a total of $18 billion in federal income tax credits have been issued during this period, which consumers have used for buying electric and hybrid vehicles, purchasing solar panels, and other investments aimed at increasing renewable energy use, with 60% of those credits going to households that have an annual income of over $200,000, which represent the highest income quintile. Researchers say that only 10% of those $18 billion in tax credits were awarded to households making less than $75,000 per year.
These figures refer to incentives from several different programs, such as increasing the energy efficiency of homes and commercial buildings, as well as purchasing alternative fuel vehicles, and the report states that the most concerning fact is that the uneven distribution of those incentives was most noticeable in the program for electric vehicles. Researchers found that about 90% of the credits were given to the top income quintile, leaving just 10% for lower-income households.
“The bottom 80% of filers receive a little more than 10% of all credits, and the bottom 90% of filers receive about only 40% of all credits. It may simply be that electric vehicles, for the moment, are only affordable for relatively rich households. Even after the credit, electric and plug-in electric drive vehicles are expensive compared to equivalently-sized gasoline-powered vehicles,” the authors of the study say.
Solid Arguments in Favor of Carbon Tax
The researchers conclude by saying that carbon taxes would be far more efficient than tax credits when it comes to encouraging consumers to buy electric vehicles, but lawmakers often opt for the easier solution from a political point of view. “It can often be easier politically to introduce subsidies than taxes, but the two are not equivalent,” they say. “It would seem difficult, therefore, to prefer tax credits over a carbon tax on distributional grounds. There may well be political considerations that continue to favor tax credits, but this approach comes at real cost, both in terms of efficiency and equity.”