Hey Buddy, Can You Spare a Charge?

Plug-in electric vehicles have hit the market here in Oregon. A plug-in electric vehicle runs on batteries that can be recharged by connecting to an electric power source and uses no fossil fuel if its batteries are charged from nuclear, hydroelectric or other renewable resources. Compared to internal combustion engines, advocates profess that plug-in vehicles will reduce air pollution, dependence on foreign oil and greenhouse gases. Although plug-ins may be good for the environment, the subsidies and tax credits attempting to jumpstart the adoption of the electric car are misguided and unnecessary.

On a national level, Congress and President Bush passed the Energy Improvement and Extension Act as part of the bailout bill on October 3, 2008. The Act provided extensive tax credits, up to $7,500 per vehicle, for plug-in vehicles purchased until the first 250,000 are sold. In Oregon, Governor Kulongoski stated in his Climate Change Agenda that he plans to advocate an electric car tax incentive of $5,000 per electric vehicle, which trumps the existing hybrid vehicle tax credit of $1,500. In addition, PGE and local governments believe the state should be the leader in promoting this technology at public expense. Bill Nicholson, PGE vice president of customers and economic development says, “Oregonians are on the leading edge of all things green and we expect Oregon will be one of the top markets for plug-in vehicles. When more Oregonians begin driving plug-in vehicles, they can rest assured they will have places in our service area to plug in, charge up and drive on.”

There are currently five charging stations in Portland and surrounding areas, and PGE expects to help facilitate the installation of 7 more stations. Current stations are located at the Oregon Museum of Science and Industry, Lake Oswego City Hall, and three Portland General Electric offices. Several local governments, including Oregon City, plan to install charging stations in the near future at a cost of about $7,500 plus electricity usage. Right now, the owners of plug-in electric vehicles pay nothing for charging their vehicles at these stations and there are no solid plans to charge them in the future.

Who exactly pays for the charging? All PGE customers pay for the PGE charging stations scattered throughout downtown, and all of the citizens of Lake Oswego pay for a few plug-in vehicle owners to fuel their “environmentally friendly” vehicles. Soon, all Oregon City citizens will be paying for their charging station even if they don’t own a plug-in vehicle.

There are three fairly obvious problems with plug-in electric vehicles and the artificial jumpstarting of an industry with incentives. One is that the populations of cities like Lake Oswego and PGE ratepayers are eating the cost of driving for these plug-in early adopters. Another problem is that tax credits are being given to plug-in vehicle purchasers who are already saving money by not paying for gasoline. Lastly, road usage fees are collected by the gasoline tax, and plug-in vehicle owners are avoiding this tax.

What is being proposed is to bribe people to buy a car with plug-in technology, subsidize the fuel at 100% and exempt the user from paying for the roads. Certainly people can be expected to jump at such an offer, but how will we ever know if this technology is economically viable if we so distort the market?

Plug-in vehicles can be promoted without having to offer free services at the expense of non-benefiting citizens and ratepayers. Charging an electric vehicle has been promoted as more cost-effective than paying for a gallon of gas, typically estimated at paying the equivalent of 75 cents per gallon of gasoline. There is no need to provide free services and subsidies to a small group of customers that are already saving money by not paying for gasoline or paying road usage taxes. The best solution would be to charge user fees for the charging stations and let the free market naturally adopt the technology.

Initially, cities and utility companies like PGE can offer the charging service but charge a usage fee to make up for the cost of the installation and the associated energy usage. This could provide enough stations to meet the small but growing demand. If demand reaches a certain level, businesses may see a profit potential to install and maintain charging stations. Parking garages may realize a benefit of providing charging stations if they attract more users to park in their garages. Malls can provide charging stations for plug-in car owners to charge up while they shop. Large stores like Wal-Mart, IKEA and Costco in the near future may see potential in offering charging services in order to attract business and portray an environmentally friendly image. Also, just like gas stations, charging stations could spring up on street corners and be managed by private owners.

There is no sense in subsidizing a plug-in vehicle through federal or state tax credits or free charging services at the expense of the public. Plug-in vehicle owners have purchased these vehicles because of the environmental benefits that are proclaimed to exist but also because the costs of operating a plug-in is significantly lower than fueling a traditional vehicle. Using ratepayer and city money to pay for early adopters is not only unjust but it does not make any economic sense. Let the free market handle the adoption of new technology; and if it isn’t adopted, then it probably wasn’t a good idea in the first place.

Todd Wynn is the climate change and energy policy analyst at Cascade Policy Institute, Oregon’s free market public policy research center. Photo by Benjamin Brink appeared in “PGE opens stations around Portland for plug-in hybrids,” The Oregonian, July 30, 2008.