Free Markets, Not Free Electric Vehicles

and Steve La Fleur

The first alternative fuel vehicle to hit the market arrived without subsidies or public infrastructure. It was initially thought of as a hobby toy for wealthy eccentrics. Yet within a matter of years, profit-seeking companies realized that this technology was ripe for mass consumption. Within a decade, the gas-powered automobile dominated the market. Despite the complete lack of government subsidies, the number of cars in America went from about 8,000 in 1900 to 17.5 million in 1925. The free market allowed for the better technology to prevail.

The development of the automobile did not necessarily proceed because people were unhappy with the performance of horse-drawn carriages. Indeed, most people thought “horseless carriages” were just plain silly. The real reason for the triumph of the internal combustion engine was that it solved a major environmental problem. Before the internal combustion engine, American cities were covered in horse manure. In 1908, it was estimated that 20,000 New Yorkers were dying each year due to diseases bred by the manure that caked the streets.

Entrepreneurs recognized the need for a cleaner mode of transportation and saw the opportunity to market automobiles as an alternative to the horse-drawn carriage. There was one potential hindrance, however. Automobiles required gasoline. Unsurprisingly, there was no such thing as a gas station when automobiles first hit the market. Because of this, early automobile owners relied on disparate bulk fuel stations, typically located outside major cities. They did not have any specialized equipment to deliver fuel, so they relied on ad hoc methods of refueling. By 1907, recognizing the need for efficient fuel delivery, Standard Oil of California, a private company, built what many consider to be the first modern gas station in America in Seattle (though some argue that the first was in St. Louis, circa 1905).

Although the emergence of automobiles took place more than a century ago, it is an excellent analogy to the current development of the electric car. While they likely will be cost-effective in the future, electric cars are currently expensive; and there is arguably a need for an extensive network of charging stations to keep them running. Environmentalists, eager to sound the death knell of the internal combustion engine, have lobbied successfully for many government subsidies to electric vehicle owners and producers.

The federal government recently introduced the $25 billion Advanced Technology Vehicles Manufacturing Loan Program (ATVMLP) to spur development of electric cars. They are also offering a $7,500 tax credit for electric cars, and the State of Oregon is offering a $1,500 credit. Federal, state and municipal governments are also heavily subsidizing a network of charging stations. PGE has installed about 20 charging stations in Oregon at ratepayers’ expense even though there were already 400 electric cars in Oregon, most of which were on the road before PGE installed these stations. These owners have relied on power outlets at their own homes for fuel.

A government-financed electric charging network very well could be a misguided and expensive effort in futility. In fact, it seems that the model they are attempting to adopt may be out of date already. Better Places, a California company, has invented a prototype for battery switching stations that would allow people to exchange their dead batteries for fresh batteries in less than 40 seconds. These stations will cost around $500,000, whereas conventional gas stations cost between $1 million and $2 million dollars. Ironically, Better Places is also one of the companies receiving massive government contracts to install electric charging stations. If their battery switch stations become widespread, they will have received millions of dollars for charge stations, which they themselves will have rendered obsolete. This illustrates precisely why governments should not try to pick winners and losers in the market for new technology.

If consumer demand for electric cars progresses, capitalists will be sure to cash in on it. Capitalism allows for the emergence of technological innovations, which render existing technology obsolete. When governments subsidize a “favored” technology, they artificially prolong the life of obsolete products. Only consumers are able to determine what products suit them best. If electric cars are technologically and financially viable, the free market will encourage their development without the need for government subsidies.

Steve La Fleur is a research associate at Cascade Policy Institute, Oregon’s free market public policy research center. Todd Wynn is the climate change and energy policy analyst at Cascade.

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Posted by at 06:00 | Posted in Measure 37 | 88 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Joe

    All government interference in the free market is stupid.

  • air breather

    Your headline should have been: “Dirty air, Middle East oil dependency, $10 a gallon gas, and warming planet, not electric vehicles.”

    But wait…the free market will save us. Just ask Bernie Madoff, General Motors, and AIG.

    • dan

      oh yes….. america with some of the cleanest air in the world…. middle east oil dependence what a crock we only get 16% of our imports from the middle east and that could easily be solved if you idiots would allow drilling here in the US, $10 a gallon gas….hmmmm well i dont know where you live but it has never got that high and if it did people would gladly hop in an electric vehicle and we wouldnt have to subsidize it.

      Warming planet? get a clue….last ten years it has remained stable or cooled despite rising co2. electric vehicles arent the save all anyway….hello?! the electricity comes from somewhere and in oregon it is 40% coal.

      • David Appell

        Dan wrote:
        > we only get 16% of our imports from the middle east and that
        > could easily be solved if you idiots would allow drilling
        > here in the US,

        In fact, oil production peaked in the US in 1970, not because of government regulations, but because most of the US oil has already been pumped out. It’s now down about 50% from its peak, and dropping every year. Even the high-end projections say there is only about 12 Bbbl of oil in ANWR — the US uses 7 Bbbl/yr. The U.S. DOE estimates that drilling in ANWR would only reduce the price of gasoline by less than four pennies per gallon—20 years from now.

        • Steve Plunk

          Domestic oil production is more a function of how cheap rather than how much. It’s been cheaper to buy foreign oil than pump our own. Part of that high cost is no doubt regulations. Overall oil reserves continue to increase rather decline worldwide.

          ANWR never was the solution to the problem but it was part of the solution. Combined with other domestic reserves, conservation, innovation, alternatives, and natural gas a solution is viable. The anti fossil fuel crowd prefers to isolate each of these and claim they don’t solve anything. Combined they mean energy security and stability.

          I hardly see tax deductions as a give away to oil companies. Whose money was it to begin with? Accelerated depreciation, amortization, and reasonable royalties for extractions are not subsidies. The net effect is the oil companies produce a valuable product that the government taxes to great revenues. The combined tax of nearly 50 cents a gallon on Oregon gas is a good example.

          Oil, and more importantly natural gas, have been the past and will be the future of energy. Nothing comes close to the energy content per unit volume or the abundance of these fuels. Oregon may be for dreamers but oil has to be a part of that dream.

          • David Appell

            That is not what I read. First, numbers on oil reserves are notoriously unreliable, especially from the middle east, for many reasons. With worldwide demand increasing every year (sans the occasional recession), production would naturally be increased to catch up — that would, after all, be lots more money in lots of pockets. Instead, worldwide production has been essentially flat now for several years at about 80 Mbbl/day.

            All estimates I’ve seen of available oil in ANWR and the offshore US are very low in realistic terms, less than 10% of our current use, and would arrive years from now at that. The oil just isn’t there, regulations or not.

            Conservation? Environmentalists *beg* for conservation to be taken seriously. No one seems the least bit interested. Detroit would rather build 20 mpg cars than 40 mpg cars, and Americans would rather drive SUVs.

            > I hardly see tax deductions as a give away to oil companies. Whose money was it to begin with?

            The problem, of course, is that the industry gets treated *differently* from other industries. That is, we aren’t talking about the tax deductions that all businesses get, but about special deductions and underpriced royalties. The laws are so complicated that no one is quite sure what this number is, but I’ve seen a range of about $15-35 B/yr. That’s in *special* treatment, not average business treatment.

            Plus, of course, Exxon is still fighting to avoid the costs of cleaning up its Valdez disaster. So the rest of us get to pay for it.

            Oil and natural gas cannot be part of the future, simply because its byproducts are degrading the climate and acidifying the oceans. Its dollar cost per unit volume is too high, when external costs are properly taken into account. Fossil fuels have serious long-term consequences we have begun to understand, and whether or not its supply is limited, its days need to be.

        • Chad

          I usually just read blogs and dont get involved.

          I have seen david appell involved in all of the climate change and energy blogs and i am seriously wondering who is paying him.

          David….you must be getting paid to blog and provide some ridiculous arguments on sites such as these….who is it? environment oregon….repower america…..greenpeace…..

          which liberal socialist environmental group is paying you to sit on your butt at home and use petty arguments?

          • David Appell

            Chad: being self-employed, I pay for the time I spend here.

          • chad

            ok. I believe you. It does make me feel a bit better that you are becoming poorer by hanging out on catalyst.

            I will remember that fact everytime I see comments by you.

          • David Appell

            Chad, I didn’t say I was poorer for my time here, I said I was paying for it. It costs money to make money. I’ve gotten lots of ideas out of these forums, and as a writer that’s primarily what I sell.

      • air breather

        I’m all for drilling in ANWR if and when it is negotiated as part of a larger energy plan. But don’t kid yourself. It will amount to a drop in a bucket that has a large hole in the bottom that is over consumption of a diminishing resource.

        $10 a gallon gas is where we are headed if we don’t start replacing the internal combustion engine with electric ones.

        Electricity can come from sources other than coal, and even at that an electric vehicle will use far less energy. Latest EPA estimates are 230 MPG for the Chevy Volt.

        • dan

          if we do reach ten dollars a gallon than people will gladly go out and purchase an electric vehicle.

          that is the progression of tech. dont put the cart before the horse.

          • air breather

            While we wait for that to happen the CO2 builds up, we get to fight another war in the Middle East, and we continue to send $700B a year overseas for oil while others use that money against us.

            Sometimes capitalism needs to be sped up or bypassed for the greater good.

          • another air breather, but a good one

            You should check out OSU’s latest finding on global warming, or are they liars because it doesn’t agree with your rationale?

  • David Appell

    Todd wrote:
    > When governments subsidize a “favored” technology, they artificially prolong
    > the life of obsolete products.

    Which is exactly what they are doing with the tens of billions of dollars given annually to the oil industry in tax benefits, royalty relief, and research and development subsidies — not to mention the ~$1T cost of the Iraq War.

    (Or not to mention the enormous external costs foisted on the public by the auto & oil industry’s refusal to account for the health and environmental problems their products cause.)

  • John Fairplay

    I agree with David and believe that all government subsidies and interference with gas and electric vehicles (and companies that make them or their fuel sources) should end immediately. What is required here is a truly free market that allows entrepreneurs to step up without restrictions to create vehicles people want.

    • Joe

      That’s what I said.

    • David Appell

      A totally free market would be a nice idea if it included producers and consumers paying for the external costs of their goods — pollution, environmental destruction, health, etc. The problem is it never does, so government regulation is necessary.

      Plus, of course, our government is corrupted by corporate cash forever seeking favorable treatment and relief from their external costs.

      • Steve Plunk

        I wonder how much government is corrupted by union cash and union voter support? I also wonder if government ever pays for the external costs of it’s policies? Actually I know that one, they never do.

        Minimal government regulation is a necessary evil the free market must endure but today’s government creates regulations to serve itself rather than the people. In my opinion the net result is lost opportunities and prosperity. Prosperity that pays for all we have in both the private and public sectors.

        • David Appell

          > I wonder how much government is corrupted by union cash and union voter support?

          I’d like to know too. But I highly doubt union influence in government is today anything like corporate influence. Thirty years ago, perhaps. Today, no. Union membership in the US is now about 12% of the work force. It peaked at about 35% in the 1950s. They get far less media coverage than they used to. In the health care debate, everyone is worried about the impact on insurance corporations, not unions.

          Wikipedia says lobbying by labor is dwarfed by that of industry:

          • Bad Boy Brown

            No union intereference in Government? Just look at Salem and the union shills that your Governor leans on for all his decisions. Talk about being in the Union’s pocket – that’s YOUR Governor and his staff – and I’ll bet a LIB like you voted for him twice at that!

      • dan

        funny your ‘solutions’ always lead to more govt power …

        well what about the ill effects of wind turbines? what about the bird deaths, visual blight, and human health effects?

        where do you put dollar figures on these ‘market failures’?

        the thing is that you need to have proper information on the negatives and positives, you need alternatives and choices which lead to competition, and you need free consumer choice. these options NOT GOVERNMENT CONTROL lead to proper and true market and social optimum decisions/outcomes.

        • David Appell

          > well what about the ill effects of wind turbines?

          External costs need to be accounted for for all technologies and products.

          I’m curious: what are the purported human health effects of wind turbines?

        • air breather

          Dan, you complain about government power but then you want environmental impact studies on the ill effects of wind turbines? Get a grip. As it turns out, all energy projects on public lands, whether of the conventional type or alternative, have to conduct extensive environmental impact analyses. This includes birds, bats, sage grouse, prairie dogs, visual impacts, and more. Projects done on private lands over a certain threshold of size (depending on the state) also have to do impact analyses.

          It is *government control that makes environmental impact studies a necessity.* So don’t complain about it if you don’t want the impacts, or at least if you want them accounted for. And like it or not, a big impact to account for is the atmospheric increase in CO2, which is why it makes sense to hasten (through subsidies if need be) the development of electric vehicles AND alternative ways of generating electricity.

          • dan

            i said nothing about environmental impact studies. when there is an undistorted market and people are free to choose what powers their homes then energy producers will compete with market studies and advertising…..if an undistorted market were to exist, I forsee wind developers providing studies and advertisements showing consumers the dangers of supporting coal power (doesnt happen now because of massiive govt subsidies…why advertise when your product is ‘protected’).

            it is interesting that you have been so oppressed by govt intervention your whole life that you cant even imagine a world that is better off without it.

            air breather is really just another name for david appell to look like there are more idiots saying ‘hurray” for government control….nope its just you david.

            how about you stop breathing? how about not having kids (after all an OSU study said that having one kid will reverse every ‘green’ thing you do…even driving a ridiculous electric car)?

            how about just eliminating humans from the earth?
            How about regulating cars out of existence?
            how about not allowing people to even have access to reliable power?
            how about making third world countries even more destitute by your version of energy utopia?

            You honestly sicken me.

          • David Appell

            Dan, up top you praised America for having some of “the cleanest air in the world.” Perhaps, perhaps not, but in any case, how do you think it became cleaner? Was this a voluntary decision by automobile companies and utilities, made of their own accord? Did refineries voluntarily change their blends? Detroit was itching to add catalytic converters to its cars, significantly increasing their cost?

            Of course not. They came about because of the “govt intervention” you later deride.

            So which way do you want it?

  • Rupert in Springfield

    I for one would like to start looking at the incredible subsidy given to socialism as well as the externalities and the cost to society of the progressive movement.

    The Great Society would be a good starting point. Seniors got boosted from the poorest demographic to the richest, and yes they now get some nice health care. That’s the up side. Just as petroleum has an up side, it powers cars that get us places we needed to go. Oil has externalities, it causes pollution. Progressivism has externalities as well. Over a trillion dollars wasted on the war on poverty and not much of a change in the poverty rate. People were made poorer to pay for progressivisms biggest failures, and poverty affects health more than anything. Living next to an oil refinery isn’t exactly scenic, however it is probably way less dangerous to your health than living next to a housing project.

    I think before we start talking about externalities, we should really consider the biggest ones first. In that regard Socialism/progressivism is the elephant in the room. When progressives start doing something a little better than “well, we only had the best intentions” then we can start taking them seriously on their cost concerns. With “Trillion Dollar Obama” in the White House, any talk of concerns about fiscal responsibility from the left are really deserving of little but laughter and a bit of “talk to the hand”.

    • David Appell

      Yes, government health care for the elderly is a terrible thing, isn’t it? You can tell by how vociferously the elderly are demanding that it be eliminated. I hear them every day saying how they’d rather it be like it once was, when people were lucky to even live to the age of retirement, and it they did it would be in the spare bedroom of one of their children. Their health in old age was so much better than it is today.

      And, of course, the insurance industry is clamoring for the right to sell their policies to the elderly.

      • dan

        well….i suppose we should just advocate that they die. i mean they are only leading to more global warming. how selfish of them that they remain alive and ruin the planet with thier global warming ‘pollution’.

        it seems your two goals : socialized healthcare and combatting the manbearpig called global warming are at odds.

        gotta pick one or the other….grandpa dying or saving the planet? quick what do you choose??!!

        • David Appell

          Dan, has demagoguery now become conservatives’ leading tactic, or just the one resorted to after a day or two of attempted rationality? I can’t tell anymore.

        • air breather

          A couple of points. First, I’m not David Appell. Second, if you don’t believe me, consider that you too could actually be David Appell and could be making really inane arguments just to help prove his points. In fact we could all be David Appell, including Rupert. A Catalyst version of being John Malkevich.

          Lastly, to your free market dream. We don’t live in one, and we haven’t since at least when Congress funded the Erie Canal. So no, I don’t care to imagine life under a truly free market. Its a fools errand.

          • D.E.A.N

            I didn’t think this garbage was allowed to post here any longer under any name?

      • Rupert in Springfield

        >Yes, government health care for the elderly is a terrible thing, isn’t it? You can tell by how vociferously the elderly are demanding that it be eliminated.

        How a science writer, who gets infuriated when people accuse him of simply making things up out of thin air, expects to get anywhere with this sort of thing is beyond me.

        I said the elderly getting health care was a good thing that came from the Great Society programs. If you are then claim I said the opposite, please, don’t get so offended in the future when people accuse you of making stuff up. You have demonstrated a clear propensity for it right here.

        • David Appell

          So socialism is a bad thing, but social healthcare for the elderly is a good thing. What other exceptions are there?

  • Conscience of a Moonbat

    Enough now, David. Back into your cage. Go make some more cash selling your fascistic pipe-dreams to anti-republican h8ters.

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