Advocates of various energy technologies have long argued that major barriers, either government or market derived, stifle the development of their favored technology. They then infer that the current level of their preferred technology is suboptimal, warranting some form of governmental intervention.
That seems to hold true for New Mexico Governor Michelle Lujan Grisham, who wants state tax credits and mandates on the purchases of electric vehicles (EVs). New Mexico already has a stringent clean car rule that requires by 2031 82% of all new vehicles delivered to the state to be zero-emission. Her agenda is a double whammy for gasoline-powered vehicles: make EVs more economically attractive with taxpayer-funded subsidies and restrict the number of gasoline-powered vehicles that New Mexicans can buy. As noted by one observer, “the clean car rule will effectively try to shove electric vehicles down the throats of the public at a faster rate than it has shown a willingness to swallow them.”
Perhaps the most pathetic part of her agenda is that she hopes to trim down the number of gasoline-powered vehicles in the state without knowing whether that is what the citizens of New Mexico want. How arrogant is that? − as Governor, I know better what types of vehicles you should purchase than you do. She is ignoring the wishes of New Mexicans to purchase different vehicles; today only about 1% of the vehicles in New Mexico are EVs.
She desires to fundamentally reshape the car industry via regulations, mandates and subsidies. Added to the insult is her requirement that taxpayers pay for her “all electric” scheme when the majority of citizens don’t stand to benefit.
So far, purchasers of EVs are mostly in the high-income category and that will likely hold for the foreseeable future. What that means is that tax credits and other subsidies will benefit the well-to-do and paid for by folks who are less financially well off. And what is in it for the citizens of New Mexico? Zilch! What almost always gets ignored is the fact that no matter how many EVs New Mexicans buy because of the subsidies and mandates, the effect on climate change is no more than a rounding error.
A mandate to require that a certain percentage of vehicles are EVs represents a command-and-control policy that has innate distortions. It is a highly blunt instrument, draconian and expensive relative to other ways to mitigate carbon emissions (which is the manifested rationale for the Governor’s all-electric mandate).
By reducing options for vehicle owners, driving will become more expensive in New Mexico. Perhaps this is the intent of those who are anti-car. As expressed by one analyst, “they’re coming for your cars.”
Government controls over carbon emissions directly affect goods and services, such as electricity and transportation, whose costs will likely escalate. If controls include banning or severely restricting fossil fuels like gasoline, the costs could be substantial. We have an abundance of fossil fuels at affordable prices, which explains why over 80% of the world’s energy still comes from fossil fuels. This raises the question of whether we want to or can wean ourselves from fossil fuels, over the next two or three decades, without suffering severe economic consequences.
The Governor’s actions presume that EVs are a winning technology – but this is highly presumptuous, as there is much uncertainty over the future of EVs. Mandates carry risks. Mandates require policymakers to pick winners and losers, which is inherently an almost impossible task, and often results in failure, given the limited knowledge of policymakers. (which, of course, they don’t want to concede) and their propensity to serve special interests. The problem is particularly acute for new technologies with a high level of uncertainty over cost and performance. For example, a policy that mandates EVs as a preferred resource can turn out disastrous if the price of gasoline falls sharply, or if EVs fail to develop economically and technically as advocates hope.
A better way to make EVs more attractive to consumers is to have them compete against gasoline-powered vehicles. When regulating or legislating away their main competition, it becomes more likely that EVs will continue to be inferior to gasoline-powered vehicles. This is just one example of the unintended consequences derived from a policy whose intent is to promote a particular technology.
What is particularly puzzling is the rationale behind the Governor’s intent to accelerate the purchase of EVs by New Mexicans through tax credits and mandates. She argues that the tax credits will make EVs more affordable to middle- and low-income households. But one cannot ignore the evidence showing that the subsidies disproportionately will benefit the wealthy at the expense of those less well off. So far, 90% of EVs in the U.S. have been purchased as a second or third car by high-income households with a garage.
It’s not even clear that replacing gasoline-powered vehicles with EVs will have a positive environmental effect. Similar to many other batteries, the lithium-ion cells that power most electric vehicles rely on raw materials (like cobalt, lithium and rare earth elements) that have triggered grave environmental and human rights concerns. Cobalt has been especially problematic. The environmental effect, of course, also depends on what energy sources are used to produce electricity.
I believe that what is driving EV frenzy is the anti-fossil fuel agenda or virtue signaling (by both EV purchasers and EV advocates). EV advocates probably know that EVs would have a miniscule effect on climate change but long to see the extinction of fossil fuels; I can’t think of a more plausible explanation.
To wit, most climate activists view fossil fuels as a barrier to achieving deep-decarbonization targets deemed essential to protect against alleged catastrophic climate change. They consider electrification of buildings and transportation with clean-energy sources as part of a policy portfolio to achieve these targets. What they don’t say is that their proposals for government intervention will fail soundly a cost-benefit test and have a regressive effect by benefiting the well-to-do at the expense of others. How can then they defend their pro-EV advocacy with such anti-social outcomes?
Kenneth Costello, who is a regulatory economist and independent consultant, resides in Santa Fe.