In November 2021, U.S. Transportation Secretary Pete Buttigieg generated controversy by saying that using electric vehicles would allay concerns families have over rising gas prices. One quote of his was picked up by numerous critics, including conservatives, who accused him of being out of touch.
In an interview with MSNBC on Nov. 28, Buttigieg said that families that buy electric vehicles (EVs) “never have to worry about gas prices again.”
“Let them buy cars!” A headline on Fox News host Sean Hannity’s website said in response to the comments, comparing Buttigieg to Marie Antoinette (who, according to legend, said of the starving peasants in France, “Let them eat cake!”). The implication is that the less wealthy Americans who struggle most with high gas prices would not be able to afford electric vehicles.
Other critics argued that Buttigieg’s approach did not, in fact mean families would never have to worry about gas prices again, or that they would end up having to worry about electricity prices instead.
Because electricity is produced out of thin air ? pic.twitter.com/IdnVN3kyqJ
— Dr. Eli David (@DrEliDavid) November 29, 2021
P.S. I am totally in favor of electric cars. But the "never have to worry about gas prices again" is dumb.
The higher the gas prices, the higher the cost of electricity production in most areas.
— Dr. Eli David (@DrEliDavid) November 29, 2021
The Price of Electric Cars
But Buttigieg’s comments were in response to a question about whether there were elements of the Build Back Better Act (currently making its way through Congress) that were important to his work as transportation secretary. The act includes incentives in the form of tax credits, he argued, that would make owning an electric vehicle more affordable. Buttigieg said:
[The Build Back Better Act] contains incentives to make it more affordable to buy an electric vehicle, up to a $12,500 discount in effect, for families thinking about getting an EV. Families that once they own that electric vehicle (EV) will never have to worry about gas prices again. The people that stand to benefit the most from owning an EV are often rural residents who have the longest distances to drive, they burn the most gas, and underserved urban residents in areas where there are high gas prices and they are lower income so they would gain the most by having that vehicle. But these are the very residents who have not always been connected to electric vehicles that are viewed as kind of a luxury item. If we can make an electric vehicle less expensive for everybody, more people can take advantage and we’ll be building and selling more American-made EVs which means overtime they will be less expensive to make and to buy for everybody.
What’s the breakdown of the EV incentives that Buttigieg talked about? The bill will give a $7,500 tax credit to purchase a plug-in electric vehicle, with an additional $500 if the vehicle’s battery is made in the US. Another $4,500 tax credit can be added if the vehicle was assembled with domestic union labor.
Policy firm Energy Innovation summarized the incentives as follows:
$12,500 max incentive per passenger vehicle, combining:
– $4,000 base for qualified EVs
– $3,500 for vehicles purchased before January 2027
– $4,500 for vehicles with final assembly in the U.S. at a union facility
– $500 for vehicles manufactured with no less than 50 percent domestic content in component parts and battery cells are manufactured within the U.S.
As proposed, the credit may not apply to vehicles over max suggested retail price of $80,000 for vans, SUVs, and pickup trucks or $55,000 for all other vehicles. These provisions are designed to reach more people, including those with low- to moderate-incomes, bolster domestic manufacturing, and support widespread EV adoption.
The same report cited a 2019 University of California Davis study that argued that federal tax credits were one of the most important incentives for owners of moderately-priced EVs, in addition to state rebates, and high occupancy vehicle (HOV) lane access. Part of the incentives policy is not new, the 2019 study noted: “In all states of the U.S. buyers of [EVs] receive a federal tax credit of up to $7,500 when they purchase an eligible vehicle.”
The American Automobile Association (AAA) also broke the down costs of owning and operation an EV and concluded that “going green is not as scary as you think.” They found that owning a new compact EV was “only slightly more expensive – about $600 annually – than its gas-powered counterpart.” They said although the overall costs are more, “electric vehicles are lower in individual categories such as fuel and maintenance.” They argued that the cost of electricity used to drive 15,000 miles per year in an EV was $546 on average, while gas costs for the same distance were $1,255 or 130 percent more.
The Price of Electricity
Electricity in the United States is produced mostly through natural gas (around 40%), followed by coal at around 19%. Transportation fuel or gasoline is primarily made from petroleum which generated less than one percent of U.S. electricity in 2020. Therefore, gasoline prices probably wouldn’t directly affect the price of electricity to the extent claimed by some critics.
But can rising gasoline prices indirectly affect the cost of natural gas? It is possible, according to the U.S. Energy Information Administration (EIA): “When the prices of competing fuels rise relative to the price of natural gas, switching from those fuels to natural gas may increase natural gas demand and prices.”
The EIA also explained the key factors that could affect electricity prices:
Fuel prices, especially for natural gas and petroleum fuels (mainly in Hawaii and villages in Alaska), may increase during periods of high electricity demand and when there are fuel supply constraints or disruptions because of extreme weather events and accidental damage to transportation and delivery infrastructure. Higher fuel prices, in turn, may result in higher costs to generate electricity.
While Eli David is right to suggest in the tweet above that gas prices may indirectly affect electricity prices in some way, the U.S. is gradually shifting toward renewable sources for electricity, and eventually this argument may become less true over time.
And while it is also possible in the future for EVs to result in a higher demand for electricity, which could cause prices to rise, presently there are not enough EVs being used to affect electricity prices. Currently, the price of nonrenewable fossil fuels including natural gas, coal and oil have risen rapidly in 2021, a situation that those opposing EVs have not accounted for. The New York Times reported that currently the number of EVs used in the U.S. is too small to offset the pain of higher gasoline and natural gas prices.
The Build Back Better Act was passed by the House in mid-November 2021, and, as of this writing, is headed to the Senate.
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