Let’s Redistribute Tax Incentives to Buy Electric Cars

Bigger rewards to gasoline “superusers” will reduce carbon emissions more quickly. Paradoxically, it may also diminish economic inequality.

Betsy, a banker, drives 2500 miles per year in her sedan. She uses 75 gallons of gas. Roy, a carpenter, drives 30,000 miles per year in his pickup. He uses 1500 gallons. If Betsy and Roy both trade in their gas-powered vehicles for electric vehicles, Roy’s reduced gasoline consumption will be 20 times that of Betsy’s. Should they be eligible for the same cash incentives?

The answer to this algebra problem is “of course not.” But in the real world, Betsy and Roy’s cash incentives are identical.

Incentives for the purchase of electric vehicles (EVs) are available from the federal government (up to $7500), from state governments (in New Jersey, up to $5000; in New York, up to $2000; in California, up to $4500), and from local air districts and utilities. All these subsidies are given out regardless of how much gasoline is being saved.  The reconciliation bill now working its way through Congress will likely increase federal incentive payments; how they’ll be structured is still being debated. We think they should be structured to give Roy a much bigger incentive and Betsy a much smaller one.

President Biden has set a goal of cutting U.S. carbon emissions in half by 2030. To get there, we must reduce emissions drastically in every sector of the economy. Light duty vehicles consume 132 billion gallons of gasoline a year and cause 17 percent of U.S. carbon emissions. To meet the country’s climate goals, we need to cut gasoline consumption to 52 billion gallons, factoring in the emissions required to produce the electricity that powers electric cars.

By 2030, Biden wants 50 percent of new automobiles sold in the U.S. to be electric. But automobiles are expensive! Some people keep a car for 10 or 20 years. Only 6 percent of the cars you see on the road are purchased new each year. At that rate, only 3 percent of America’s new vehicles will be electric. There is absolutely no way the U.S. will get close to cutting vehicle emissions in half by 2030 at that rate. We need a policy that will shift the heaviest users of gasoline into EVs sooner.

Like so many things in the U.S., gasoline consumption in the U.S. by cars and light trucks is distributed unequally. According to our research, the drivers in the top 10 percent of gasoline consumption, whom we call “gasoline superusers,” each burn upward of 1,000 gallons of gasoline per year. Collectively they consume 32 percent of all gasoline. The top 20 percent of drivers burn about half of all gasoline.

Based on National Highway Travel Survey data, we know that about 64 percent of gasoline superusers drive pickup trucks and SUVs, compared to 41 percent of other drivers. Superusers drive about 30,000 miles a year, nearly three times the average for other drivers, and they’re more likely than other drivers to live in rural places. Among metro areas, Houston, Detroit, and St. Louis have the highest concentration of superusers. In the Washington, D.C. metro area, 6.6 percent of drivers are superusers, and collectively they burn 22 percent of the region’s gasoline.

Heavy gas mileage takes a toll on your checkbook. Superusers spend on average 8 percent of their household income on gasoline and up to 20 percent for moderate- and lower-income superusers. But purchase incentives for electric vehicles don’t take gasoline usage into account. Indeed, it’s the lowest-mileage, higher-income drivers who are most likely to avail themselves of such incentives. The median household income of a Prius owner was estimated a few years ago by J.D. Power to be $108,283.

The poorer you are, the less likely you are to own an electric vehicle. Did we mention that cars are expensive?

The obvious solution is a redistribution of electric vehicle incentives toward superusers. An EV incentive of $10 per gallon of past annual average gasoline use would bestow $15,000 on a pickup truck driver burning 1,500 gallons a year. That’s a meaningful incentive for pickup and SUV drivers to buy electric versions of those vehicles now coming on the market.

And that’s before these drivers calculate what they’ll save on fuel expenditures. At current gas prices, the superuser burning 1,500 gallons a year would save around $300 a month by fueling with electricity. These savings plus maintenance savings (EVs cost much less to maintain) plus the $15,000 incentive could cover most or all of the monthly payments for a new electric pickup truck.

Remember, again, that the superusers –drivers who consume 32 percent of the nation’s gasoline—aren’t anybody’s idea of an elite. Retargeting incentives toward superusers would more likely benefit lower and middle-income drivers, who spend up to 20 percent of their household income on gasoline, often because they have no choice other than to drive long distances in older vehicles.

America’s electric vehicle charging system should similarly be restructured to meet the needs of superusers at their homes, workplaces, and on the road. We also need a comprehensive program to educate superusers about electric vehicles, and to break down the cultural and informational barriers preventing them from switching to electrical vehicles. Additional research on these drivers and their gasoline use patterns would enable us to sharpen our policies further.

As a means to reduce carbon emissions, displacing gasoline usage by targeting electric-vehicle purchase incentives towards the biggest gasoline users is much more feasible politically than raising gas taxes. It’s a carrot rather than a stick. The switch to electric vehicles needs to happen much more quickly. Redistributing the benefits of doing so is a practical way to achieve that.

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Matthew Metz and Janelle London

Matthew Metz is the founder and co-executive director of Coltura, a nonprofit dedicated to reducing gasoline consumption. Janelle London is the co-executive director of Coltura and the executive director of Joint Venture Silicon Valley's Beyond Gasoline Initiative.