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Jon Miltimore
Jonathan Miltimore is the Editor at Large of FEE.org at the Foundation for Economic Education.
The Biden administration recently rolled out new emissions regulations that the New York Times said will “transform the American automobile market.”
In what the paper called “one of the most significant climate regulations in the nation’s history,” the Environmental Protection Agency (EPA) is mandating that a majority of new passenger vehicles sold in America be hybrids or EVs by 2032.
The Biden administration and defenders of the policy argue that the EPA’s regulation is “not a ban” on gas-powered cars, since carmakers are not prohibited from producing gas-powered vehicles. Instead, automakers are required to meet a government-mandated “average emissions limit” across their entire vehicle line, to force them to produce more EVs and fewer gas-powered cars.
It’s a clever ruse in that it allows the Biden administration to use regulatory power to force automobile manufactures off gas-powered vehicles while denying that they are banning them.
Whatever one chooses to call the regulation, its purpose is clear.
“Make no mistake,” the Wall Street Journal noted. “This is a coerced phase-out of gas-powered cars.”
This might be music to the ears of those who see fossil fuels as evil, but economics and history suggest the White House’s plan to force Americans off gas-powered cars could be a disaster.
What’s Holding Up EV Adoption?
A major reason why the White House is forcing this “transformation of the American automobile market” is that Americans aren’t voluntarily adopting EVs quickly enough to satisfy the White House.
Though Americans purchased more than a million EVs last year, that still represents less than eight per cent of total vehicle sales in the US. The government’s current target is 56 per cent. (If the White House was serious about speeding up this transition, it might consider eliminating the 25 per cent tariff on cars built in China – which accounts for some 60 per cent of global EV sales – but that would be too easy.)
Despite massive subsidies encouraging consumers to purchase EVs, Americans didn’t buy them as rapidly as predicted, causing auto companies to pump the brakes. Ford recently announced it was halving production of its most popular EV, the F-150 Lightning. General Motors, the largest US automaker, and Toyota, the second-largest US automaker, followed suit, announcing significant reductions in EV production.
The weak demand for electric vehicles no doubt has several sources, but the BBC identified a few primary reasons, two of which appear over and over in consumer surveys: price and charging reliability.
Ford’s F-150 Lightning starts at $50,000. Its popular Mach-e starts at $40,000, and that’s after a recent $8,100 mark-down. GM’s top-selling EV, the LYRIQ, starts at $59,000. On average, EVs sell for about $5,000 more than similar gas-powered cars. And EV prices are going up, not down, researchers point out.
“In 2011, the inflation-adjusted price of a new EV was near $44,000. By 2022, that price had risen to over $66,000,” said Ashley Nunes, a senior research associate at Harvard Law School, in her testimony to Congress in 2023.
The second problem is that Americans have serious concerns about how they’ll charge their EVs. A 2023 survey conducted by the Associated Press-NORC Center for Public Affairs Research and the Energy Policy Institute at the University of Chicago found that 77 per cent of respondents cited concerns about charging stations as a reason for not purchasing an EV.
This is not an irrational concern.
When Americans drive their gas-powered cars, they are not worried about where they’ll fill up when their fuel runs low. Gas stations are plentiful in the US and easy to find. Charging stations are another matter.
Bloomberg reported last year that, despite steady growth in recent years of EV charging stations, there is just one quick-turn electrical vehicle charge station in the US for every 16 gasoline stations.
Federal efforts to expand charging infrastructure, including $7.5 billion in new spending to build half a million stations, have been embarrassingly slow.
‘Subsidizing EVs With Profits From Gas-Powered Cars’
Since Americans are not voluntarily adopting EVs as quickly as the government would like, the EPA is trying to hasten the transition. This could be a disastrous move.
As the Journal noted, Ford last year lost nearly $5 billion on its EV business. Yet the company still managed to generate a $4.3 billion profit in 2023. It doesn’t take a math genius to deduce how this happened.
“[Automobile] companies are heavily subsidizing EVs with profits from gas-powered cars,” the Journal notes.
Forcing automobile companies to expand production of their least-profitable product lines at the expense of their best-performing ones is economic madness. It calls to mind collectivized agricultural policies in the Soviet Union, where central planners embraced the worst farming methods.
While Stalin’s collectivization of farms in 1929 was a massive failure that led to the deaths of millions, agriculture in the USSR of course continued during and after his lifetime. But two distinct sectors emerged: a tiny private sector that produced a bumper crop of food, and a massive collectivized sector that produced very little.
The late economist James D. Gwartney (1940–2024) explained that families living on collectives in the USSR were allowed to farm on small private plots (no more than one acre) and sell their produce in a mostly free market.
Historians point out that in the 1960s these tiny private farms, which accounted for just three per cent of the sown land in the USSR, produced 66 per cent of its eggs, 64 per cent of potatoes, 43 per cent of its vegetables, 40 per cent of meat, and 39 per cent of its milk.
Gwartney and economist Richard Lyndell Stroup note that by 1980, private farms accounted for just one per cent of sown land in the USSR, but a quarter of its agricultural output.
“The productivity per acre on the private plots was approximately 33 times higher than that on the collectively farmed land!” they wrote.
In a free-market economy, farmers within the Soviet Union would have been allowed to shift toward private production – just like US automakers today would be allowed to shift away from EVs until the industry becomes more profitable.
But… the Environment?
Supporters of the Biden policy are likely to respond that we have no choice but to transition to EVs because of climate change. There are several problems with this argument.
For starters, EVs are not the green panacea they seem to be. Electrical vehicles actually require a massive amount of energy and strip mining. Half a million pounds of rock and minerals have to be mined to build just one battery, on average. EVs require far more energy and cause far more pollution when they are manufactured than gas-powered automobiles.
“[I]t’s true that the production of a BEV (battery electric vehicle) causes more pollution than a gasoline-powered counterpart,” the New York Times admitted in a 2022 article headlined “EVs Start With a Bigger Carbon Footprint. But That Doesn’t Last.”
If you weren’t aware that EVs cause more pollution on the production side than gas-powered cars, don’t be embarrassed: few do. It’s one of the dirty secrets of EVs: they start with an enormous carbon footprint. At a climate summit a few years ago, Volvo noted its C40 Recharge had to be driven about 70,000 miles before its total carbon footprint was smaller than the gas-powered version.
As the Times says, the footprint of EVs shrinks over time. But not as fast as many think. One big reason for this is that the bulk of the electricity produced in the US is produced by… you guessed it… fossil fuels. As the Energy Information Administration points out, fossil fuels generate about 60 per cent of the electricity in the US, which means that most people charging their EVs are using electricity generated from fossil fuels.
Reducing that carbon footprint is also exacerbated by the fact that people tend to rack up fewer miles with EVs than gas-powered vehicles, which makes it more difficult to offset the large carbon footprint on the production side.
“[Our] data show that electric vehicles are driven considerably less on average than gasoline- and diesel-powered vehicles,” researchers at the Haas School of Business at the University of California, Berkeley noted in a 2019 study. “In the complete sample, electric vehicles are driven an average of 7,000 miles per year, compared to 10,200 for gasoline and diesel-powered vehicles.”
All of this helps explain why a 2023 Wall Street Journal analysis found that shifting all personal US vehicles to electric power would barely make a dent in global CO2 emissions, reducing them by less than 0.2 per cent.
Who Chooses?
Forcing US automakers to expand their least-profitable autolines is backward economics. It puts automakers at risk, not to mention their workers and shareholders.
The higher profits automakers are reaping from gas-powered vehicles isn’t an accident. It’s a signal that consumers prefer them at the prices being offered, and heeding consumers is what separates capitalism from the failed collectivist systems of the past.
The Austrian economist Ludwig von Mises explained that in a free-market economy, it’s the consumers who ultimately call the shots, not the state or even the corporations. This idea is known as consumer sovereignty.
“The real bosses [under capitalism] are the consumers,” Mises wrote in Bureaucracy. “They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality.”
The real question here isn’t about which is better, gas-powered cars or EVs. It’s about who gets to choose.
By allowing unelected regulators to decide what kind of cars are built instead of consumers, the US is crossing an ominous line.
This kind of central planning failed miserably in the 20th century. Don’t expect it to be any different this time around.
