Economics, Energy and the Environment

Electric Car Subsidies: Giveaways to the Rich

electric-carIf you want to understand why energy policy is such a mess of superficial sloganeering and happy talk (“green jobs!” “new energy economy!”), consider two news items reported in the Wall Street Journal last month. The first came in a series of stories the Journal ran covering the imminent arrival of Nissan’s all-electric car, the Leaf. The CEO of Nissan, Carlos Ghosn, said the following: “We are negotiating with the U.S. government to make sure we have a reasonable return on our investments and continue to develop the technology.”

Wrap your head around that sentence for a moment—“negotiating with the U.S. government to make sure we have a reasonable return on our investments.” Silly me—I still cling to the old-fashioned, simple-minded view that a reasonable return on investment was determined at the end of the day by the marketplace, and although Washington has always tilted the playing field, we’ve never done it to the extent we are with the Leaf (and also the Chevy Volt). Right now buyers of the Leaf will receive a $7,500 tax credit, and another $1,000 tax credit if they buy a charger (which everyone will need to do if they want to be able to charge their car in a few hours as opposed to a few days from a standard outlet). In other words, the government is essentially bribing people to buy electric cars that they wouldn’t otherwise buy in very large numbers. Nissan will sell 13,000 Leafs this year, but hopes to sell 500,000 a year in the United States within two years. Do the math: if the government maintains this level of subsidy/bribery for every Leaf, it will have to shell out more than $4 billion a year, and perhaps an equal amount for the Volt. This, for cars with a range of only 100 miles when fully charged. By the way, according to one recent report, most early buyers of the Leaf are current Prius owners. It is a fair bet that most Leaf buyers will be more affluent drivers, most of whom will have it as a second car or short-trip commute vehicle. Which means that the tax credit is a “giveaway to the rich” doesn’t it? Apparently tax giveaways to the rich only count when someone with a W in his name is in the White House.

Hold this thought while I note another, more interesting story from the May 4 issue of the Wall Street Journal: “Google Invests in Wind Farms.” This caught my eye because there has been some controversy about Google’s energy use and its all-important carbon footprint. Google’s huge server farms are very energy intense. The company, whose motto, remember, is “don’t do evil,” is very eco-conscious, participating in an effort to promote the development of clean energy systems that are cheaper than coal. One can imagine how sensitive Google’s leadership is about this question, as rumors abound that many of their server farms are located close to large coal-fired power plants in the Midwest. It is rumored that Google pays huge premiums—maybe as much as $5 a kilowatt hour at the margin (compared to 14 cents a kilowatt hour that we consumers pay)—to assure absolute reliability of their electricity supply. There was an interesting controversy a couple years ago when Mark Mills estimated in Forbes magazine that every Google search was responsible for about 2 lbs of carbon dioxide emissions, which seems plausible, since the Internet now accounts for more than 8 percent of electricity consumption in the United States. A number of academics disputed Mills’s estimate, but Google was notably silent about the whole matter.

So this headline caught my eye because I was curious to see if Google had found a way to live with the serious problem of wind power’s intermittency and unreliability. The story said that Google was investing $38 million in two North Dakota wind farms built by NextEra Energy Resources, with 169 megawatts of capacity, enough to power 55,000 homes. The article in the Journal explains:

“Google said it is investing directly in projects to accelerate the deployment of the latest clean-energy technology while providing attractive returns to Google and more capital for developers to build additional projects.”

So far, so good. But the next paragraph gives away the game.

“Google’s stakes in the wind farms are ‘tax equity’ investments, in which investors buy into a project and use federal tax credits granted to the project to offset their own taxes.”

In other words, another investment that can’t stand on its own feet or provide a suitable rate of return without a government subsidy. And for a power source that doesn’t actually work for Google’s growing power needs:

“A Google spokesman said the electricity generated by the wind farms wouldn’t be used to power the company’s data centers, which house networks of computer servers. Google’s power usage is unclear; it doesn’t disclose how many data centers it operates or where each is located. Last year, it said its data centers were the most efficient in the world, so far as it was able to determine, but declined to say how much power it actually uses.”

These two stories are excellent examples of why our seemingly endless drive to expand subsidies for energy sources that are uncompetitive in the marketplace, stretching back now to the 1970s, have failed to produce the long-promised “energy revolution.”

Image by frankh.

Comments are closed.