In 2011, General Motors (GM) failed to meet its projected sales volume of 10,000 for the Chevy Volt, shipping a mere 7,671 of the vehicles. Moreover, between December 2010 and May 2012, Nissan was only able to sell 32,000 Leafs. To put things in perspective, GM sold 415,130 Silverados in 2011 alone. However, in 2011, the federal government provided approximately $135 million in subsidies to purchasers of these electric cars. If the Obama Administration reaches its goal of getting 1 million “green” automobiles on the road by 2015, then the cost of the subsidies will rise to $10 billion.
The reason that subsidizing industries or products is frowned upon by many experts is that the costs imposed on taxpayers outweigh the gains of those participating in the subsidized market. But make no mistake; the subsidies increase the producer surplus, which is why firms invested in green energy are so supportive of them. The problem with subsidizing electric cars boils down to this – electric vehicles are not economically competitive.
The cost of one barrel of crude on August 2, 2012 was $87.13, significantly less than it cost on March 9, 2012, when prices were sitting at $107.40 per barrel. This is important because as long as oil prices remain relatively low, electric vehicles, and “green” industries in general, will remain uncompetitive. In other words, as long as gas prices hover around $3.55, people will continue to shun electric cars. Those hoping for a “green revolution” will also be disappointed to hear that world oil production is set to rise of the next decade. Harvard’s Belfer Center released a report earlier this summer predicting that the current world oil production capacity of 93 mbd would increase 110.6 mbd by 2020. Leonardo Maugeri, author of the report and former oil-industry executive, speculated an increased production capacity could lead to a “glut of overproduction and a steep dip in oil prices.”
So, if the Obama Administration really wanted to make electric cars the future of driving, all they would have to do is drive up the oil prices. Since the oil prices are fine as they are, this rushed revolution would have to be caused through artificial means. For instance, provoking Iran into blocking the Strait of Hormuz would be an easy way to make electric cars more competitive with normal cars. If this had been done on July 11, 2008, when oil prices were already at $145.08 per barrel, the “green revolution” may have actually taken off. But Obama wouldn’t dare do that, for one simple reason – oil companies have more lobbying clout than the green industry. Just to highlight this point, Obama alone has received 1,626 contributions totaling $933,443 from oil and gas companies since 2008.
But what purpose do the subsidies serve? Basically, the government has been pouring taxpayers money into green projects, which they know will fail, and, in return, the producers profiting off of the subsidies have been providing reelection funds to the politicians. Since 2008, GM has provided Obama with 116 campaign contributions totaling $47,375. Nissan hasn’t been as generous, but has rewarded Obama with 28 contributions totaling $22,225 for the same period. Just as a fun fact, I would like to note that, in 2009, Obama invited Carlos Ghosn, CEO of Nissan, to run General Motors. The Obama Administration has essentially been converting taxpayers’ money into campaign contributions. The best part is, Obama has been able to do this while convincing voters that he really only cares about the environment.
Adam Ondo | University of Rochester | @JoplinMaverick