Among Pres. Biden’s first executive orders was to replace the entire fleet of federal vehicles with electric vehicles — about 645,000 in all according to the General Services Administration. He claimed that it would create one million autoworker jobs in the U.S.
Chock up another win for the Golden State, which first dreamed up the idea last year.
But California being California, dreamed big. Gov. Newsom didn’t just mandate that all state government vehicles be EVs, but that by 2035, only electric vehicles could be sold in California.
Even before Newsom’s edict, the state already had in place regulations designed to increase the percentage of zero emission vehicles (ZEVs) sold in California. The complicated system allowed auto manufacturers to earn and trade “credits” for selling less-polluting vehicles. As described by the Union of Concerned Scientists, “the ZEV program assigns each automaker ‘ZEV credits,’ which represent the company’s sales of electric cars and trucks. Automakers are then required to maintain ZEV credits equal to a set percentage of non-electric sales.” The credit requirement would keep rising until reaching 22 percent in 2025.
Wayne Winegarden, PRI’s senior fellow in Business & Economics, explains the impact of this arrangement in his study, Costly Subsidies for the Rich: Quantifying the Subsidies Offered to Battery Electric Powered Cars:
Those companies who have excess credits… can save these unused credits from one year to the next. Companies that do not have enough credits are subject to a fine of $5,000 per credit the company is short. Instead of paying the fine, these companies that do not have sufficient ZEV credits can purchase the excess credits from those companies with a surplus. The potential revenues that companies with a surplus of ZEV credits can earn are a subsidy to these companies. The subsidy is funded by the companies that do not have significant EV sales, and their customers; and, these subsidies can be quite substantial.
Tesla, for example, thanks to its popular cars, got a mother lode of credits. In an analysis by Trefis cited by Winegarden in his 2018 study, Tesla had sold as much as $700 million in credits to other companies. Winegarden concludes, “the ZEV mandates give manufacturers of qualified vehicles the ability to expropriate some of the profits, or impose higher costs on the customers, of manufacturers who do not sell enough qualified vehicles.”
The state’s attempt to drive up EV sales at the expense of some automakers and consumers has yet to show any real results in mitigating climate change. Just last week, State Auditor Elaine Howle said that the California Air Resources Board has failed to adequately measure the impact of regulations on reducing greenhouse-gas emissions. The state auditor’s office believes that CARB appears to have overstated the emissions reductions from the state’s incentive programs.
California’s goal of creating jobs and attracting green companies isn’t going well either. The state’s unemployment rate is persistently higher than the U.S. average. And Tesla’s founder Elon Musk has threatened to leave the state along with thousands of other companies. If Biden continues to copy California’s green policies, the final stop for many U.S. companies could be a foreign capital.
Rowena Itchon is senior vice president of the Pacific Research Institute.
