Electric Vehicles
"You deal in the raw material of opinion, and, if my convictions have any validity, opinion ultimately governs the world" Woodrow Wilson
Introduction
Periodically it is prudent to take stock of the prevailing narratives in media and the most fervent policy suggestions in government to ensure that they are aligned with our interests as citizens and that they can stand up to strict scrutiny of the facts. It is vital we audit commonly accepted ideas to understand if they are widely accepted because they have the most merit for achieving a desired end or simply because they have the most momentum or vocal support. Widely held beliefs are often accepted as fact without having to answer demands for supporting evidence because they align with people's prevailing view of the world. History however reveals the consequences of such surface-level thinking. It is littered with examples of popular ideas that turned out to be fundamentally flawed. From the mid-third-century to the 16th century in Rome, one prevailing idea was that most medical problems could be attributed to an imbalance of blood, phlegm, yellow bile, and black bile in the body. These were known as the four humours and were the logical basis for ineffective treatments such as bloodletting and purging. These ideas were originally put forth by Galen of Pergamon who was the most famous physician in Rome at the time and personally attended to four emperors. At the time physicians were not allowed to dissect humans so Galen’s conclusions were based on crude experimentation and the dissection of animals. He was revered at the time and authored numerous medical textbooks based on his experiments which subsequent schools used as the basis for their teachings. Centuries after Galen’s death, when physicians were allowed to dissect human corpses and had access to better experimental methods and tools to discredit Galen’s conclusions, his ideas nevertheless remained commonly accepted facts. When later physicians made observations that directly contradicted Galen’s findings and common ideas, they would dismiss their own conclusions for fear of reprisal or uncertainty in their validity. It ultimately took 1,300 years and numerous scientific martyrs for his ideas to be discredited[14]. In short, a common misconception can be more dangerous than an obscure one. “It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so”.
When analyzing policies, ideas, or actions on the basis of merit rather than popularity, one ideally ought to review the available facts in the context of one’s experiences, incentives, and knowledge to formulate an initial opinion, and then subsequently test that opinion versus available literature and in robust debate with peers, ultimately revising one’s conclusions as needed. In the United States, we elect representatives to do this heavy lifting for us: to carry out the tasks democracy charges us with on our behalf. For the most part, this is a necessary dereliction of duty, as the average citizen is preoccupied with the management of their own affairs and does not have the requisite time to study the complexities of Government and its various apparatus. However, it was not the intention of the founders for representatives to carry out their work in isolation from the people. For the system to function in the interest of the people rather than in the interest of government actors, representatives must from time to time be held to account by their constituents. As Hamilton wrote in the Federalist Paper No.1, “the great question inherent in the proposed Constitution was whether it is possible to create a system in which the people might govern themselves through reasoned deliberation, discussion and debate, or whether they must forever suffer the imposition of government upon them”[6]. It is unfeasible that every citizen would participate in every debate on every topic, but when an issue comes along that is in one’s area of expertise or of specific interest, they should act upon it and participate with vigor in our democracy to ensure that our government operates on the consent of the governed and not in the interest of those governing.
Current Affairs
Over the past year, news of electric vehicles flooded newsstands in the United States. Ideas related to the new technology are flowing as quickly as the ink will dry on new legislation. Policies related to this new technology have been drafted and signed into law at breakneck speed. Given our bicameral legislatures and systems of checks and balances were designed for slow, grinding change in defense of the minority, we ought to be suspicious of such a brisk pace. Policy and public opinion have evolved so rapidly that there has hardly been time to stop and take stock of the validity of actions. In this landslide of information, the orator is free to enchant and the facts are liable to be buried under mountains of slogans. The vacuum of debate is amenable to filling with appeals to passion and preconceptions rather than reality, a situation which calls to mind the words of Ben Franklin, “Here comes the orator! with his flood of words, and his drop of reason[7]”. At the precipice of such excitement, it becomes necessary to reground ourselves and consider the implicit trade-offs and follow-on effects of our actions. Here we will attempt to pause and take stock of this innovation that excites. Below is a sample of headlines to refresh the readers memory on some of the prevailing narratives on electric vehicles.
“President Biden Outlines Target of 50% Electric Vehicle Sales Share in 2030” - White House Press Release[1]
“Electric Cars Are Better for the Planet – and Often Your Budget, Too” - New York Times[2]
“Electric cars are transforming the auto industry. That’s good news for the climate” - CNN Business[3]
“Widespread electric vehicle adoption would save billions of dollars, thousands of lives” - Science Daily[4]
“Tesla hits $1 trillion market cap as shares rally to record high” - Yahoo Finance[8]
“Why Electric Cars Can’t Come Fast Enough” - Boston Consulting Group[9]
“Rivian Jumps 11% as Investors Can’t Have Enough of EV Makers” - Yahoo Finance[10]
“California bans the sale of new gas-powered cars by 2035” - CNBC[11]
The following federal incentives and funding for electrical vehicles have recently been passed and signed into law:
Infrastructure Investment and Jobs Act:
$7.7 billion to deployment of EVs and related infrastructure
$12.7 billion to deployment of all types of clean vehicles and fueling infrastructure, including EVs and charging infrastructure
$10.3 billion for grid and battery-related investments
$2.5 billion for electric school buses
$5.0 billion EV charging formula program for states
$3.0 billion for battery manufacturing and recycling grants
$3.0 billion battery material processing grant program
New eligibilities for electric vehicles, batteries, and charging infrastructure on approximately $100 billion of block grants, bus programs, and air quality funding for the Department of Transportation
Inflation Reduction Act of 2022:
The light-duty electric vehicle (EV) tax credit of up to $7,500 per vehicle through 2032, credit is subject to the following conditions:
No cap on the number of credits or the maximum number of vehicles eligible for credit.
Income limits: $150,000 for single filers, $225,000 for heads of households, $300,000 for joint filers.
MSRP limits: $80,000 for SUVs, vans, pickup trucks. $55,000 for other vehicles.
Vehicle final assembly in North America.
Starting in 2024 no battery components sourced from foreign entity of concern (includes China).
Starting in 2025 no critical minerals sourced from foreign entity of concern (includes China).
40% (by value) of critical minerals in vehicle mined or processed in the United States in 2023, ratcheting up to 80% in 2032 ($3,750 of tax credit).
40% (by value) of battery components manufactured or assembled in the United States, ratcheting up to 100% in 2032 ($3,750 of tax credit).
New tax credit up to $7,500 per vehicle for commercial vehicles with similar conditions to light-duty vehicles.
New tax credit for used EVs up to the lesser of $4,000 or 30% of the vehicle sale price.
10% (total cost of production) uncapped tax credit for production of battery components and critical minerals in the United States.
$35 per kWh tax credit for manufacturing battery components and $10 per kWh tax credit for manufacturing battery modules in the United States. Both are uncapped.
$3.0 billion to electrify the United States Postal Services fleet.
$1.0 billion to replace class 6 and 7 heavy-duty vehicles with EVs.
Federal tax credit on charging equipment extended through 2032.
For individuals/residential, 30% of cost up to $1,000.
For commercial use, 6% of cost up to $100,000 per installation (up from $30,000). Must be placed in low-income community or non-urban areas.
The big kickers here are the uncapped tax credit obligations. The Congressional Budget Office’s cost estimate for the Advanced Manufacturing Production Credit for battery assembly and manufacturing over the 2022-2031 fiscal years was $30.6 billion. Based on the quantity of recent qualifying battery production and mining operations in the U.S., this estimate has already been proven to have grossly underestimated the magnitude of claims. The Mercatus Center at George Mason University estimates the total cost of the battery assembly manufacturing credit will be closer to $150 billion through 2031.
Uncapped tax credits obfuscate real spending amounts as it is extremely difficult to accurately estimate the quantity of potential claims from new developments in the market over a decade into the future.
The results of endorsements like the ones above and newly instituted government policies are hardly opaque. Over the past 5 years, U.S. Google search interest for “electric cars” has topped similar search interest for other related symbols of climate change like “renewable energy” or “solar power”, with the gap widening over most other relevant technologies in recent months.
A 2020 study by Resources of the Future found that 71% of participants believed that driving an electric vehicle would at minimum help the environment “a moderate amount”, with 29%, the largest single category, thinking that it would help the environment “a great deal”[12]. That same study also found that 57% of the surveyed Americans in the market for a new car said they would consider buying an electric vehicle. Deloitte's 2022 Global Automotive consumer study found more subdued interest in the United States, with only 5% of respondents indicating they would prefer their next vehicle’s powertrain to be fully electric. Additionally, the Deloitte survey found that 53% of U.S. consumers are unwilling to pay more than $500 in excess of typical ICE vehicle prices for alternative powertrains[18].
Actions speak louder than survey responses, and Americans have voted with their wallets: electric cars as a segment made up 5.6% of all new car sales in the United States in Q2 2022, a 207.4% YoY increase[16]. Through June 2022, the Tesla Model Y was the most popular new car in California with 42,320 registrations. Second place was the Tesla Model 3 with 38,993 units sold[15]. Tesla now has 10.7% and 3.3% of the market share for new car sales in California and the United States respectively. The electric vehicle market is forecasted to maintain a CAGR of 25.4% from 2021-2028[17]. Clearly, it is no mystery that electric vehicle adoption is increasing, the market is rapidly growing, and market consumers are making rational decisions based on the incentives and constraints they face to purchase or produce electric vehicles. On initial observation, this sounds like the free market functioning as expected by rapidly evolving to provide people with desired goods and services or improved products. However, there are some perverse market distortions and basic misconceptions at work.
Emission Analysis
One of the main talking and selling points around electric vehicles is that they are better for the environment than their combustion equivalents. The real answer to this question is nuanced. It requires a litany of subjective assumptions and a consideration of opportunity cost. For example, study results can vary dramatically based on how far a study chooses to go to allocate pollution responsibility or their assumptions about the lifecycle of the average vehicle. For instance, should the emissions of mining the natural resources for a vehicle's production be included? What about the transportation emissions to get those resources to factories? What about the transportation of gas or diesel to local gas stations that internal combustion vehicles require? The lines of demarcation are blurred, and arguments for a number of methods have merit. The most significant factor often overlooked is the opportunity cost of government subsidies for electric vehicles. If the government subsidizes electric vehicles and charging infrastructure, it inherently comes at the cost of everything else that money could be used for. As we will show later, if one's primary goal is emission reduction, there are better options. In totality, these factors combine to create a wide range of conclusions and data points that can easily be misconstrued to further special interests in lieu of public benefit. Here we will take a range of studies from both sides of the issue to derive a balanced perspective. In the no man's land between the extremes, we may find the truth. An analysis done by Bjorn Lomborg below presents a real-world example of lifetime emissions gains and their equivalent cost.
Bjorn Lomborg, President of the Copenhagen Consensus Center in Denmark:
The most popular electric car, the Nissan Leaf, over a 90,000-mile lifetime will emit 31 metric tons of CO2, based on emissions from its production, its electricity consumption at average U.S. fuel mix and its ultimate scrapping. A comparable Mercedes CDI A160 over a similar lifetime will emit just 3 tons more across its production, diesel consumption and ultimate scrapping. The results are similar for a top-line Tesla, the king of electric cars. It emits about 44 tons, which is only 5 tons less than a similar Audi A7 Quattro. So throughout the full life of an electric car, it will emit just three to five tons less CO2. In Europe, on its European Trading System, it currently costs $7 to cut one ton of CO2. So the entire climate benefit of an electric car is about $35. Yet the U.S. federal government essentially provides electric car buyers with a subsidy of up to $7,500.[13]
Based on Bjorn’s analysis, as U.S. federal taxpayers, if the full federal subsidy is utilized, taxpayers are getting a carbon reduction of less than half a cent on the dollar versus the purchase of carbon offset credits from our indirect investment through the federal government's subsidies for electric cars. Considering this result, if alternatively the federal government simply purchased carbon offsets instead of subsidizing electric cars, they could “reduce” CO2 emissions 217 times more than the current EV policy. The real difference would never be that great, as the price of carbon offsets would fluctuate to adjust to the increased demand, and the jury is still out on the effectiveness and reporting accuracy of most carbon offsets. It is reasonable to suspect that possibly half this difference in benefit, maybe 50-100 times that of electric vehicle subsidies, could be realized if Bjorn’s values are to be accepted.
In a different study conducted by the University of Toronto, researchers compared a Tesla Model 3 with a Toyota Rav4, with the Tesla being charged off the Pacific Northwest grid, where a large portion of electricity comes from renewable Hydropower generation. Here they found that over a 200,000-mile lifespan, the Rav4 will generate 78 tons of greenhouse gas while the Model 3 generates less than half that at 36 tons[19] [20]. In this scenario, CO2 reduction is more attractive. To provide a more conservative comparison to Bjorn Lomborg's calculations above we will assume that offsets are priced at the high end of the current market rates, $40 per ton of CO2 instead of the $7 in the previous example. This yields a total lifetime CO2 offset value of $1,680 dollars. If you take into account additional state benefits in the Pacific Northwest like the up to $7,000 clean vehicle rebate project in California, $800 rebate for PG&E customers and assume consumers make maximum use of these benefits this scenario is equivalent to about a 10.8 cents on the dollar of CO2 reduction versus simply purchasing carbon offsets. If we assume that a consumer only takes advantage of the federal subsidy on the same terms, then we achieve 22.4 cents on the dollar of investment versus carbon offset credits at $40 per ton of CO2. Again a better result, but we have still yet to achieve a dollar-for-dollar equivalent in benefit and we have had to make some favorable assumptions to get here. We have also omitted the cost of all secondary subsidies here such as mining and battery manufacturing credits and other grant programs for electric vehicle manufacturers. Clearly, this second study produces more attractive results for proponents of electric vehicles with regard to their climate impact, however, policies should not be considered in a vacuum.
Every decision is made based on trade-offs. If we choose to pursue a certain policy it must in part be at the expense of all the other options available. The money allocated to provide federal subsidies to car manufacturers and consumers for electric vehicles has a real opportunity cost. The print space occupied in newspapers for electric cars has a real opportunity cost. The time and energy that the public consumes evaluating the merits of an electric vehicle when making a new car purchase have a real opportunity cost. In effect, to take one action, you must believe it offers the best chance to achieve your ends over every other perceivable option based on the resources you have available or are capable of developing. While almost all current studies find that the lifetime emissions of an electric vehicle are at least marginally lower than an internal combustion equivalent, that does not mean that adoption of electric vehicles, much less the federal government providing subsidies for them, is demonstrably the best course of action. We have already provided an example above that many orders of magnitude greater carbon reduction could be achieved if the federal government stopped providing subsidies for electric vehicles and instead simply purchased carbon offsets, but perhaps a more concrete example with further the point. Let's consider what the equivalent cost and emissions benefits would be if the United States government were to fund the cost of converting coal-fired power plants in the United States to natural gas. As of September 2021, approximately 212 GW of utility-scale coal-fired electric-generating capacity was operating in the United States. For reference, the U.S grid has approximately 1200 GW of grid-connected power generation capacity, so this remaining 212 GW coal contingent represents 17.6% of total generation capacity. The total current coal generation capacity is divided up among 274 plants. See the map below for plant locations in the contiguous United States.
Source: EIA
To retire and convert a coal power plant, companies must evaluate the value of the current asset and make a determination as to what portion of the plant can be reused and what must be provisioned for demolition. Capital expenditures must then be made to demolish and convert the existing asset, financed either by debt, equity, retained earnings, or some combination of the three. This is a significant investment and a complex undertaking. Government subsidies could go a long way to increasing the incentives to undertake conversion projects. The complexity, cost, and feasibility of a coal-to-natural gas power plant conversions vary widely depending on the design of the existing facility. Even for public utilities, limited information is available on the precise design of their operating coal facilities, but costs and quantity of available conversions can be inferred from reference projects. A prime example of such a conversion is Cooperative Energy’s Morrow Generating Station conversion which came online this March. The Morrow plant originally came online in 1978 with two 200 MW coal-fired steam turbine generating units[22]. In 2016, the rising cost of delivered coal coupled with the plant's inefficiency made the units uneconomical to operate, so the company commissioned a power options study which concluded that repowering the units with natural gas-fired combustion turbine generators and heat recovery steam generators was the most beneficial option. Work started in 2018 to demolish the existing coal-fired steam generators and related assets and install within the footprint of the previous generators a gas-powered combustion turbine and heat recovery steam generators. The repowered combined cycle generator is a Siemens 9000HL with a nameplate capacity of 550 MW and rated output of 400 MW.
Completed Refitted Morrow Generating Facility
The cost of the conversion is listed at $442,000,000 or $1,105,000 per rated MW[23]. “Switching from coal to natural gas results in a 60% reduction in per-unit emissions (1031 MT CO2/GWH to 395 MT CO2/GWH). Natural gas plants run 50% more efficiently than coal plants (~1 natural gas plant can replace ~2 coal plants) and a molecule of natural gas emits 50% less CO2 than coal”[24]. Some quick math on Cooperative Energy’s Morrow plant conversion yields CO2 reduction of 254.4 tons for every hour the plant operates at full load. Assuming a 30-year plant life and 80% plant utilization over that period this is a total CO2 reduction of 53,485,056 tons of CO2 over the life of the plant. Based on the $442,000,000 cost of the plant conversion this equates to a spend of $8.26 per ton of CO2 reduced over the life of the asset. Using the numbers of the first electric vehicle example above with a carbon offset price of $7 per ton of CO2 this is an equivalent of 0.85 cents on the dollar versus carbon offsets or 17 times the CO2 reduction compared with electric vehicles. If we compare these numbers instead to the more conservative second electric vehicle example with a carbon offset price of $40 per ton of CO2 we get an equivalent of $4.84 of CO2 reduction per dollar spent versus carbon offsets or 21.6 times the return on investment compared with electric vehicles. Per Cooperative Energy’s press releases, zero existing workers were fired as part of the plant conversion process. Obviously, changes in the assumptions for plant life and utilization rate will affect these calculations, but it is clear that coal-to-natural gas power plant conversions represent a significantly better return on investment in terms of real CO2 reduction per dollar invested. Power plant conversions like the Morrow plant example have been taking place across the United States for some time now. “The US leads all countries (and the entire EU combined) in emissions reductions since 2005. The leading contributor was coal-to-gas switching, accounting for 61% of the reduction (31% wind, 8% solar)”[24]. Coal-to-gas switching has largely come at zero cost to the taxpayer, driven by market forces and reduced natural gas prices due to innovation in domestic exploration and extraction technology. Based on the current composition of coal power plants, a corporate tax credit for the full cost of decommissioning and demolishing existing coal plants for the purpose of natural gas repowering would cost significantly less than electric vehicle subsidies and produce significantly greater emission reductions. Instead of forcing a trend on the public, the government could simply provide a tailwind for changes that have already been taking place in the free market.
Some may say that the cost does not matter and that any and all burdens must be borne to reduce our emissions to zero, and coal to natural gas conversion does not ultimately get us to zero emissions like the promise of fully renewable-powered electric cars does. However, even with the world's largest nominal GDP and the eighth-highest per capita GDP, the United States still does not have the luxury of limitless spending. With over $31 trillion in national debt and more than $151 trillion in unfunded entitlement program liabilities, the government cannot afford to continue to inefficiently allocate capital[25] while countries like China continue to add a new coal power plant every week and obtain the majority of their electricity from coal power[24]. Developments in carbon capture technology or the development of carbon offsets can make combined cycle natural gas power plants net carbon neutral while offering a lower cost investment to the taxpayer and providing critical baseload power which is necessary for grid stability.
Additional Consequences
There are also other additional unintended consequences of widespread electric vehicle adoption that need to be considered. Electric vehicles weigh more than their internal combustion counterparts. The new Ford F-150 Lightning weighs in at 6,015 pounds; its equivalent internal combustion model comes in at 4,950lb curb weight with a full tank of gas. By no means is the regular model spritely, but this 22% weight difference is not inconsequential. Comparably the electric Hyundai Kona is 28% heavier than the gas power model and the Nissan Leaf is 35% heavier than its closest equivalent, the Versa. As with people, added weight on vehicles is not typically a good thing. Added weight where the rubber meets the road, quite literally, increases wear as well as the frequency of replacement of tires and road surfaces. A cost that taxpayers and the environment have to bear. Car transport companies have already begun lobbying Congress to increase the maximum weight limit of their transport class on roads in order to accommodate the prospect of hauling these heavier vehicles across the United States from shipping ports and factories to dealerships and end customers. This added weight also means increased emissions for car transports and ocean shipping for this new class of vehicles. These consequences pale in comparison to the elephant in the room: the gas tax. In 2019, state and local governments collected $52 billion dollars, or 1.5% of total government revenue, from the gas tax[21]. The Congressional Budget Office last year projected that if the 18.4-cent per gallon federal tax remains the same, and infrastructure spending increases at the average projected rate of inflation, the federal Highway Trust Fund will come up about $140 billion short by 2031. If we do away with internal combustion vehicles, we will do away entirely with this existing source of revenue for the government. This loss in revenue will either need to be replaced with a new tax, not yet conceived, increased deficit spending, or budget cuts. My money is on either of the former rather than the latter as the government has shown no stomach for budget cutting in recent years and does not have sufficient incentive to do so in the current political climate. Some states have begun to explore the idea of taxing drivers by mileage to replace the gas tax, but it is not yet clear how this would be implemented or its effectiveness. Pilot programs in California have required drivers to file odometer readings annually when they re-register their vehicles or submit to GPS tracking in their vehicles. The legality of live GPS tracking of private vehicles by the government is dubious, and will likely not be met with excitement by anyone who values their privacy. A tax on mileage also reduces the incentive to purchase more efficient vehicles. Currently, we pay tax based on how much gas we purchase. If you drive a less efficient vehicle, you will need to purchase more gas to cover the same mileage, and hence you will pay more tax. If the tax is based solely on mileage, there is less of a penalty for driving an inefficient car. If some hybrid combination of the gas tax and a millage tax is employed then things get complicated for people who own electric and gas-powered vehicles who would need to have the mileage tax subtracted from their gas-tax payments for mileage driven in their gas-powered cars. Such complexity breeds bureaucracy at the expense of the tax-payer. There are also additional consequences in terms of stranded assets. What is to be done with the thousands of gas stations that dot the landscape of the United States? They could well be converted into hybrid gas stations and electric charging locations, but at what cost? New power infrastructure would need to be put in place, gas supply chains reduced, and facilities retrofitted. Station operators will do their best to adapt and keep up with these induced market trends, but there is no guarantee they will be successful. There is nothing wrong with such creative destruction under normal market forces, which reallocate scarce resources to best benefit the consumer, but in this case, resources are being forcefully reallocated to achieve government policies. If electric cars are simply better than gas cars in terms of performance, styling, and features, then providing a government subsidy should not be necessary. A superior product operating in the free market will generate its own demand and supply will follow if prices are sufficiently attractive. If you raise an entire industry on heavy subsidies, supply will rise to meet the artificially high levels of demand. Once the industry is sufficiently “mature” and the subsidy rug is pulled out from beneath the industry, there will be an inevitable correction to the real market demand for the product. There will likely be excess supply and jobs will need to be cut or transferred. Removing the subsidy will be equivalent to a large, rapid increase in the price of electric cars which necessarily will lower demand and require manufacturers to adjust their production accordingly. Some argue that industry subsidies can be slowly rolled back to wean the industry off its dependence on them, but there is little historical precedent for such action. At a federal level, policies tend to be rolled back in bulk or poured on in excess when a new political party takes control of the legislature. A slower rollback could be more possible with an extended split legislature.
Another point of concern is that the tax breaks in current EV policies are likely to accrue to higher-income households and provide less benefit to those in lower-income brackets. This is because tax-breaks do not lower the upfront costs of electric vehicles. They instead provide a delayed benefit for those who already have the additional cash or access to the liquidity needed to purchase a more expensive electric vehicles. Accordingly to J.D. Power, the average sale price for a new electric vehicle in the United States was $54,000 in 2022, compared with $44,400 for a new gas car. This $9,600 dollar difference prices some lower-income households out of the market who are unable to bear the upfront cost and wait until tax season to claim their subsidy. While there are some lower-cost EVs available on the market today, starting around $27,500, they are still more expensive than the cheapest gas options. Electric vehicle registration data to date indicates that most of the electric vehicle purchases are being made in high-income zip codes. A 2023, study by CalMatters found that the city of Atherton in California, one of the wealthiest zip codes in the United States, has the highest penetration of EVs in the state, with 14.2% of the 6,261 registered cars electric [36]. Furthermore, most of the top 10 EV markets in California had median household incomes exceeding $200,000, while the lowest-income zip codes had little to no EV penetration. Recall that the income limits for the $7,500 EV tax credit are currently $150,000 for single filers, $225,000 for heads of households, and $300,000 for joint filers, well above the median U.S. income of $70,784 in 2021. Plainly stated, I do not believe the majority of Americans would support a Federal subsidy that accrues primarily to the wealthiest neighborhoods and above-average income earners, but this fact has been obfuscated by environmental talking points in most public debates.
Mineral Demands
Another stain on the glimmering reputation of electric vehicles is their insatiable appetite for certain critical minerals. Lithium and cobalt are key components in electric vehicle batteries. Siddarth Kara’s bestselling book, Cobalt Red: How the Blood of the Congo Powers Our Lives, documents how 75% of the world’s supply of cobalt is mined in the Democratic Republic of the Congo in abysmal mining conditions by local artisanal miners. The country sits on the world's largest cobalt deposit and demand for cobalt has increased 5 fold between 1995 and 2019, with over half of the 2019 supply used for batteries[30]. There are roughly 10 kilograms of cobalt in the average EV battery, and global demand is expected to jump 585% by 2050. According to Kara, the mines in the Democratic Republic already utilize 40,000 child workers. Workers mine with crude tools or rocks with no personal protective equipment despite the fact that cobalt dust is toxic. Repeated exposure to the dust can cause asthma attacks, scarring of the lungs (fibrosis), increased risk of cancer, and may affect the heart, thyroid, liver and kidneys[26] [27]. Kara describes one harrowing scene he witnessed when a mining tunnel that was not properly reinforced collapsed, killing 63 including a young boy.
DRC cobalt mine captured by Siddharth Kara[28]
Chinese companies currently control the majority of cobalt mines in the DRC and 67% of the mineral’s refinement takes place in China. Rising global demand for electric vehicles will continue to incentivize further exploitation of the local DRC population in order to extract greater quantities of cobalt. Cobalt is recyclable, however current recycling rates are low; only 30% of refined cobalt is currently recycled and the cost of recycling is higher than the spot price of refined cobalt. Some companies like Tesla manufacture a portion of their batteries without cobalt and other companies are working on reducing the quantities of cobalt in their batteries, but the mineral is still a key component in lithium-ion batteries for charging stability and storage capacity. Lithium is more abundant than cobalt and deposits are more dispersed geographically than cobalt. However, the vast majority of lithium comes from South America - more specifically, an area known as the “Lithium Triangle” in the high salt flats of Argentina, Bolivia and Chile. The three countries, along with Peru, contain about 67% of proven lithium reserves and produce about half of the global supply, according to the U.S. Geological Survey. The cheapest and most common form of lithium mining is brine collection, which involves pumping salt-rich water deposits to the surface into a series of evaporation ponds. The water is then evaporated over a period of 12-18 months with periodic introductions of a slurry of hydrated lime (Ca(OH)2) to precipitate out unwanted elements. The remaining lithium brine is then transferred to a recovery facility where it is filtered, chemically treated with soda ash (Na2CO3) and other chemicals, and washed. Lithium mining requires an enormous amount of water, approximately 500,000 gallons per ton of lithium[31]. This has created significant water shortages for the rural communities in the Lithium Triangle. In Chile’s Salar de Atacama, lithium extraction being performed by various companies has consumed 65 percent of the region’s water supply[32]. The hydrated lime that is added to evaporation ponds during the extraction process can also cause environmental damage. Hydrated lime is an alkaline that raises the pH of water or moist soils which can kill plants and damage local ecosystems if spilled. It can also cause respiratory damage and skin, eye, and digestive tract burns in humans. Basic supply and demand economics are the more critical challenge with lithium. If battery capacity reaches 2,450 GWh by 2029, as expected, it will require approximately 2 million metric tons (mt) of lithium carbonate equivalent (LCE) – over six times 2019’s lithium demand of approximately 300,000 mt of LCE[33]. Supply capacity does not expand overnight. It takes years to set up lithium mines and suppliers are not incentivized to expand capacity significantly before demand materializes. When supply lags demand, lithium spot prices are higher meaning greater profit margins for miners. Even after a mine is permitted and constructed it takes over a year for the first evaporation cycle to complete. Some companies such as Lilac Solutions are working on new process technologies to remove the need for the timely evaporation process, but these have yet to be deployed at scale[34]. Existing lithium batteries can be recycled but the process is costly and has yet to be implemented in any material way. Only 5% of the world’s lithium batteries are being recycled currently[35]. There are other battery technologies like iron flow batteries that have promising potential but are still many years away from commercial feasibility. Obviously, the sourcing of oil for internal combustion vehicles has also resulted in the exploitation of local populations and environmental disasters. This section is intended to emphasize the fact there are no free lunches in the world. Electric vehicles do not eliminate practices of the exploitation of nature and people for natural resources; they simply transfer the burden to different geographies and populations.
Conclusion
If the primary goal is to lower global CO2 emissions in a cost-efficient manner, investment in electric cars and the related infrastructure is not an attractive choice, even by the federal government's cost-efficiency standards. If one's primary goal is to lower CO2 emissions as quickly as possible, whatever the cost may be, electric cars become slightly more attractive but remain inferior to a litany of other options that offer the possibility of a greater magnitude of emissions reduction in a shorter period of time. If mining practices in third-world countries are of primary concern, increased sales and production of electric cars will most likely not produce positive outcomes. If grid stability and electricity price are paramount, electric vehicles will leave consumers largely unsatisfied. If infrastructure maintenance costs and asset turnover rates are of interest, electric cars will certainly not be the boondoggle of the decade.
It's necessary to clarify that this piece is not meant to discredit individuals who take individual action based on a rational analysis of their circumstances, interests, and incentives. Nor is this piece meant to dissuade people from purchasing what they want to buy. It is intended to present the opportunity costs of government action in this space and provide an overview of the unintended consequences that are implicit in the current and proposed policies. I do not pretend to know exactly what makes an individual actor in the market purchase an electric car. It is simply a review of the benefits and costs of the product that is available and the policies that are influencing its attractiveness beyond what they might be with no government influence in the free market. Buy an electric car because you prefer driving them or you enjoy its performance or styling. Buy one because you don’t like visiting gas stations or paying for gas. Buy one because the government is incentivizing you to buy one, but don’t buy one under the guise that it is the best option for CO2 reduction. The purchase of an electric car necessarily pulls resources and attention away from areas in which government spending and human capital could be more efficiently allocated for the public good. Buy an electric car for yourself, because you want one, there is nothing wrong with that. Just don’t buy an electric car for the caricature that has been made of them.
References
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