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Compared to What: the Low-Down on Alt Energy Subsidies

Submitted by on April 12, 2012 – 2:10 pmNo Comment

by Jim Lane (Biofuels Digest) Hybrids, plug-in electrics struggle to pass the consumer’s “compared to what” test – and how much do those tax credits cost, anyway?

…Take, for example, the trouble with hybrids. We saw a report yesterday that only one in three current owners of a hybrid car, who purchased a new car in 2011, bought another hybrid.

…The problem of the hybrid is not in the inherent qualities of the technology, but in comparing it to the convenience of the incumbent, the internal combustion engine. Electrics have a customer base, but the internal combustion engine’s overall cost-benefit proposition seems to be more compelling than previously understood.

…Here’s what is happening in hybrids and plug-in electrics, in the US market. Share on market has dropped from 2.78% of all new cars sold, in 2009, to 2.25% in 2011. This despite some well-publicized new market entrants.

…Now, a fuel tax credit is paid out over the lifetime of the car, not all upfront. So, the tax credit is worth less, because of inflation and the cost of money, at the end of the 16.9 years than at the beginning. It’s the bird-in-the-hand principle at work.

Applying a discount rate of 5 percent to the $7500 tax credit, over 16.9 years, a $7500 tax credit has $17,106 in buying power, compared to $7500 in fuel tax credits paid out over 16.9 years.

So what’s the bottom line? A $7500 tax credit, discounted over the life of a vehicle and amortized over the gallons of gasoline that a comparable fuel-burning car would use, is comparable to a $3.04 tax credit, per gallon of gasoline, for a car with an ICU engine.

Now, I can just about guarantee you that, if there were a $3.04 per gallon tax credit for [name your fuel of choice], you would see a different national attitude towards ethanol, LNG, or fueling cars with algae, crocodile pelts, or liquified tennis shoes.  READ MORE

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