Californians already suffering from significantly higher gas prices will be dismayed to learn that the regulatory state has decided to make things worse. For the rest of the country, the changes stand as a stark warning.
Last week, the California Air Resources Board, known as CARB, voted to increase the burden from the state’s Low Carbon Fuel Standard (LCFS). CARB claims the changes will help the state reach its emissions goals, but given the current technological constraints, that assertion is uncertain at best.
What is certain is that these changes will increase fuel costs in the state. According to the Kleinman Center for Energy Policy at the University of Pennsylvania, the proposed changes to the LCFS will increase gasoline costs by as much as 65 cents per gallon by 2030. An analysis CARB conducted projected that gasoline prices would increase by an average of 37 cents per gallon. The estimated costs from the regulations will then continue to mount potentially reaching $1.50 within a decade.
All these added costs will make it more expensive for drivers in California. Using a price increase estimate of 50-cents a gallon, a family purchasing 15 gallons of gasoline a week would spend an additional $390 annually just to cover the costs of the new mandates. Should the cost increases hit $1.50 a gallon, the additional costs explode to $1,170 annually.
Unfortunately, these aren’t the only cost increases being foisted on California drivers. Another new law California just passed imposes additional storage mandates on refiners that will increase gas prices by around $0.11 a gallon. There are also the cap and trade costs and the state’s gas tax that automatically rise each year based on changes in inflation.
The common expectation is that “the LCFS program” will “incentivize the utilization of zero emission battery electric vehicles”. The economics of the situation illustrate that this common perception is likely overstated if not outright wrong because it will be infeasible for most families to switch to electric vehicles.
According to Edmunds, the largest price gap between EVs and internal combustion engine vehicles was for compact SUVs where the “average fully electric model, with a starting MSRP of $53,048, was a wallet-draining $17,326 more than the average of $35,722 for a gas-burning compact crossover.” Even the smallest gap for large pickups was “18% at $76,475 for electrics versus $64,784 for ICE vehicles.” The price gap for subcompacts was around $9,000.
In other words, to avoid the additional costs that the LCFS will impose on families, families will need to spend an additional $9,000 to $17,000 when purchasing a new vehicle. For perspective, this difference exceeds the entire bank account balance for the median household, which is around $8,000.
EVs lack of affordability is even worse than these figures indicate because the additional thousands of dollars to purchase a home charging station have not been considered. Unable to come up with the money to pay for all these costs, and with limited ability to shorten their driving distances, California families will wind up enduring the large financial burden from the LCFS without meaningfully reducing their greenhouse gas emissions.
In response to the undeniably higher costs to purchase EVs, advocates will often claim that EVs have lower operating costs that will make the total cost of owning an electric vehicle worthwhile. Here again there are reasons for skepticism.
A website tool from the U.S. Department of Energy estimates the operational savings from an EV. According to this online tool, the annual savings can be as high as $2,200 annually but it is unlikely that these savings can be realized in practice. EVs’ range often underperforms the factory potential because, in the real world, temperatures become extremely cold in the winter and excessively hot in the summer. Drivers must also navigate adverse weather conditions, and batteries degrade over time. All these realities reduce EVs’ realizable performance.
Ignoring these factors, and assuming the $2,200 in estimated savings will be achieved, the operational savings still do not justify the current additional costs. According to Car and Driver, the average service life of an EV is “between eight and 12 years”. Assuming a 10-year life for the EV and a 6 percent discount rate, the present value of the operational savings is around $16,000, which is around the price premium of an EV. In other words, assuming a best-case savings scenario, the EV savings are minimal or nonexistent.
Making the costs even higher, the above has only considered the direct impact from the mandates on families. Industries, such as agriculture, manufacturing, and transportation, will also face higher costs in addition to real concerns over the availability and reliability of commercial EVs and trucks. Consequently, the changes will further dim the vibrancy of the business sector in California and add additional burdens on consumers.
The LCFS is one of many policies that make California an unaffordable place to live and an inhospitable place to do business. Increasing its stringency as CARB has just approved only worsens these problems and encourages an even greater exodus from the state.
For the rest of the country, California’s current policies provide important lessons regarding what not to do.
Writer: Wayne Winegarden
