If the goal is to use government policy to encourage manufacturers to dramatically increase the supply of EVs, a carbon tax would be much more efficient than an EV credit.
At the same time, today’s high gas prices are caused by shorter-term market factors such as the recovery from COVID-19 that is boosting demand even as Russia’s invasion of Ukraine limits supply. Those higher gas prices—combined with the existing tax subsidies Manchin decries—In the medium-term, all these issues are likely to resolve. As supply chain problems sort out, supply of EVs will increase. And when gas prices fall, so will demand for these vehicles.
But longer term, raising taxes to more closely reflect the environmental costs of fossil fuels likely would drive even greater, more permanent increases in demand for electric vehicles. And by doing so, it will end the need for tax subsidies to encourage these purchases.It benefits only those relativelywho least need the subsidy, since the full credit is available only to those whose tax liability is at least equal to the credit amount.
But imagine an alternative world where government ends all these tax subsidies and instead uses a carbon tax to properly price fossil fuels. It could lower the budget deficit, help limit the damage of climate change, and—properly designed—There is yet another benefit: It generally takes many years for consumers to change behavior in big ways in response to higher energy prices. They may drive a bit less, but their ability to change driving habits is limited.
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