Business & Economics

Beware the Unintended Consequences of Subsiding EV Charging Stations

The federal government is allocating billions toward the building of electric vehicle charging infrastructure. It’s the wrong way to urge adoption of EVs

Subsidies and government mandates will have harmful unintended consequences for electric vehicle adoption. Image Credit: Jon Challicom/Getty Images

In September, President Biden announced at the North American International Auto Show in Detroit that his administration is approving funding for 35 states to build electric vehicle (EV) charging infrastructure. This will be part of a nationwide network of 500,000 public EV charging stations for which the government has allocated $5 billion.

“The great American road trip is going to be fully electrified, whether you’re driving along the coast or on I-75 here in Michigan,” Biden said. But much like Biden’s vision of the road trip of the future, this approach to EV adoption is out of gas. Imposing subsidies and government mandates to encourage more Americans to use EVs ignores a wide range of harmful unintended consequences.

The Biden Administration’s Rationale

For those considering buying electric vehicles, the availability of charging stations is a critical factor. Although home and workplace charging accounts for almost 75% of total charging energy use in America, concerns about the limited availability of public charging infrastructure results in many being hesitant to purchase those vehicles.

By subsidizing the installation of EV charging stations, the Biden administration hopes to contribute to increased adoption of EVs to reduce the use of autos with internal combustion engines (ICEs) and associated CO2 emissions. Although this policy will likely contribute to faster adoption of EVs, government use of taxes, subsidies and mandates to promote EVs is likely to have negative effects that the administration did not intend to happen.

The justification for government attempts to speed the adoption of EVs is the belief that CO2 emissions from vehicles impose substantial costs on current and future generations through their impact on climate change. But rather than micromanaging people’s choice of vehicles to drive, something like a carbon tax would allow more options, while giving people an incentive to reduce the CO2 emissions resulting from their daily activities. There are substantial costs associated with hastening the adoption of EVs, including significant environmental impacts associated with the production of EVs as well as from the expansion of electrical generation and transmission infrastructure to provide enough power to charge a growing fleet of EVs.

How and Why the Infrastructure and Jobs Act Subsidizes EV Charging Stations

The Bipartisan Infrastructure Law (HR 3684) established the National Electric Vehicle Infrastructure (NEVI) Formula Program and the Discretionary Grant Program for Charging and Fueling Infrastructure. The NEVI funding program has initially focused on providing matching funds to states to install electric charging stations along designated alternative fuel corridors, which include all interstate highways along with selected national highways. Although these will be fast charging stations, the two programs may also provide some funding for slower Level 2 charging stations.

Public charging stations either use Level 2 chargers or DC fast chargers, but those differ greatly in terms of cost and charging time. Each Level 2 charger for public use costs between $2,000 and $10,000 to install, while each DC fast charger costs $100,000 or more to install. To provide enough charge to go 200 miles, Level 2 chargers take 417 minutes and DC fast chargers take 60 minutes. (Tesla Superchargers, which are only accessible to Tesla drivers, are faster yet and can charge for 200 miles in 21 minutes.) As of the first quarter of 2022, there were around 23,000 public and workplace fast charging ports and around 101,000 public and workplace Level 2 charging ports in the U.S. However, more than half of the public fast charging ports are Tesla Supercharger ports, though Tesla is planning to open its network to the public.

Market Forces Instead of Government Mandates

The adoption of electric vehicles varies considerably by state and is quite low in many rural states in the South and West. (There are several states where electric vehicles are owned by only one person out of a thousand.) Furthermore, in some sparsely populated states, EV stations are available in locations popular with tourists, but are almost nonexistent elsewhere. The scarcity of chargers may discourage EV adoption by residents of these states as well as by those who expect to travel throughout them—not just to tourist destinations.

The NEVI program provides funds for each state to install fast-charging stations, each with a minimum of four charging ports, at 50-mile intervals along interstate highways. Subsidizing installation of stations in sparsely populated areas with little demand will result in it being very expensive to charge each vehicle at those locations—much more than it would cost to fill an internal combustion engine (ICE) vehicle with fuel. That’s because the capital costs of a fast-charging point are high: Each fast-charging point “requires electrical infrastructure equivalent of that needed for 10 homes,” according to Mark Mills of the Manhattan Institute. Taxpayers will bear most of the capital costs of public EV charging stations and may also pay operation and maintenance costs of those stations for up to five years after they are installed.

And as EV use becomes more widespread, the cost of EV charging may remain high because of high capital costs. The capital cost of fast chargers is roughly twice that of gasoline pumps, and because of the time it takes to charge a vehicle, it will take many more chargers than gas pumps to supply the same number of customers at peak times.

When resources are allocated by prices that are the result of market competition, consumers and producers have an incentive to economize to find the most cost-effective way to accomplish their purposes. Without subsidies, expected profits would provide an incentive for entrepreneurs to eventually build charging stations in response to increasing adoption and use of EVs, even in relatively sparsely populated locations. Private deployment of charging infrastructure would be more cost-effective and better contribute to innovative developments in the kind of options available for charging EVs. Federal subsidies have strings attached, such as Buy American provisions, that may increase costs and slow the deployment of charging infrastructure.

Obstacles and Unintended Consequences

Adoption of electric vehicles will affect the electric grid in the short run and long run. Right now, it is contributing to better use of grid capacity during off-peak times, lowering average costs for other users. The fact that most people charge their vehicles at home overnight works well because demand for electricity for other purposes is lower during that time and the electric grid has excess capacity. But as the number of EVs increases, demand could eventually approach grid capacity, which would likely raise the costs of charging.

If a large number of EVs are charged at the same time, particularly when the grid is heavily used for other purposes, there could be reliability issues. Proponents of rapid EV adoption base their advocacy partly on the hope and expectation that renewable energy generating capacity will expand fast enough to meet increased electricity demand associated with the growth of EV use. The sun and wind are the most important renewable energy sources, but during some periods, the sun does not shine and the wind does not blow. For the grid to have adequate capacity during such times, either electricity must be stored, or non-intermittent sources of backup power must be available. The cost per kilowatt-hour of backup facilities, likely powered by fossil fuels, is high because their capital costs are divided over a much smaller output than facilities that operate continuously.

At present, utility scale electricity storage is very expensive. Although proponents make optimistic forecasts that solar and wind power generation and storage will continue to decline in cost, the scarcity of important critical minerals—such as lithium, graphite and nickel used in EV batteries—may raise costs more than any improvements in technology will lower them. When its full cost, including the cost of storage, is accounted for, using wind or solar power raises the cost of electricity.

Fast charging of EVs at public charging stations may pose a greater risk of overloading the grid than charging at home or work. Demand for fast charging may be high during the late afternoon, for example, when grid capacity is limited. If too many drivers charging results in a power outage, the damage could be enormous. Power loads must be managed by region and time. Experts are generally optimistic that the charging of a growing fleet of EVs “can be adapted and regulated to maintain the stability and high performance of the grid.” But an effective system of demand management could involve real-time pricing. This, in turn, will likely reduce the affordability or reliability of EV charging service at certain times of the day when there is little or no excess capacity.

Several factors may limit the ability of utilities to expand grid capacity fast enough to meet rising demand. This includes the cost of storage and the cost of building new solar and wind power generating capacity, as well as the cost of adding transmission lines.

If transition to EV use were left to the free market, adoption might be too slow to meet CO2 emissions goals of the federal government or some state governments. Without subsidies, prices would motivate decision-makers to economize based on the high cost of building and operating EV charging stations, the high cost of EVs relative to ICE vehicles, and the cost of increasing renewable energy capacity. Because of subsidies and government mandates, much of the cost will be borne by taxpayers and electricity consumers rather than EV owners, who tend to be more affluent than average.

Government pressure to hasten the transition to EVs, solar power and wind power also results in potentially harmful environmental impacts. The production of EV batteries and other components harms the environment and may result in almost as much CO2 emissions as from the operation of ICE vehicles. Windmills kill birds and bats, and planned offshore wind farms pose a risk to endangered right whales. Solar energy consumes an enormous amount of land, as man-made devices replace natural ecosystems. According to one estimate, building enough wind and solar energy farms to reduce CO2 emissions from electricity generation to zero would occupy 225,000 acres of land, an area considerably larger than the state of California.

Together, subsidies and government mandates are pushing our energy ecosystem toward renewable electricity and away from fossil fuels more rapidly than it may be able to adapt to the change in a cost-effective way. The growth and spread of EV charging is just one part of an effort by governments to cope with the uncertainty about the effects of CO2 emissions on climate, but there are likely to be high costs and unintended consequences of rapidly changing our transportation and energy ecosystem through subsidies and regulation.

The recent shortages and very high costs of energy in Europe should be taken as a warning of what could happen here if government subsidies and mandates result in replacing conventional energy sources with less reliable solar and wind energy and as EV adoption increases electricity demand.

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