The Ethical Justification for Tax Credits
Electric vehicles, or EVs, make up only a small percentage of all vehicles currently on the roads, but they are being heavily promoted as the “next big thing” and are considered by many to be the key to stopping climate change. The Inflation Reduction Act of 2022 extended tax credits for new light-duty vehicles and created new credits for used vehicles, commercial vehicles, and chargers.
But who are these tax credits going to? According to one recent study, the average electric vehicle buyer is a middle-aged white male earning in excess of $100,000 per year (Inspire Advanced Transportation, 2022). One could argue that through these tax credits, the federal government is transferring wealth from many Americans who don’t own EVs and couldn’t afford them even with a tax credit to people who largely don’t need the tax credits and indirectly padding the profits of automakers.
Despite the lack of equity in these policies, one might still argue that these tax credits are needed to encourage people to adopt EVs more rapidly and save the planet from climate change. But this premise is questionable. According to the Environmental Protection Agency, transportation accounts for 27% of all greenhouse gas emissions (United States Environmental Protection Agency, 2022). Although transportation is the largest contributor, it is worth pointing out that 73% of all greenhouse gas emissions come from other activities. In other words, even if everyone stopped driving today, that would only solve about one quarter of the problem.
It is also important to note that although EVs produce no tailpipe emissions, it is misleading to think of them as “zero emission” as they are often labeled. Manufacturing EVs is energy intensive, especially the mining required to produce the lithium, nickel, and cobalt needed for the batteries. Furthermore, the electricity that runs EVs is still generated primarily from the burning of fossil fuels.
This all leads us to the concept of moral hazard. The term is often used by economists and insurers to describe situations in which individuals or corporations are encouraged to take risks without having to face the consequences. For example, during the financial crisis of 2007–2008, many banks that had made risky investments in mortgage-backed securities were bailed out by the federal government rather than being allowed to go bankrupt.
It may be argued that government policies on EVs represent a form of moral hazard as well, in the sense that the tax breaks shield the automakers from risk and discourage them from competing with one another to keep prices low. Furthermore, they may encourage people to think that if enough people buy EVs, that global warming will quickly be halted, thus reducing the urgency to make the sweeping changes in consumption and production needed to make a real and lasting difference.
What do you think? As you compose your initial response for this week’s discussion, consider the following questions.
Are the tax credits offered for the purchase of EVs ethically justified? Why or why not?
Are there better ways to promote environmentally sustainable transportation than purchasing electric vehicles? What are some possible examples?
Does the technology you have chosen to focus on for your Course Project have a positive, negative, or neutral impact on the environment? Does it help or harm certain groups more than others?
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