The University of Kansas

Electric Vehicles and the Crude Oil Market

Joseph Whitaker
ECON 510
Paul M. Comolli
8 May 2014

Now, maybe more than ever, would be the best time to think of alternative power for transportation. Most importantly when the price per barrel of oil is again, peaking up over $100. Although the price of gas is inelastic, society should still seek out more cost effective and efficient ways of alternative transportation. Transportation is such a large part of our infrastructure. It something almost everyone uses on a daily basis, something that effects a major portion of the population globally.
The infrastructure of a society is imperative to its survival and growth. The infrastructure we have now is based around non-renewable resources that will be completely depleted at some point in the future. To help slowly implement this new electric car initiative into our changing society, the Electric Vehicles Initiative (EVI) was created in 2010 under the Clean Energy Ministerial (CEM).
The EVI is a, “Multi-government policy forum dedicated to accelerating the introduction and adoption of electric vehicles worldwide.” The EVI is a collaborative initiative and includes participation from the International Energy Agency (IEA). This initiative currently includes 16 different governments from Asia, Africa, Europe, and North America. The goal of this organization is to have put at least 20 million electric vehicles on the road by 2020. The Electric Vehicle Initiative has another goal that can help the implantation of this new alternative energy for transportation by installing electrical outlets in parking lots along with the appearance of electric vehicles.
Economic policies of any market tend to dictate and manipulate how the market functions in the business world. These policies can either put too much constraint or not enough constraint on the market. When government regulation is needed in a market, it can over step its boundaries and cripple or alter the market negatively. The inverse can also happen to government regulation in a changing market. The appropriate time to intervene on a market with government regulations can be decided after considering many variables. In 2008, under the Emergency Economic Stabilization Act, a second division was created. This division is known as the Energy Improvement and Extension Act of 2008. Under this law there are, “several provisions related to tax credits and exemptions for alternative fuels and fuel-efficient technologies.” This act generates a, “new tax credit for qualified plug-in electric vehicles (PEVs) purchased between January 1, 2009 and December 31, 2014.” (afdc.energy.gov)
In compliance with this act, the federal government gives a tax break to new buyers when purchasing a Plug-in Electric Vehicle. This initial lower price of the car is an incentive the government uses to encourage the population to switch to using electric powered vehicles. The tax breaks are meant to be a win-win situation for both the consumer and the environment. The incentive is attractive to many buyers because it offers a price break on a new means on transportation while simultaneously reducing their personal carbon footprint.
The tax credit incentive given to consumers is the government subsidizing the price of electric vehicles. The tax incentive has a phase out quota of around 200,000 cars. This means that after 200,000 cars have been bought, the tax breaks will decrease or disappear entirely. With this act, the government is hoping by the time that many electric cars are on the road; these cars will be closer to equilibrium. With this subsidy, the government is helping pay for the cars and plug-ins in the hope that it will give enough support to the market.
The government subsidy can ideally lower the overall price of the product. The more that electric vehicles and plug-ins stations that are implemented into