By Tim Mullaney
Almost the last thing the world needs is pundits feeding Elon Musk’s sense of grandiosity, but I’ll say it: Tesla’s Model Y, set to be revealed Thursday, may be the car that saves the world.
Alas, Mr. Musk, it’s not because the first small SUV from Tesla /zigman2/quotes/203558040/composite TSLA +3.15% , and thus its first foray into the largest segment of the world’s passenger vehicle market, is such an exceptional product.
What the Model Y will do is demonstrate why we still need subsidies to drive adoption of electric vehicles and renewable power for another few years — subsidies that we are, in a truly stupendous fit of blindness even for the Trump administration, beginning to phase out now.
To understand why, you need to grasp two basic sets of numbers. The first is about where the carbon threatening us comes from. The second is learning just a little about what electric cars cost, and how fast they will become as cheap as traditional cars and SUVs, when subsidies will become obsolete.
For all the half-coherent hand-wringing out there, about two-thirds of the carbon emitted in the U.S. comes from two places: transportation (mostly passenger vehicles) and electricity plants. The science is simpler than you may think: According to the Intergovernmental Panel on Climate Change, the world can keep average temperatures less than 1.5 degrees (Celsius) above 19th-century levels by reducing carbon emissions 45% by 2030 and virtually eliminating them by around 2050.
In other words, even if you did little else, cutting carbon by 75% in utilities and transportation would mean we have time to solve the tougher technical/economic problems before things get hairy, and coastal neighborhoods are endangered.
As things stand now, the utilities will get there, but the cars probably won’t. Both could use a shove from policy, and cars really need it.
Utilities have already cut carbon output 28% since 2005 — from long-standing progressive utilities like Xcel Energy /zigman2/quotes/200626850/composite XEL +5.65% to newer converts from coal like Southern Co. /zigman2/quotes/208000495/composite SO +6.05% , they say they can deliver 80% to 100% reductions by 2050. Xcel says it can hit 80% by 2030. Most of this has come from abandoning coal, first because of cheap natural gas, and secondarily thanks to tax subsidies encouraging wind and solar power.
But electric cars’ share is only about 1% of the market. So there’s been little reduction of tailpipe carbon.
Subsidies for both forms of carbon reduction are slated to go away too soon. In the case of electric cars, Tesla’s $7,500-a-car tax credit for buyers has already been cut in half, and will likely go away completely by year-end.
That matters a lot, at current prices.
Yes, I’ve written that EVs will be as cheap as internal combustion engines by 2022 to 2027, and that 200-plus EV models will hit showrooms over the next few years.
But they aren’t as cheap as gasoline-powered vehicles now. And now is when the conversion must begin, to get to meaningful carbon reduction by 2030. The big consumer shift can’t begin in 2027 — cars last too long, and a shift beginning then means gas-powered cars won’t be (substantially all) off the road until about 2040.
For example, the base Model Y is expected to cost about $38,500 before subsidies. That’s $8,000 more than middle-tier trim levels for a Honda /zigman2/quotes/207173990/composite HMC +1.72% CR-V or Toyota /zigman2/quotes/200537742/composite TM +0.50% RAV4.
The public-policy goal is to get people out of RAV4s and CR-Vs that get 26 or 28 miles per gallon, let alone Toyota Highlanders and Honda Pilots that get 21 or 20, in favor of EVs that can run carbonless on wind or solar electricity. (Whether those EVs are made by Tesla, General Motors /zigman2/quotes/205226835/composite GM +4.15% , Ford Motor /zigman2/quotes/208911460/composite F +12.23% or whomever).
For now, that takes money to induce consumers to do the right thing. A total of $7,500 would do the trick for many and, by 2027, shouldn’t be necessary.
The Model Y (and vehicles like it, coming soon) matters because their success — that is, success at displacing CR-Vs and RAV4s, true mass-market kid haulers, rather than paeans to one’s membership in the petit bourgeoisie like BMW X3s or Range Rovers — depends on them being cost-equivalent soon enough to get lots of them on the road even before the unsubsidized cost curves fully cross.
Just as getting more wind and solar into the power grid without delay requires extension of their tax credits, and some knottier carbon-emission problems we need to solve later will demand federally supported research and development.
Hold on to your hats: President Trump thinks wind power kills birds, is too noisy and doesn’t work when the wind is quiet. He wants to cut R&D funding at the Department of Energy by two-thirds, and slapped 25% tariffs on imported solar panels. It’s shocking to see such ignorance in a man for whom the 10,000-miners-strong coal industry is a cultural talisman, we know. And on Monday, true to form, Trump proposed killing the electric-vehicle tax credit, which costs $400 million a year (it would cost more if extended, as more EVs hit the market), though his myriad tax cuts for heirs and small-business owners have produced a $1 trillion annual deficit.
After all, people who understand renewable power and electric cars didn’t vote for him.
Tim Mullaney writes about the economy and politics for MarketWatch.