Bill counterproductive on tax credits for flex-fuel vehicles
Chris Deisinger, a consultant on clean energy policy and am president of Syntropy Energy Solutions, delivered the following testimony to a state Assembly committee after writing the testimony in consultation with the Union of Concerned Scientists and a coalition of environmental and renewable energy groups that have been meeting to discuss Wisconsin energy policy:
I am here to address assembly Bill 85 which would provide a tax credit, up to $1,000, for the purchase of flex-fuel vehicles capable of running on up to 85% ethanol, or E85. While the intentions of this bill are laudable – promotion of biofuels, energy independence and support for Wisconsin industry – unfortunately the bill as written does not help achieve these intentions and is in fact counterproductive.
I will outline why this is so and why I oppose this bill. However I do this in the spirit of offering cooperation to the sponsors in the hope of developing better biofuel and transportation policy for Wisconsin.
Why is this bill counterproductive?
• A tax incentive of $1,000 is excessive and unnecessary. The incremental cost of producing a flex-fuel vehicle is $100 at the most. All gasoline-powered vehicles should be capable of being flex-fueled and it shouldn’t take a tax credit to either produce or market them.
• The bill does nothing to promote the actual use of ethanol. Only 1% of the fuel used in flex-fuel vehicles is ethanol, according to a recent federal study.
• The dual-fuel loophole allows manufacturers to earn credits towards meeting federal fuel economy standards by producing flex-fuel vehicles, even if they never actually use alternative fuel. The result is that automakers can sell fleets of vehicles that fall short of federal fuel economy targets. The Union of Concerned Scientists estimated, back in 2004, that this loophole resulted in the consumption of an additional 80,000 barrels of petroleum per day. In other words, increasing the sale of flex-fuels vehicles would result in more dependence on petroleum and foreign oil, rather than less.
• Besides being counterproductive, this bill is very expensive. The fiscal bureau estimates its impact at $18 million a year or $108 million over the six-year life of the tax credit.
Let me speak to the elements of what would be a successful bio-fuels strategy for Wisconsin. A successful bio-fuels strategy will require technological innovation, significant vehicle efficiency improvements and reduced travel as critical supporting structures, along with attention to sustainable agricultural practices. A successful strategy will assist in addressing concerns about global warming and reliance on fossil fuels. This bill does none of this.
It’s clear that, at least partially, the intent of this bill is to preserve what is left of Wisconsin’s auto-manufacturing industry – the GM plant in Janesville. Transforming the domestic auto industry to one that can withstand now interlinked environmental and market challenges, and preserving Wisconsin’s industrial base and good jobs, is of critical importance. We should seek means to do this, but not by promoting the sale of vehicles with no regard to their actual fuel efficiency, actual use of biofuels or their negative effect on overall fleet fuel-economy standards. This is digging the hole deeper rather than climbing out.
General Motors and the US auto industry are experiencing severe structural problems caused by their past investment in obsolete, inefficient and environmentally destructive technology. Consumers want better. Fortunately there are signs of change even at General Motors. At the Detroit auto show this year, GM exhibited the Chevy Volt concept car, an efficient flex-fuel plug-in hybrid. This type of vehicle would be a means of preserving our industrial base, increasing energy independence and reducing global-warming emissions.
While we are in opposition to the flex-fuel tax incentive bill, I look forward to further dialogue toward designing a better biofuels and transportation policy for Wisconsin. There are potential policy instruments that could be used to this end, including, for example:
• Feebates that would reward the purchase of more efficient and discourage less efficient vehicles
• A Renewable Fuel Standard that would concentrate on increasing the amount of sustainably derived biofuels used – those produced from cellulosic sources for example.
• A Low Carbon Fuel Standard such as that recently adopted in California
• Tax credits for the purchase of vehicles that are truly efficient and advanced technology and that cannot be used to pad the dual-fuel loophole.
• State support for transitioning Wisconsin’s GM production to truly advanced vehicles
• Smart growth and transportation policies to reduce congestion and vehicle miles traveled
These are some suggestions for policies that Wisconsin could adopt. The biofuels industry is growing, but it must be a part of a larger strategy and it will lose support if we do not try our best to get the most miles traveled from every acre harvested instead of wasting them in inefficient vehicles.