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Shifting Gears: A Growing Debate on How to Electrify U.S. Transportation

Last week, ITIF released Shifting Gears: Transcending Conventional Economic Doctrines to Develop Better Electric Vehicle Batteries, which explores the challenges confronting today’s electric vehicle (EV) industry and presents an “innovation economics” strategy for overcoming them. It has added to a growing debate on the short-comings of today’s EV policy approach and better ways energy policy can support electrifying U.S. transportation. Politico correctly summarized the core issue: better EV batteries are “the unseen force behind electric vehicle sales,” but “neither higher taxes nor domestic and international subsidies have spurred enough [technology] momentum.” Referring to Shifting Gears, Politico states that “The only answer is a robust R&D strategy to develop much better and cheaper batteries to dramatically lower the cost and increase the performance of EVs.” As ITIF Senior Analyst Matthew Stepp put it in a Bloomberg Businessweek article that highlights the report, “Government investment in high-risk, high-reward technologies is critical.”

Business Insider’s Alex Davies concurs, pointing out that while the conventional policy approach has been to either subsidize EV purchases or impose taxes to increase the price of gas cars, the report “lay[s] out a variety of cases in which all these tactics have been tried” and makes it “clear these approaches do not work, because so little progress has been made.” Davies goes on to endorse an innovation economics approach:

Yin and Stepp suggest funding research with money that would be used to provide EV subsidies and tax credits. They also suggest improving and legislating the relationship between the Departments of Energy and Defense, both of which sponsor research in the field, especially with respect to lithium ion batteries.

These policies would likely draw the ire of fiscal conservatives and free market proponents. But for those who want the government to help electric vehicles take off, and are frustrated by the lack of progress to date, they may be just the thing.

Furthermore, according to James Greenberger, Executive Director of NAATBatt, an advanced battery trade association, the report “contains an excellent discussion of the need for the vehicle electrification and the advantages of electric vehicles relative to competing technologies” and “also contains an accurate and sobering analysis of the poor prospects for vehicle electrification in light of the current state of advanced battery technology.” Greenberger agrees with ITIF’s assessment that better alignment between advanced battery R&D and commercialization is critical and proposes that the mobile device manufacturing sector offers an interesting way to quickly test and deploy new battery technologies.

And in an E&E TV interview, Monica Trauzzi ties the EV policy discussion to some of the turmoil seen in the EV industry – specifically Tesla Motors’ decision to sell more stocks to raise capital and whether it’s a sign that there simply may not be a substantial market for EVs in the United States. Other recent developments, such as Toyota’s decision to scrap plans for widespread sales of a new all-electric minicar, might seem at first glance to reinforce that notion. But as Toyota Vice Chairman Takeshi Uchiyamada alluded in his remarks on the move – “The current capabilities of electric vehicles do not meet society’s needs, whether it may be the distance the cars can run, or the costs, or how it takes a long time to charge” – improving cost and performance can allow EVs to meet consumer expectations and thus generate much greater demand. Unsurprisingly, just last week, China’s Finance Ministry announced that it “will allocate funding to support technological innovation projects in the nation’s new energy auto industry,” including “the development of batteries.” Ultimately, a new policy approach that focuses on battery innovation, as laid out in Shifting Gears, is the clearest path to the widespread adoption of EVs.

Photo credit: Wikimedia Commons.

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