The Oil Industry Versus the Electric Car: A Fight for Equal Ground

 In EV Industry

The oil industry in 2003 must have been certain they had witnessed the death of the electric car.

Along with auto manufacturers and government forces, they had succeeded so completely in the defeat of the EV1 (the most sophisticated electric car at the time) that GM destroyed its own creation.

They campaigned heavily on the premise that only rich people could afford the EV1 and that the environmental benefits were bogus, but underlying all of this—the EV1 threatened the demand for oil.

GM EV1 being taken awayThe electric vehicle rises again

Now it’s 2016 and the electric vehicle is back – stronger than ever.

  • Worldwide EV sales in 2015 grew by 70 percent.
  • EVs ranges are improving, the batteries are getting cheaper, and charging stations are appearing universally.
  • EVs like the Tesla Model 3 and the Chevy Bolt are poised to bring an affordable EV to an increasingly larger number of interested buyers.
  • Bloomberg predicts that by 2022 the average price of an EV could be comparable to gas-powered cars, and by 2040 EVs could account for 35% of new car sales.
  • Bloomberg also speculates that EVs could displace two million barrels of oil a day as early as 2023.

Although the preceding predictions seem optimistic, they are not good news for an oil industry that is already under siege because of overproduction and low prices.

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The oil industry, while underplaying EV developments, is involved in a renewed campaign against the EV.

According to a February 19, 2016 Huffington Post article, the Koch brothers are backing a $10 million dollar campaign to promote fossil fuels and attack government subsidies for EVs.

Chevrolet BoltKoch brothers say subsidies are wrong

In April 2016, a Koch advertorial appeared in an issue of the Hill. In it, the Koch brothers surprisingly came out in favor of electric cars and renewables. The next lines voiced their objections to any subsidies that distort the free market. They acknowledged that the oil industry received subsidies in the past, but stated that subsidies are wrong and that consumers should be free to choose the fuel they want.

Further into the advertorial, the Koch brothers cited the Solyndra solar panel failure as an example of government waste and labeled subsidies for EVs as welfare to the wealthiest 20 percent. They concluded by saying that government subsidies are corporate welfare that destroys competitiveness and removes consumer choice.

Advance to August 13, 2016. The annual Red States Gathering announced the founding of Fuelling U.S. Forward—funded by the Koch brothers. The new CEO and President, Charles Drevna is a long-time oil lobbyist. This organization’s stated purpose is to put a positive spin on fossil fuels, foregoing any mention of fossil fuel pollution or climate change. According to DeSmog, during the remainder of that meeting, Koch-linked panelists constantly talked about Tesla Motors as a prime example of the misuse of government subsidies.

Does the oil industry receive subsidies?

And here’s the crux of the battle between the oil industry and EVs – subsidies.

The Guardian’s post on Sept 20, 2016 showed that documents released by the G20 China presidency revealed the U.S. self-assessment was $8.2 billion in annual fossil fuel subsidies.

Here’s a more long-term picture. Cornerstone, the official journal of the world coal industry reported that oil and gas received almost 60 percent ($490 billion) of $837 billion in federal spending to support energy from 1950 to 2010. Oil alone got 75 percent ($369 billion) of this amount.

Comparison of Federal Expenditures for Energy Development, 1950 – 2010

Comparison of Federal Expenditures for Energy Development, 1950 – 2010 (Billions of 2010 Dollars), from http://www.misi-net.com/publications/NEI-1011.pdf

Caution: This graph doesn’t show a realistic comparison (and is not meant to for the purposes of this article) of total expenditures for fossil fuels with renewables because of the later development of renewables. The main feature is the breakdown of expenditures within the oil sector.

When is a subsidy not a subsidy?

The oil industry claims that it doesn’t get subsidies—it gets tax credits.

EV supporters and renewable fuel advocates insist that the oil industry is receiving subsidies—direct and indirect. Google this topic and you’ll find a split along left/right lines except for some moderate free market advocates such as David Friedman.

He states that the only difference between a subsidy and a tax credit is the name—they both give support and result in government expense.

More extreme right wing groups believe that a tax credit is not a government expenditure—for them it’s money they’ve saved from government seizure. This seems to be the approach of much of the oil industry.

Response from the EV industry

When the Koch brothers launch an attack on the EVs, Elon Musk seems to be their target. Musk’s victories with the Tesla have probably triggered more nightmares for oil industry executives than any other player in the EV industry.

What was Musk’s response on February 19 when the Huffington Post reported the rumors that the Koch brothers were going to be funding an anti EV campaign?

Later in a second twitter response to the article, Musk expanded with:

The unpaid health costs Musk refers to are another source of conflict between the oil industry and EV supporters. EV supporters claim the health and also environmental costs caused by the polluting effects of oil use should be considered as an additional subsidy. These costs are considerable.

The International Energy Agency reports that worldwide fossil fuel consumption subsidies were $493 billion in 2014. Although the IMF figures estimates are for 2015, at $5.3 trillion the difference is obvious. In most countries, this “subsidy” would reflect the cost to the environment and to citizens’ health.

Is an externality a subsidy?

A cost, such as this bill for the unpaid health costs (which are side effects to an activity but not included in the cost of the activity) is usually referred to as an externality.

Oil companies vigorously dispute these health and environmental externalities. They insist that it is impossible to determine what the use of petroleum products contributes to the degradation of the environment and of health. Some oil executives insist that the only accurate way to determine the cost of externalities would be to include all of the positive health benefits (such as the plastics used in so many medical procedures) provided by the oil industry.

Flow Mud Pool from oil drilling courtesy of Pixlar

Flow Mud Pool from oil drilling courtesy of Pixlar

Should we stop all subsidies?

In May  5, 2016,  The Guardian reported that when Elon Musk spoke to the World Energy Innovation Forum, he called for a “revolt against the fossil fuel industry.” He went on to say that as long as they receive large subsidies, conventional vehicles will have a competitive edge over greener alternatives. He concluded that the only way to equalize things would be to introduce a carbon tax. However, he conceded this would be difficult because of the huge lobbying power of the oil industry.

Remember the Hill Advertorial in which the Koch brothers attacked the $7,500 Federal tax credit on all-electric and plug-in hybrid cars purchased in or after 2010? The Kochs claimed that it’s going to the top 20 percent and amounts to welfare for the rich.

Musk countered that the end result of the tax credit is clean air for everyone. He explained there are conditions on this tax credit; such as the amount of the tax credit can vary from $2500 up to $7500 depending on the battery size and the tax status of the purchaser.

Producers of EVs around the world are usually open about the subsidies they receive from their governments. EV supporters point out that one purpose of a subsidy is to encourage something that you need, for example—education. They believe that what we need now is a reduction in green house gases and toxic emissions.

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  • Ash45

    Big Oil and OPEC saying electric cars are bad sounds an awful lot like Kodak saying digital film will never be a hit, or Blockbuster Video saying Netflix will never catch on.