Will Koch Pull the Plug on Electric Cars?
By Elliott Negin
When multibillionaire industrialist Charles Koch perceives a potential threat to his fossil fuel empire, he doesn't mess around.
To undercut the burgeoning wind industry, Koch's network of advocacy groups, think tanks and Capitol Hill friends fought to terminate the federal production tax credit, and Congress ultimately agreed in 2015 to phase it out over the following four years.
To slow the exponential growth of solar power, his network has been lobbying state legislatures to curtail the practice of net metering, which gives solar panel owners credit for the excess energy they generate and send back to the grid.
Now Koch wants to kill a federal income tax credit of up to $7,500 for electric vehicle (EV) buyers for the first 200,000 EVs each automaker sells. Although EVs make up less than 2 percent of total vehicle sales nationally, 123,000 of them were snapped up in the first six months of this year, more than twice the amount sold in all of 2015, and more carmakers are expected to introduce new EV models over the next few months. Alarm bells are going off at Koch Industries headquarters.
Last year, the initial draft of the House Republican tax reform bill included a provision terminating the EV tax credit, but it survived in the final, end-of-the-year tax package President Trump signed in December. This year's tax-break-extenders bill finds the Koch network back at work to block the EV tax credit, and it got a boost this week from White House chief economic adviser Larry Kudlow, who said the Trump administration wants to end EV subsidies.
A Fight Looms
The rationale behind the tax credit, which Congress passed in 2009, is to create a stable market for EVs much in the same way government policies helped the gasoline-hybrid market grow. Congress has a long history of providing tax breaks to help emerging and established industries alike, and EVs are a natural candidate because auto industry entry barriers are steep, and electrifying the U.S. transportation sector is one of the most important steps the country can take to address global warming.
The battle over the EV tax credit's future is expected to play out before Congress adjourns for the holidays. Leading the fight in favor of the tax credit is Sen. Jeff Merkley (D-Ore.), who introduced a bill in mid-September that would remove the 200,000-unit cap—which Tesla has already hit—and extend the credit until 2028. Rep. Peter Welch (D-Vt.) introduced the same bill in the House.
Meanwhile, Sen. Dean Heller (R-Nev.) and Rep. Diane Black (R-Tenn.) introduced a pair of bills in mid-October that would eliminate the 200,000 sales cap but begin to phase out the credit in 2022. That would still help out Tesla, which built an electric car battery factory in Nevada, and Nissan, which manufactures its Leaf EV in Tennessee.
On the other side: Sen. John Barrasso (R-Wyo.), House Ways and Means Chairman Kevin Brady (R-Texas), other strategically placed Republicans, and at least 20 advocacy groups—all making the same specious arguments, and all beneficiaries of Koch largesse.
In early October, Barrasso introduced a bill in the Senate that would not only eliminate the EV tax credit, but also slap EV owners with a user fee that would go to the Highway Trust Fund, which is financed by the federal gasoline tax. Koch Industries has been one of the senator's top 10 supporters since 2013, donating $45,400 to his campaign and leadership political action committees.
Before the EV tax credit gets to a floor vote as a part of a tax-extender package, it has to go through the Senate Finance Committee and the House Ways and Means Committee, and Charles Koch has cultivated a critical mass of friends on both. Since 2013, Koch Industries has given $253,600 to 11 of the 14 Republicans on the Senate committee and $374,000 to 21 of the 24 Republicans on the House committee, including Chairman Brady. (The company gave nothing to the 13 Democrats on the Senate committee and only $1,030 combined to two of the 16 Democrats on the House committee.)
Koch-Funded Groups—and Koch Industries—Enter the Fray
Three weeks before Barrasso introduced his bill, 30 seemingly independent, self-described free-market organizations signed a letter to Brady urging Congress to either retain the cap on the first 200,000 EVs sold—which would penalize U.S. automakers Tesla and General Motors for selling more EVs than their Asian and European counterparts—or just "eliminate the tax credit entirely, as the House proposed in last year's tax bill."
But it turns out that they are not true free-market groups at all. Yes, they argue that the government shouldn't subsidize any energy technologies, but they confine their objections to tax breaks for clean energy alternatives, claiming all the while that the oil and gas industry receives no subsidies. In fact, since 1918, permanent oil and gas tax breaks and other subsidies have averaged $4.86 billion per year in 2010 dollars, according to a 2011 study by investment firm DBL Partners. Taking inflation into account, that amounts to an average of $5.62 billion today.
Why would free-marketeers make such an exception?
Perhaps because they get significant funding from fossil fuel interests, most notably Charles Koch, whose privately held Koch industries owns three oil refineries, thousands of miles of oil and gas pipelines, and bulk coal delivery services. These think tanks and advocacy groups essentially function as public relations arms of their benefactors, representing their interests under the guise of being neutral, albeit conservative, policy shops.
Consider the group that organized the anti-EV tax credit letter: the American Energy Alliance. AEA is the political lobbying arm of the Institute for Energy Research, and the president of both groups is Thomas J. Pyle, a former lobbyist for Koch Industries and the National Petrochemical and Refiners Association. Between 2012 and 2016, Koch foundations gave $8.9 million to the groups—which together employ only a dozen people—and in previous years, ExxonMobil and the American Petroleum Institute were among their patrons.
Like AEA, 15 of the other 29 organizations that signed Pyle's letter, including Americans for Prosperity, Americans for Tax Reform, Competitive Enterprise Institute and Heritage Action—the Heritage Foundation's political lobbying arm—are Koch grantees, collectively receiving $142.6 million over the same five-year time period. And two other groups on the letter—the National Black Chamber of Commerce and Taxpayers Protection Alliance—got AEA grants in 2015. Including those two, at least 18 of the 30 signatories are known cogs in the Koch network.
Koch Industries itself weighed in on Oct. 24, when company lobbyist Philip Ellender sent a letter to members of Congress opposing the Heller and Black bills that would extend EV tax credits for four more years and eliminate the 200,000-unit cap. "Congress should not be in the business of picking winners and losers by subsidizing one form of energy over others," Ellender wrote, "regardless of its source." Left unsaid, of course, is the bogus Koch World claim that oil and gas industry tax breaks are not subsidies.
Koch-Funded Think Tanks Provide Deceptive Arguments
If direct funding of politicians and advocacy groups weren't enough, Koch foundations also underwrite the libertarian think tanks that produced the studies cited by Barrasso, Pyle and Ellender to make their case: the Pacific Research Institute, which received $200,000 from Koch funds between 2012 and 2016, and the Manhattan Institute, which received $954,500 in Koch grants and another $535,000 from ExxonMobil over that same five-year period. The two studies' spurious arguments are that the EV tax credit largely benefits wealthier Americans and reduces U.S. tax revenue, and that the internal combustion engine-powered cars are as clean as EVs.
The Pacific Research Institute study found that nearly 80 percent of EV tax credits in 2014 went to households with an adjusted gross income of at least $100,000 and more than half went to households with adjusted income levels of at least $200,000. What the study failed to mention, however, is the fact that upper-income Americans are generally the only ones who can afford to buy any kind of new vehicle, whether electric, hybrid or gasoline-powered. As a 2018 study by the National Center for Sustainable Transportation pointed out, the average income of households buying new cars in 2012 was $119,400; accounting for inflation, that would equal an average annual income of $131,000 today.
The Pacific Research Institute study also ignores the fact that some EVs are a relative bargain, and the federal tax credit makes them even more so. The average price of a new vehicle across the country in January of this year was $36,270. The tax credit reduces the cost of a 2018 Nissan Leaf to $22,490 and a 2018 Chevy Bolt to less than $30,000, making these two EVs more affordable options for middle-income households.
The Manhattan Institute study, meanwhile, argues that the EV tax credit is cheating the U.S. Treasury out of tax revenue. Last year, the EV tax credit amounted to $670 million. Compare that to the lost tax revenue in 2014 from the oil and gas industry's permanent tax breaks, which totaled $4.7 billion.
Unlike many of the other Koch-funded groups, the Manhattan Institute grudgingly concedes that the oil and gas industry indeed gets tax breaks, but insists that those subsidies provide consumers a "tangible benefit" by reducing the retail cost of oil and gas. In other words, it's fine for the government to pick winners and losers as long as it picks your preferred subsidy recipient.
EVs Significantly Cleaner Than Gas Engines
The Manhattan Institute study also makes the ludicrous claim that new internal combustion engines emit next to no pollutants while EVs, which are powered by the electricity grid, likely produce more pollution and will not significantly reduce carbon emissions.
Experts at the Rocky Mountain Institute, a truly independent energy think tank, posted a thorough take-down of the Manhattan Institute report last July. In a nutshell, they found that it used "flawed methodology and flawed assumptions" when comparing monetary damages associated with sulfur dioxide, nitrogen oxides and particulate matter from EVs and internal combustion vehicles and completely ignored the damages associated with carbon dioxide emissions. "A methodology that accurately accounts for all emissions," they concluded, "results in a dramatically different result."
"Nonpartisan institutions, including the Union of Concerned Scientists (UCS) and the Electric Power Research Institute, have published accurate and reliable studies of these questions that found the opposite of what [the Manhattan Institute report] concludes," they added, "as have others cited by the Energy and Policy Institute."
In fact, according to UCS Senior Engineer Dave Reichmuth, 75 percent of Americans live in areas where an EV is cleaner than a gasoline-powered car that gets 50 miles per gallon, and the carbon emissions from an average EV sold in the United States this year are equivalent to that of gas-powered car that gets 80 MPG. "And the good news," he says, "is EVs will only get cleaner as the U.S. electricity grid adds more renewable energy."
Will the EV Tax Credit Survive?
The Koch network is working overtime to pull the plug on the emerging electric car market, but the momentum is not in its favor.
Demand for EVs is growing. An AAA survey published this spring found that 50 million Americans will likely buy an EV for their next car, 5 percent more than in 2017.
The supply of EVs is growing as well. The number of available EV models jumped from only two in 2010 to more than 40 today.
Sticker price, as with any vehicle purchase, remains a sticking point. Falling manufacturing costs, aided by the EV tax credit, are already starting to help. The cost of an EV battery, for example, plummeted 80 percent between 2010 and 2017 and will become even cheaper as more automakers ramp up electric vehicle production. And EVs have built-in cost advantages over internal combustion cars: They are much cheaper to maintain—and they save owners a ton on gas. Keeping the EV tax credit in place for another decade and removing the 200,000-unit cap would certainly help ensure that EVs can become cost-competitive with gas vehicles.
Finally, Tesla, Nissan and General Motors—which manufacture EVs in California and Nevada, Tennessee, and Michigan, respectively—as well as Ford and Fiat-Chrysler will be pressed to compete with automakers in Asia and Europe that are getting significant support from their governments to go electric. Encouraging EV sales here at home may threaten Charles Koch's fossil fuel empire, but retaining the EV tax credit will not only help combat climate change, it will fortify the U.S. auto industry, which—even with the recent layoffs at General Motors—still employs more than 2 million people.
Danya Abdel Hameid provided research assistance for this article. Koch grant data came from the following Koch-controlled foundations' 990 tax forms (which can be found at ProPublica's Nonprofit Explorer and the Foundation Center's 990 Finder): American Encore, Charles Koch Foundation, Claude R. Lambe Charitable Foundation, and Freedom Partners Chamber of Commerce. Campaign contribution data came from the Center for Responsive Politics website, opensecrets.org.
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