The good news is that electric cars are cheap

There’s a very simple reason why the costs of electric vehicles are going down so fast: electric cars are good for the environment and good for the economy. They’re less polluting than their internal combustion counterparts, and they’re just easier to drive. It used to be that only very wealthy buyers could afford to buy an electric car, and those owners had to pay extra for energy storage. It used to be that driving an electric car would sap a person’s everyday income; now it’s literally cheaper than buying gas.

Now though, those who don’t need to drive electric cars and have lots of disposable income can buy the cheapest, most practical alternative to a gas car. It’s happening now, but it could still go on forever.

Part of the reason the costs of electric cars have dropped so fast is that they’re being added in a steadily growing volume. Indeed, auto-industry experts suspect that the number of electric cars on the road globally could double to 35 million cars by 2025, and that the number could be greater still before long.

Tesla and others are jacking up the prices of their vehicles, just as they did with the original Model T. The easiest way to make money on electric cars is to charge a customer money to drive one. Plug-in electric cars charge themselves at low cost. Naturally, then, energy companies like utilities want to introduce them to their customers.

Last year, the Canadian government loaned $847m to Ontario’s utilities to support the rollout of electric cars. That was when electricity prices were lower than they are now. With electricity prices on the rise, the electric car rebates were “used as a benchmark,” Energy Minister Glenn Thibeault told CBC.

The first, $10,000-Rebate cheques were mailed out in May, and on Monday, new cheques went out. One thousand consumers, some of whom won an online poll, will each receive $7,500. They can elect to receive a rebate of $4,500 to $7,500 each, or a smaller lump sum.

The subsidy is much smaller than other electric vehicle incentives announced by governments: Quebec offers $8,500 in rebates for “electric vehicles that are at least 15 per cent less than equivalent vehicles with a combustion engine.”

Ontario’s rebates are well below those in other jurisdictions. But the relatively low cost of energy in Ontario means that it still makes economic sense for many people to buy electric cars.

The reason is that when electricity prices rise, the rebate will cancel out the increase. That’s not what happened when prices fell, meaning that it’s likely to happen this time too. (The price of electricity is not cheap in Ontario, but it’s still a significantly lower cost than in the US.) Moreover, when electricity prices fall, the rebate can help offset any cost increases on consumer goods, like fuel, or on transportation infrastructure, like charging stations.

The rebate is part of the auto industry’s “New Model Partnership” agreement with the provincial government.

And part of the reason why it’s a good plan is that putting more electric cars on the road will have at least some effect on electricity prices. That makes the price subsidy more sustainable. More electric cars means more people using electric charging stations; more people using electric charging stations means more electricity demand.

This means that more people driving electric cars also means more supply. Until they use them more, cars aren’t likely to charge out of the grid; they plug in every night after use gets low. The more cars on the road charging at night, the more likely Ontario’s electricity grid is to respond to this kind of demand increase with new generating capacity.

That would put pressure on energy companies to invest more capital in the grid and in charging stations — to make sure that more people buying electric cars don’t put too much electricity demand on the system. That should all increase efficiency and productivity. For the people with the most money, and the biggest homes, it’s good policy too.

A decade ago, only rich people could afford an electric car. No longer. If governments are serious about creating jobs and boosting GDP, then electric cars are the kind of technology that is worth investing in — not just for rich people, but for everyone.

Originally published in The Sydney Morning Herald.

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