A Green Car Named Desire


California's green regulations often drive national policies, so it's worth pointing out how its programs to cut vehicle emissions have become a gravy train for the 1%. You'll enjoy this if you live in the other 49 states.

To meet the state's goal of cutting its greenhouse emissions to 80% below 1990 levels, effectively all new cars sold in California by 2040 will have to be electric or plug-in hybrids. As a regulatory weigh station, Governor Jerry Brown has ordered that 1.5 million zero-emission vehicles "be on California roads" by 2025. That last bit is the immediate rub.

Car makers are compelled by the California Air Resources Board to increase their electric fleets to meet these mandates. However, the battery-powered cars have been duds with most consumers. So the board has graciously allowed manufacturers to comply with its diktats by buying "credits." Palo Alto-based electric car maker Tesla has made a $119.5 million killing (300% of its net income) this year from hawking its excess credits.

To get more electric cars on the road, the state also offers consumers $2,500 rebates financed by a $20 "smog abatement fee," which all drivers in the state must pay for their first six registration years. The rebate is on top of the $7,500 federal tax credit and $1,000 or more the state pays drivers to retire their gas guzzlers. The combined government incentives can reduce the price of a Nissan electric Leaf to about $18,000.

But wait: According to state survey data, the typical rebate recipient earns over $150,000 and owns at least one other non-electric car. About 80% hail from the Bay Area, Los Angeles and Orange County. The most popular car among rebate recipients this year has been Tesla's Model S sports sedan, which runs between about $70,000 and $100,000.

As a side note, California last year also awarded Tesla a $10 million grant to develop its Model X SUV and $756,000 in funds for "workforce training." As a recent state assembly analysis of the vehicle subsidies notes, "everyone benefits from clean air, but some of the beneficiaries are more equal than others."

Meantime, demand for rebates among the well-to-do is surging, which has created a funding squeeze. In March, the state had to create a waiting list. While the legislature appropriated an additional $15 million for rebates in June, the program is already running on empty and needs at least $30 million more to meet demand in the coming year.

The air resources board anticipated this cash-flow problem last May and recommended "fundamental changes to the program or substantial additional funding." But car makers rebuffed proposals to reduce or limit rebates based on buyer income, vehicle price or geography. They warned that cutting subsidies could stall electric vehicle development. Tesla said in August that any reduction or "discriminatory application" of subsidies could "materially and adversely affect the growth of the alternative fuel automobile markets and our business."

Enter the California legislature, which has extended the smog abatement fee and other vehicle surcharges that finance its $200 million green slush fund to 2024 from 2016. Lawmakers also appropriated an additional $45 million this year for the rebates, including a $20 million "loan" from the Vehicle Inspection and Repair Fund's surplus (financed by a separate smog check fee). To keep the party going, Democrats might next tap the state's cap-and-trade revenues, which they probably would have done this year if Mr. Brown hadn't raided them to plug a $500 million budget hole.

To recap: California's emissions mandates are so onerous that they require mandates for electric cars that consumers won't buy without subsidies that go mainly to the wealthy and that are now so expensive that they have become another drain on the state budget. Look for the middle class to be hit with a fee or tax increase to make up the difference.