The United States is about to introduce generous incentives for purchasing electric vehicles. The Biden Administration's "Build Back Better" legislation passed the House of Representatives on November 19, 2021. One of the provisions aims to raise the share of electric vehicles to at least 50 percent of vehicle sales by 2030. Controversially, it also has a provision for a $12,500 tax credit for US-made union-made vehicles, while most other EVs only receive a $7,500 incentive. This provision has raised alarm bells in Ottawa: Canada urged Biden to drop a 'Buy American' idea. In addition to the concerns about international trade and US obligations under the new Canada-US-Mexico Agreement (CUSMA), the uniformity of the tax credits across the United States is an environmental problem.

An influential research paper by Stephen Holland, Erin Mansur, Nicholas Muller, and Andrew Yates in the American Economic Review in 2016 asked the question: Are There Environmental Benefits from Driving Electric Vehicles? and pointed to the importance of local factors. Large parts of the United States still rely heavily on coal to generate electricity, and this means that electricity is far from clean. Generally speaking, electricity in the Western Interconnection is much cleaner than electricity in the Eastern Interconnection.

A simple back-of-the-envelope calculation illustrates how clean an electricity grid has to be before driving an electric vehicle produces less carbon dioxide than driving an internal combustion engine vehicle. Consider a typical car that uses 9.4 liters of gasoline per 100 kilometers. Consuming one liter of gasoline produces 2.3 kilograms of carbon dioxide. Driving 100 kilometers thus generates about 21.62 kilograms of CO₂. Driving an electric vehicle under real conditions (using heating and other functions) requires about 25 kilowatthours (kWh) per 100 kilometers. If electricity generation emits 300 kilograms of CO₂ per MegaWatthour (MWh), then driving 100 kilometers with an electric vehicle emits 5.7 kilograms of carbon dioxide. The EV beats the internal combustion vehicle.

If the typical gasoline vehicle emits 21.62 kg(CO2)/100km, parity with electric vehicles is reached when 25 kWh/100km times [x] kg(CO2)/kWh equals 21.62 kg(CO2)/100km. This means CO2 parity is reached at 865 kg(CO2)/MWh. But parity simply means that emissions are equal, so there is no environmental gain. To realize significant environmental gains, CO₂ emissions per MegaWatthour must be much less than parity.

So where exactly is driving an electric vehicle guilt-free in the United States? The State Electricity Profiles from the US Energy Information Administration show emission intensities for the generators in each state. Unsurprisingly, British Columbia's neighobur Washington State is near the top of the list, only surpassed by Vermont. Both rely on hydroelectricity. The chart below ranks all fifty states and the District of Columbia in ascending order of emission intensity. The worst states are Missouri, Kentucky, West Virginia, and Wyoming.

Some caveats apply to the above calculations. First, upstream emissions from fossil fuel production and other intermediate goods (such as mining for producing lithium and other metals and minerals used in lithium-ion batteries) are not included. Second, burning coal also produces local pollution from other types of emissions, Third, driving internal combustion vehicles in urban areas leads to local pollution concentrations and concentrated harm. Fourth, electric vehicles and internal combustion vehicles have a wide range of fuel economy, and thus it matters which type of internal combustion engine vehicle is replace with what type of electric vehicle. Fifth, as the aforementioned research paper found, using a kWh of electricity in any location has repercussions throughout the entire electricity grid, and thus there are large transboundary effects. This leads to a strong averaging effect across the entire interconnections. Perhaps a more meaningful way is then to look at emission averages across interconnections, not individual states.

The bottom line still paints an encouraging picture, though. Even the most CO2-intensive states in the U.S. are close to parity. So at least driving an electric vehicle isn't making things noticeable worse, although not noticeably better either. Subsidizing EV adoption in the marginal states makes little sense. Subsidies for EVs should be proportional to the reduction in carbon dioxide emissions, and this should vary by location. Of course, EV subsidies are a second-best policy, as the first-best policy would be to impose a carbon price. The US Congress is unable to pass any meaningful climate legislation, and instead has resorted to subsidies that distort incentives. Still, the new legislation is much better than the absence of any climate policy under the previous US administration. Yet the use of EV subsidies could be much better targeted. As it stands, the EV subsidies to made-in-America EVs come across more as a subsidy to US automakers than smart climate policy.