Subsidy is kind payment any government makes to firms producing goods and services just to encourage them produce more of their products. In many cases, they always intervene in cases where the goods produced by that particular company has an influence in the economy of the country. Different governments across the world provide subsidies to firms most of, which are those that produce either basic commodities to citizens or products that are environmental friendly. They also provide subsidies to cut the production cost for the producers hence lowering the price of the goods, which at the end encourages the public to buy such a commodity. Environmental pollution has become a challenge to the entire world especially from the cars we own. Government subsidies are very important for emerging companies like electronic cars companies to pick up in the market. Subsidies promotes these companies in their production and at the same time, it may end up making the company less competitive in the market.
At no particular time will one reject the fact that smoke billowing from our cars exhausts is a significant contribution to air pollution (Lelieveld et al. 367). Air pollution is the presence of foreign materials in the atmosphere or excess of impurities, which at that particular moment not harmful to human beings. Emission of gasoline from our cars when fuels burn is a serious air pollutant. Gasoline is also emitted from the cars at the fueling stations when they are being fueled. There are different types of air pollution coming from the burnt fuels. Combination of hydrocarbons and Nitrogen oxide in the presence of sunlight results to an ozone layer and ozone layer in the atmosphere is very important since it protects us from the ultraviolet rays coming from the sun. Ultraviolet rays possess a great risk to our health when it finds its way to the earth surface.
The only way this kind of rays can reach the surface of the earth is when there are holes in the ozone layer. These holes also makes the ozone layer to come closer to earth and when the ozone layer comes down, it brings problems like smog that can lead to respiratory completions to many people (Lelieveld et al. 367). The gases released by cars is also believed to be a major cause of cancer across the globe besides other problems like heart diseases, asthma, eye irritation and even birth defects.
Another problem associated by emission of gases from cars is the increases in the levels of carbon dioxide in the atmosphere plus other greenhouse gases. Normally, greenhouse gases absorbs some of the heat from the sun and helps in warming the earth surface. Research by scientists’ show that increasing the levels of these greenhouse gases creates an imbalance in the atmosphere causing the levels of greenhouse gases to spike and hence global warming. Sophisticated scientific instruments used to measure the levels of impurities in the atmosphere but it is not clear what percentage comes from cars. Despite this fact, it is believed cars are the major contributor and this calamity can only be solved by introduction of electric cars. Electric cars are environmental friendly; they do not produce any kind of impurities to both the atmosphere and even land. Environmental protection agency of the United States declared mobile cars as the great culprits in the environment pollution even though other fuel using machines like bulldozer, snow blowers and others also contribute to pollution (Helveston et al. 97). In the United States only, Environmental Protection Agency approximates that, cars results to about seventy-five of the total carbon monoxide in the air. Moving cars contribute a third of the pollution that causes smog every year.
Fortunately, technology and unfueled cars has brought a sigh of relief to the long time threatened atmosphere. Tough emission standards have been put in place by the Federal government to help curb the pollution from cars and better efficiency is demanded from drivers. Introduction of Hybrid cars by the Tesla and other Companies has become a major advancement in the technology of controlling air pollution. Electric cars is indeed a big step but the sheer number of individuals owning these cars offsets the expected improvements.
Electric car is a plug-in type of automobile propelled by motors or one motor from energy stored in batteries which can be recharged. Renaissance in the manufacturing of electric cars began in the year 2008. This advancement has brought concerns of the government increasing the cost of oil and on the other way round providing subsidies to firms manufacturing electric cars. This idea intends to minimize the greenhouse gases emitted to the air. (Helveston et al. 109). The national and local governments promote the manufacture of electric cars by establishing subsidies, tax credits alongside incentives. This mission is also intended to improve the adoption rate these new electric cars in the market depending on their battery sizes and their electric range.
Currently, the Federal government allows a maximum of up to seven thousand five hundred dollars for every electric car purchased. In comparison with the internal combustion cars, electric cars neither pollutes the air nor did sound since they are much quiet compared to internal combustion engines (Holtsmark et al. 162). Proper analysis of the general efficiency and benefit of electric cars to the government includes the type of energy used in charging the battery, energy needed to come up with the battery and the energy expended when it is disposed of in an environment friendly way. The charging time is statistically one hour with some prototypes doing only 30 minutes but technological research is still on the idea of how to reduce this time even lower. The key limiting factor up to late 2017 was the problem of less recharging stations along the major highways in most countries even though many owning these cars prefer home based charging rather than the commercial filling stations. The government has been trying all it can to change this and for the small time frame, they are subsiding the batteries and the companies are as well trying to manufacture long range batteries. Most drivers using these vehicles have reported high levels of anxiety of what can happen, when their power get depleted on the way. By 2018, these companies had shown their interest in making these cars more efficient by introducing long range of up to 480-kilometer batteries produced by Tesla, and this is comparatively the range of gasoline-fueled cars.
With the ever-increasing government subsidies, a series of improvement in the rate of market adoption for these cars have been increasing (Holtsmark et al. 165). Going by the statistics, in late 2015, there were around 30 models of all-electric passenger vehicles in the highways. Cumulatively, the global sales of highway-capable and light duty electric cars shot up to over one million in total by 2016 September. Nissan Leaf was rated the world best-selling of all time in history of highway –capable electric cars with a sale of over 300,000 units globally in 2018 January. Tesla Model S ranked the second best with about 213,000 sales made worldwide. With the objective of the government, intervening in a market with the purpose of correcting a potential failure in the market, the government is mainly subsiding the electric cars due to the good service offer in an environmentally efficient way. The positive externalities in the production of these electric cars is the environmental conservation. Government subsidies are meant to benefit both the consumers of these electric cars, which are the users and the producing companies.
Clean energy and electric cars are essential for sustainable production of goods and services. This idea is very important given that it is not optimal when the society’s welfare diminishes overtime but it is optimal when the welfare of the society increases with time (Bakker et al. 54). Economists will argue that subsidizing key industries may be of benefit in the research alongside development of energy that is clean, but firms may fail and fall due to their interest in profits and not quality.
Government subsidy on electronic cars is of great benefit to the society in since it makes the company expand and by doing so, many people get employed. A typical example is the Nissan Company, which has a massive production plant in Sunderland. Many people are employed in this electric car manufacturer company. Without the governments support, such an expansion creating jobs for millions of people would not happen and so, environment is conserved and the economy developed at the same time. However, before providing the subsidy, a careful review and calculation has to be done to determine the potential benefit the employment created brings to the economy of a country.
Electronic car firms are solemnly responsible for the negative externalities in the production of their goods and services. An instance is a manufacturer of fueled engine cars always incur third party charges, which includes hazardous wastes from the company and air pollution. In every subsidy intended by the government like now the electric cars subsidies, they should always consider socially the net benefit of their intervention in such a market. In a situation where the production externalities causes severe costs to the welfare of a society, which potentially overshadows the benefits, government should never intervene in such a market (Bakker et al 61 ). The production of electric cars though, is quite a challenge and a hard puzzle indeed. Electric cars is certainly a massive benefit to the consumers with its zero emissions of impurities, its production on the other hand is certainly a zero venture. From the economics view of the whole idea, it is significant that the government come up with an accurate calculation of the real costs on the society right before it makes a decision on subsiding electric cars production. Failure to calculate this, predictably an economist will see a wide chance of failure with the policy not having an impact on the welfare of the nation. This point proposes that it is better if the government specifically target organizations and firms not producing any negative externalities if they possess no little risk to the government itself.
The second negative impact on government providing subsidies is relating to the moral hazard problem facing firms that are receiving subsidies from the government. Government subsidies may discourage the firms from ever trying to be competitive and later reducing their production costs. In such a case, you will find out that without the subsidy, the firm may have found more efficient ways of reducing their production cost in a manner that gives them an opportunity to maximize their outputs from little resources they have, that is minimizing inputs and maximizing outputs. Firms receiving subsidies from the government sometimes find it disincentive doing so. It becomes economically considerable that the government determines the size of incentives they would provide to this electric car companies and the length for which the subsidy would run (Carrillo-Hermosilla et al. 1075). Prolonged and bigger subsidies are disastrous to companies since they become lazy and start failing to produce more competitive and efficient products, which at the end of it all would discourage people from buying these environmentally perfect and friendly cars. Firms not subsidized by government are the most successful in the current companies in the US soil. They work harder in boosting their productivity with increased inventions and innovations due to competition making them to ever, stay in the market making big sales on their improved products.
Thirdly, government subsidy to electric car companies is the opportunity cost of these kinds of subsidies they may require. There is a higher risk of government failure in organizations where the subsidies they provide is much bigger especially in a situation where the government is already running on debts yet to be paid. The subsidy money in an economist perspective at that particular point would help develop other sectors of the economy helping the government pay the debts relieving the society of the same. This implies that the government would better off subsidize other sector of the economy rather than car industries, which would at last not live up to the expectation.
In general, subsidies has both positive and negative impacts to the society. Many factors are considered before its provision to a firm. Size of the subsidy matters a lot and it should be well calculated in relation to social production optimum level. The period of the subsidy must also be considered. It must not be too long since when it is longer, the firm may resort to being lazy and less competitive making it fall at some point just because of the subsidy (Carrillo-Hermosilla et al. 1110). It is therefore important that these electric car companies, when subsidized, they should be able to pass the subsidy by making these cars cheaper encouraging people to buy them. By this, the government’s intention of making the environmental friendly cars dominate the market would be achieved. The company must also be in a position to make these cars even more efficient to encourage buyers. Competitive marketplace must be encouraged since this will keep the firm on toes providing good cars not only to the environment but also to the users of these cars.
In summary, the government must be keen in their decision to subsidies electric car industries. Accurate analysis of cost benefit due to the subsidy must be given a consideration besides the environmental benefit of these cars. Some would argue that these firms are already making profits enough to help them invest more and expand to other parts of the world with this kind of technology. Concurrently, electric cars are a good project for the environmental sector and to our health. Engine cars are polluting the air we breathe and an intervention such as these electric cars should be given utmost support. Despite environmental benefit, the economic benefit must also be given a consideration since favoring the environment by deteriorating the economy is no justice at all.
Helveston, John Paul, et al. “Will subsidies drive electric vehicle adoption? Measuring consumer preferences in the US and China.” Transportation Research Part A: Policy and Practice 73 (2015): Pp 96-112.
Lelieveld, Jos, et al. “The contribution of outdoor air pollution sources to premature mortality on a global scale.” Nature525.7569 (2015): Pp 367.
Holtsmark, Bjart, and Anders Skonhoft. “The Norwegian support and subsidy policy of electric cars. Should it be adopted by other countries?.” Environmental science & policy42 (2014): Pp 160-168.
S. Bakker, K. Maat, G.P. van WeeStakeholders interests, expectations, and strategies regarding the development and implementation of electric vehicles: The case of the Netherlands. Transportation Research Part A: Policy and Practice, 66 (2014): pp. 52-62
J. Carrillo-Hermosilla, P. Del Río, T. KönnöläDiversity of eco-innovations: Reflections from selected case studies. Journal of Cleaner Production, 18 (10) (2010): pp. 1073-1083