The Cost of “Electrification” 

April, 2023 - Derrick Price Williamson

“Electrification” has become a ubiquitous term these days, although depending on who you ask, it might have different meanings. However defined, a critical component of electrification as a policy choice to reduce reliance on fossil fuels is the need to fully evaluate both its practicality and the transparency of its cost impacts, particularly as that relates to lower income and middle class families, as well as small business.
The linked articles discuss elements of this critical policy issue. For example, per the first article, Ram Truck’s CEO, Mike Koval, is focused on a transition to electric vehicles (“EVs”), but recognizes that EV production is very expensive, thus if the shift away from fossil fuel based (internal combustion) vehicles is pursued too aggressively, then that will impact the car maker’s profits and effectively undercut the financial ability to build out EVs. As Koval states, “Electrification is expensive, so . . . we need to . . . protect the profitability of our current [internal combustion engine] business to help fund the transition to electrification.”
At the same time, Koval also recognizes that a move to more expensive EVs is financially impractical for middle income and poor families. As he states: “[The] middle class will not be able to buy EVs, very simply put.” The consequence being that if production of traditional vehicles is abandoned too quickly then middle and low income families will be hurt, on top of the impact of such a shift on overall profitability (to support EVs) and union employment.
As the second opinion article by Dan Newhouse confirms, the Department of Energy’s recently proposed energy efficiency standards for gas cooking appliances limitations and state-level efforts to eliminate gas-based heating for residential communities and small businesses, have similar cost impacts. As Newhouse points out anecdotally, regulations such as these would increase residential and small business construction costs by nearly $6,000 on average, and the impact of that would be felt most by those who can least afford it.
The third article by Eric DeGesero, also an opinion piece, confirms some of the realities of pursuing an electrification plan as New Jersey’s Governor has delayed releasing his “Energy Master Plan” (“EMP”) to evaluate costs and the impacts of other policy changes driven by the Biden administration. The author characterizes the EMP as intent on “electrifying everything,” consistent with a previous effort to convert all heating to electric in schools, apartments, and commercial buildings that was abandoned presumably because of the projected $2 million per building upgrade cost. DeGesero also takes issue with potential rebates for residential electrification, noting that based on his statistics such rebates would not even cover half of the cost for those most in need.
The upshot is that although policy driven choices to eliminate or minimize fossil fuel reliance may be well-meaning, they cannot be pursued in the vacuum of good intentions. Such initiatives must account for the cost consequences of those policies and be cognizant of who will bear the related costs.  


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