Government’s eGallon Figures Are Misleading

The Department of Energy has published a new tool to inform consumers of the financial benefits of switching from a gas vehicle to an electric vehicle.   The new tool called ‘eGallon’ compares the fuel cost of driving an electric vehicle vs. the fuel cost of driving a gas vehicle.  The results make it appear that anyone who is still driving a gas vehicle must be a complete financial idiot.  The problem is, the calculations are incomplete and misleading.

The calculations show that fueling an electric vehicle has a cost equivalent of paying $1.14 per gallon of gasoline.  That’s a national average.  Results differ by state. According to the government, this makes the fuel cost of electric vehicles about one-third that of gasoline.

The calculations are based on an assumption that the average 2012 model automobile has a fuel efficiency of 28.2 miles per gallon of gas.  Starting with this number, it’s then a matter of calculating how much electricity would be required to drive the average electric vehicle that same distance then calculating the cost of that electricity.  The result is the eGallon value.  So far, so good.

Because both electricity rates and gas prices can vary quite a bit from state to state, the tool breaks down the eGallon cost by state.  In Texas, for example, the average gallon of gas costs $3.37 as of 6/10/2013.  The eGallon rate is $1.09.  In New York the spread between the gas rate and the eGallon rate is smaller.  Gas costs on average $3.70 while the eGallon rate is $1.80. 

But here’s the problem

The eGallon tool, while interesting, is still only a very rough approximation of the true savings any given consumer might expect as a result of going electric.  And it ignores some important facts which make its ultimate conclusions somewhat questionable. 

For starters, it doesn’t take into account battery costs.  The batteries required to make electric vehicles work aren’t found in gas vehicles.  They are very expensive, and have a finite lifespan before they must be replaced.  This replacement cost should be factored into the fuel cost for an electric vehicle.   

If we assume, for example, a replacement cost of $7,000 for the EV battery and a lifespan of 100,000 miles for the battery it adds about $1.97 per gallon to the eGallon rate (7 cents per mile x 28.2 miles per gallon).  It turns out that electricity cost isn’t even the primary factor in the fuel cost of an electric vehicle.  That’s a pretty significant omission in the government’s eGallon calculation.

Note:  100,000 miles seems to be a reasonable estimate for an average EV batter lifespan.  To play with different assumptions of battery lifespan and replacement costs use this electric vehicle cost calculator.

Who’s going to pay those taxes?

A large amount of the cost of each gallon of gas is made up of federal and state taxes levied on each gallon of fuel.  The amount varies but in Texas it is around 38 cents per gallon. It can be as high as 69 cents per gallon in places like New York.  A very large portion of these taxes go to pay for things like highways and bridges. 

The money needed to keep roads in usable condition must come from somewhere.  If the entire country magically switched to electric vehicles today we would have to come up with the equivalent of around 40 cents per gallon of money from somewhere to pay for the roads and other public obligations.   

In other words, at a macro level we aren’t avoiding 40 cents per gallon of cost by not buying gas for our cars.  We are just shifting that cost somewhere else.  It will ultimately come back to us in the form of another tax.  This is precisely why some states have toyed with the idea of a tax on electric vehicles.

One could reasonably argue that when comparing the “per gallon” cost of gas vs. electric, the tax amount should be removed from the equation.  This money does not represent a fuel cost. Wear and tear still happens to the roads regardless of how the car is powered.  That cost doesn’t disappear because we stop buying gas. It just gets shifted somewhere else.

For the sake of a proper comparison, you can either remove the taxes from the cost of the gallon of gas or you can add it to the eGallon.  Since eGallon is the star of the show, let’s add the value to the eGallon price.

An Adjusted eGallon calculation

Taking into account the battery cost and the expenses involved in highway upkeep (taxes) we can derive an adjusted eGallon calculation.   The result is not so one sided as the government’s calculations.

$1.09  – Government’s eGallon calculation for Texas (6/10/2013)
$1.97  – Per gallon EV battery cost (7 cents per mile x 28.2 miles per gallon)
$0.38  – Taxes per gallon (Texas)
$3.44 Adjusted eGallon rate for Texas

This is compared to an average gas price in Texas of $3.37 per gallon.

It’s not all bad

All of this is not to dissuade the adoption of electric vehicles.  It’s only meant provide a more realistic comparison between gas and electric.  There are some things that can be done to tilt the equation back in favor of the electric vehicle.

Hopefully, battery technology will continue to improve resulting in longer lifespans and cheaper replacement costs.  Also, second life applications for used EV batteries such as local or grid level power storage in support of wind and solar energy may help the residual value of old car batteries.  That would help improve the numbers in favor of the eGallon.   

Also, the electricity costs used in the government’s calculations are only averages.  There is a lot consumers can do, particularly in deregulated states like Texas and New York to reduce that cost.  The simplest is by just shopping multiple electricity providers to find the cheapest providers and plans.

As ‘time of day’ pricing becomes more practical because of smart meters, many electric companies are offering innovative plans such as Free nights and weekends electricity plans.  With such a plan an electric vehicle owner could theoretically charge their vehicle overnight at zero electricity costs.   

Keep in mind, however, as with the aforementioned taxes, costs rarely just disappear.  More often they are just shifted elsewhere.  This is the case with most free nights electricity plans.  The day time rates are often substantially higher with these plans than traditional electricity plans.  This means that while you may top off your car battery for free at night, you will pay a lot more to brew your morning coffee and keep your refrigerator running.

Alas.  There truly is no free lunch…