Electric vehicles (EVs) make headlines for their ability to slash greenhouse gas emissions, yet they also have the ability to strengthen the economy – and not just by providing a surge of new plants and jobs. The EV transition can protect the U.S. economy from recessions by reducing our oil use, which in turn reduces the U.S.’ vulnerability to oil price shocks. Most Americans felt the pain of higher oil prices last summer when gasoline prices shot up, hitting a national average price of $5 a gallon. Although the U.S. managed to avoid a recession in 2022, we may not be so lucky the next time. High gas prices depress consumer sentiment, weaken consumption, and, as a result, elevate the risk of a recession. By powering our transportation with the diversified energy sources that back the U.S. electricity grid, EVs can break the link between oil prices; geopolitical risk from the Middle East, Russia, and other major oil producers; and the health of the U.S. economy.
The EV Transition: A Revolution That’s Already Underway
Historically, rising oil prices have been a longstanding contributor to U.S. recessions. Crude oil prices spiked before the U.S. recessions of 1990-1991 and 2001, as well as the Great Recession, to say nothing of the large factor they played in the early 1970s to early 1980s. Even now – with a 60% drop in the energy intensity of the U.S. economy, U.S. oil production equalling its consumption, and the U.S.’ new status as a net exporter of oil and oil products in dollar terms – oil prices continue to heavily impact the economy. One reason is that the pain of higher oil prices is felt broadly by almost every household and business, while the benefits are enjoyed only narrowly, by companies, workers, and communities tied to oil production.
Shifting transportation energy demand from gasoline and diesel to the diverse sources that power the U.S. electricity grid would address this vulnerability. Such a transition appears to be not just possible, but already in progress. Current policies and reasonable forecasts of EV adoption suggest that 50% of the vehicles on the road in 2040 will be EVs. Additionally, when factoring in the declining mileage that occurs as vehicles age, over half the miles driven at that time would be in EVs. If 50% of the vehicles on the road were EVs, as these projections indicate will happen, U.S. use of gasoline and diesel would fall by half, driving use of petroleum products down by a third. If U.S. oil production held constant at current levels, that would shift the U.S. from producing roughly as much crude oil as it consumes to being a large net oil exporter. (In dollar terms, the U.S. is already a net exporter of oil and oil products, as we import mostly crude oil and export mostly refined petroleum products, which carry a higher value due to the value added in refining.)
Moreover, rising gasoline prices undermine the economy via their impact on consumer sentiment. Gas prices have an outsized role in consumer sentiment and consumption decisions, despite decades of improvement in fuel efficiency driving down the share of gas in household budgets. Rising gas prices still drive consumer pessimism and weaken consumption growth, an effect visible in the chart below and confirmed in recent academic research by Carola Binder (Haverford College) and Christos Makridis (Stanford University). Insulating consumers from volatile oil and gasoline prices reduces downside risk to consumer sentiment – and to the overall economy, as consumer spending constitutes roughly 70% of GDP.
On a household level, electric vehicle owners can also expect lower and more stable fueling costs than if they owned a gas-powered vehicle. Over the past decade, EV owners who charged at home would have saved an average of $81 per month compared with owning a traditional internal combustion engine (ICE) vehicle. Owners of electric vehicles would also have enjoyed lower fuel costs than ICE owners in every single month since January 2013, as shown in the graph below. In contrast to volatile gas prices, monthly residential EV charging costs would not have varied more than $2.50 month to month. In reviewing data from nine states for the same period, in no month would an EV owner have been worse off financially than an owner of an ICE vehicle. Even with public charging, EV owners can save on fuel costs versus gasoline by using a monthly charging plan.
What’s Next for the EV Transition?
When compared with gasoline and diesel, the energy sources that power the U.S. electric grid are more diversified, have more stable prices, and are less tied to geopolitical risk. The U.S. electric grid is powered by a mix of natural gas (39%), coal (20%), nuclear (18%), and renewables (23%) – all of which are overwhelmingly U.S. sourced. Moreover, U.S. natural gas and coal prices are vastly less volatile than oil prices and do not closely follow international prices, slashing energy price vulnerability to geopolitical risk. Finally, any new vulnerability to changes in battery raw material prices would be narrowly felt by current vehicle buyers, whereas higher gasoline prices are felt by every vehicle owner today, except for EV owners.
EVs can be powered by increasingly clean and renewable energy sources over time as the grid becomes greener. The U.S. Energy Information Administration projects that the fossil fuel share of U.S. net electricity generation will shrink from 59% in 2023 to 34% in 2030 and 29% in 2040, while the share of renewables mounts from 23% in 2022 to 50% in 2030 and 59% in 2040. Incentives to take gasoline- and diesel-powered vehicles out of service early, such as scrappage policies or higher taxes or registration fees on those vehicles, could speed the transition, as could more stringent fuel economy and greenhouse gas regulation.
Optimizing charging can increase the climate benefits. Research by Stephen Holland, Erin Mansur, and Andrew Yates finds that electrifying 100% of car miles traveled would reduce total electricity sector carbon emissions if vehicles are charged during the day (when renewables are a larger share of electricity supply). Charging during daytime hours would draw in more renewable production, on top of eliminating the emissions from gasoline- and diesel-powered engines.
The EV transition’s economic benefit rises over time as more of the nation’s fleet of vehicles goes electric. That process will steadily reduce the U.S. economy’s vulnerability to oil-related geopolitical risk and oil price shocks, making it more resilient. At the same time, battery and charging technology should continue to improve, leading to smaller and more efficient batteries that take less energy to produce, charge, and, ultimately, recycle.
The promise of electric vehicles is twofold, reducing both environmental and economic risk. While much remains to be seen in how the EV transition will continue to play out, increased adoption of electric vehicles is a win-win for the U.S.
 Hamilton, James, “Oil and the Macroeconomy since World War II,” Journal of Political Economy, 1983, vol. 91, no. 2: 228-248.
 Binder, Carola and Makrides, Christos, “Stuck in the Seventies: Gas Prices and Consumer Sentiment,” The Review of Economics and Statistics, March 2022, 104(2): 293-305.
 This number is based on a hypothetical calculation using historical data on national average monthly gasoline and residential electricity prices and assuming equal mileage in the EV and ICE cases.
 These calculations assume national average mileage of 1,035 miles per month, as well as average model year 2021 fuel economy and EV efficiency in miles per kilowatt hour.
 IEA forecasts that nuclear power’s share will slide from 18% in 2023 to 13% in 2040.
 Holland, Stephen P. and Mansur, Erin T. and Yates, Andrew, Decarbonization and Electrification in the Long Run (May 2022). NBER Working Paper No. w30082, Available at SSRN: https://ssrn.com/abstract=4122811