Abstract

The State of California has developed a range of programs to accelerate the adoption of zero-emission vehicles (ZEV). California’s ZEV mandate will require 15% of vehicles sold in the state to be ZEV or transitional ZEV (TZEV) by 2025i. To encourage purchases of these vehicles, California established the Clean Vehicle Rebate Project (CVRP), which provides consumer rebates of $5,000 for fuel cell vehicles, $2,500 for battery electric vehicles, and $1,500 for plug-in hybrid electric vehiclesii. The federal government also provides a $7,500 tax credit to purchasers of qualifying electric vehicles. As ZEV sales increase, the amount of funding needed to provide rebates would need to increase as well at a cost to taxpayers under the current incentive structure. For example, selling one million battery electric vehicles in California will result in a cost of $10 billion to taxpayers (i.e., $10,000 in combined federal and state incentives multiplied by one million).
Markets and regulations are also getting out of alignment. Vehicle fuel economy and greenhouse gases (GHG) standards are becoming more stringent as oil prices are staying low. If gasoline prices stay low, as seems likely (thanks in part to tightening vehicle standards in US, Europe, and elsewhere), then consumers will have little incentive to buy a more expensive, fuel-efficient car. As vehicle fuel and GHG standards get become even more stringent, the misalignment will worsen.