Thought Leadership

CSE Outlines Model State Legislation for EV Incentive Programs

 

By Kinshuk Chatterjee

December 1, 2020

As more states seek to advance environmental, health and equity goals, we expect many will pursue policies to promote the adoption of electric vehicles (EVs). To help state policymakers create successful, cost-effective incentive programs tailored to their unique circumstances, the Center for Sustainable Energy (CSE) has developed model EV incentive legislation.

Our recommendations are based on our experience designing, implementing, and evaluating over $1 billion in EV incentive programs across six states: California, Connecticut, Massachusetts, New Jersey, New York and Oregon.

The need for action is clear. The transportation sector is the largest source of heat-trapping greenhouse gas emissions in the United States. Conventional vehicles with internal combustion engines (ICE) emit pollutants that contribute to smog and worsen respiratory conditions like asthma. These pollutants have disproportionate impacts on disadvantaged and low-income communities situated closer to busy roads.

Replacing ICE vehicles with EVs will help address these issues, but policy is needed to overcome barriers to EV adoption. These barriers include the current higher expense of most EVs, consumer fears about EV range, and limited publicly available charging infrastructure. Policymakers also worry that incentive programs will subsidize EV purchases that would have happened anyway, without an incentive, and therefore may not be an equitable use of state funds.

EV incentive programs can be tailored to address these concerns and account for each state’s unique geographic, demographic, and market conditions. For example, the Oregon Clean Vehicle Rebate Project (OCVRP) was the first statewide incentive program in the country to offer rebates for used EVs, which has helped stimulate the state’s secondary EV market. Similarly, the Connecticut Hydrogen and Electric Automobile Purchase Rebate (CHEAPR) is the only statewide EV incentive program to offer incentives to vehicle dealerships for each EV they sell. Both incentive types are now being considered by other states.

To navigate the decision-making process, CSE’s model legislation provides a suite of flexible and actionable strategies to promote the widespread adoption of EVs. Here are four key considerations:

  1. Design an EV program with a clear timespan
    One key requirement for any EV legislation is to provide clarity on incentive availability. Data from multiple states indicates that whenever there are concerns about the availability of incentive funding, demand for incentives declines and the EV market loses momentum. Legislation should establish the EV incentive program for a clearly specified amount of time to reassure consumers, manufacturers, dealerships and other stakeholders that incentives will be available for the long term. Also, having an established operational period can make it easier for policymakers to allocate funding and plan across variable budget cycles. For example, legislation in Connecticut (H.B. 7424, 2019) formally extended the CHEAPR program for five years. New Jersey’s landmark EV legislation (S.2252, 2020) established a 10-year operational period for the state’s EV incentive program.
     
  2. Determine incentive funding sources
    Legislation establishing an EV incentive program should also designate a reliable, stable and long-term revenue stream to fund it. Revenue streams could include cap-and-trade auction proceeds (California’s source), taxes on car dealerships (Oregon), utility system benefit charges (New York and New Jersey), or allocations through the general fund (Connecticut). For some states, it may make sense to combine multiple revenue streams. New Jersey’s EV legislation established a fund that could include moneys from cap-and-trade auction proceeds, utility system benefit charges, or other legislative appropriations. CSE also recommends that policymakers commit to a multi-year funding allocation for the EV incentive program, and that funds be allocated on an annual basis. This annual allocation can be gradually reduced over time as EVs become more affordable and accessible.
     
  3. Ensure incentive programs are adaptable
    While some parameters should be explicitly identified in the legislation, the program administrator should have some flexibility. For example, to respond to changing market conditions and optimize program funding, the program administrator should be authorized to establish and adjust rebate values over time. To achieve state goals, the program administrator also should be able to develop enhanced rebate options for specific vehicles or consumers, such as higher incentives for low-income consumers or lower incentives for used vehicles. To expedite rebates to consumers, the program administrator should be able to establish and adjust incentive application processes. Lastly, Manufacturer Suggested Retail Price (MSRP) caps can be instituted to prevent free ridership issues and ensure that incentive funds are going to those consumers for whom the incentive is most critical.

    Program flexibility has been especially important as the COVID-19 pandemic has depressed consumer demand for EVs and new vehicles generally. For example, Connecticut and Massachusetts have recently sought to institute new incentive categories to better use program funding. Connecticut has proposed instituting incentives for used vehicles, and Massachusetts has sought to develop incentives for medium- and heavy-duty vehicles. Similarly, stakeholders in California have proposed expanding the equity component of the state’s EV incentive program to prioritize outreach to disadvantaged and low-income communities.
     
  4. Evaluate and report on results
    Lastly, an evaluation requirement should be built into any EV incentive program. CSE’s legislation directs the program administrator to track and report annually on program efficacy and consumer EV awareness. These key metrics can be used to continue to improve legislative or regulatory actions to facilitate EV adoption.

States are often referred to as laboratories of democracy, and this is especially true in the case of clean transportation policies. As states continue to lead, it is important for policymakers to understand the many incentive levers they can pull to promote EV adoption for the lowest cost and in the shortest time.

Model EV Incentive Programs Legislation Template

 

Kinshuk Chatterjee

Transportation Policy Analyst

Kinshuk Chatterjee is a Transportation Policy Analyst who provides policy support and analysis for CSE’s EV and EVI initiatives.

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