Understanding Clean Car Incentives (Part Two)

Julian Barragan and Lisette Jones

Date: 11/11/2022
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Julian and Lisette, research interns for the Romero Institute, here again with part two of our blog series on Zero Emission Vehicle (ZEV) incentives!

In the wake of SB 1230 becoming law and California committing to 100% clean car sales by 2035, we explored why financial incentive programs are important for clean car adoption in part one of this series. Now we'll explore some successful case studies from across the U.S. and around the world and see what lessons we can learn for the future.

California

California is the trailblazer for clean transportation in the United States. The Clean Vehicle Rebate Project (CVRP), launched in 2010, offers eligible participants rebates up to $7,000 for purchasing new clean cars and is the most popular and well-funded clean car incentive program in California. Clean Cars 4 All (CC4A) and the Clean Vehicle Assistance Program (CVAP), launched in 2014 and 2018, respectively, target the inequality in clean car ownership between high-income and low-income drivers, and provide an option to retire an old gas car for a clean car grant or funds towards public transit and e-bikes through CC4A. These programs are also stackable with CVRP, meaning funds can be combined on top of other awarded amounts through CVRP to receive even higher incentive totals. Once SB 1230 is enacted in 2024, each of these incentives will be provided at the point of sale!

Connecticut

Since its introduction in May 2015, Connecticut’s Hydrogen and Electric Automobile Purchase Rebate program (CHEAPR) has awarded over 8,000 rebates to Connecticut drivers. The program’s focus, and most of these rebates, have gone to consumers adopting Plug-In Hybrid Electric Vehicles (PHEVs) or Battery Electric Vehicles (BEVs). More than $13 million has been given out through the program so far; however, nearly a quarter of all rebates awarded have financed the purchase or leasing of Tesla Model 3 vehicles. The disproportionate use of rebates for Teslas suggests that CHEAPR is primarily being utilized by high-income consumers, instead of the low-income consumers that could gain more from clean cars’ benefits. In California, Teslas are no longer eligible for Clean Vehicle Rebate Program dollars – due to their high cost. On to Georgia!

Georgia

Terminated in 2015 by conservative lawmakers who thought the program was “too generous, too rich,” Georgia’s Low Emission Vehicle and Zero Emission Vehicle Certification Program offered consumer tax credits to drivers who purchased or leased clean cars. Despite state lawmakers trashing the program, participants who purchased or leased a clean car before July 1, 2015 still qualified to collect their tax credit for up to five years later. This delayed policy effect is what kept Georgia as the state with the second most clean cars in the U.S. in 2017, with about 25,000 registered clean cars.

Georgia’s discontinued tax credit program exemplifies the strong push that financial incentives have for consumer demand in the clean car market: Georgia registered over 1,400 new electric vehicles in July 2015, but only registered 242 new electric vehicles in August, one month after the program had been terminated. This 80% drop in clean car sales over just a single month was also accompanied by a statewide imposition of a $200 annual registration fee for all clean cars.

New York

In New York, the Drive Clean rebate is applied as a point-of-sale incentive. Almost 6,000 rebates were approved during the first six months of the program, coinciding with a surge in BEV and PHEV registrations through the Drive Clean rebate. As of April 2022, the state has over 98,000 clean cars on the road, split fairly evenly between BEVs and PHEVs.

Like other states, New York is falling victim to the growing “Tesla Effect”, in which rebates and tax credits are not used to make ZEVs more affordable for the average consumer, but instead used to purchase luxury ZEVs. Teslas have received over 40% of available rebates. Since the program’s inception in 2017, the top new ZEV registrations in the state were the Tesla Model 3 and Tesla Model Y. Both Tesla models retail at a price of over $57,000, meaning that these incentives are primarily being used by high-income consumers to purchase expensive vehicles they could likely afford without state assistance. Enough about the U.S., let’s take a trip to Europe!

Norway

Norway has been a world leader in clean car adoption for years with its nationalized incentive program. As of December 2021, Norway is leading the world in BEV adoption. The Norwegian Parliament has declared that all domestic cars sold should be clean cars by 2025, and it’s making good on this target. In 2022, over 90% of personal vehicle sales were clean cars. This is incredible progress from 2012 when there were only 10,000 clean cars in Norway, comprising 3% of vehicle sales.

At the federal level, Norway provides a one-time vehicle tax reduction of 25% on the value-added tax and an exemption on purchase and/or import taxes on car purchases and leases. Unlike California, the Norwegian government is not giving consumers money to subsidize clean car purchases; instead, the discount is applied directly to the purchase price of the car. Like California and many other European countries, Norway also provides other incentives including: 1) A 50% rule that clean cars pay half of ferry fares and parking prices in many municipalities, and 2) access to bus-only lanes.

It is also worth noting Norway is on track to revise their clean car incentives at the end of 2022. The national program has been durable and funded since 1990 and there is no indication that the program will be ending, as it has been incredibly successful. California could learn a thing or two from the Norwegian model!

Germany

Let’s continue our tour through Europe: Germany provides a combination of purchase subsidies, tax incentives, and other benefits for clean car adoption. Europe is often synonymous with clear car adoption success, but Germany provides the useful lesson that this is not always the case. Germany gives an Umweltbonus (environmental bonus), which offers grants to partially cover the purchase or lease of eligible clean cars. According to the European Alternative Fuels Observatory, as of March 23 2022, Germany had nearly 2 million alternative-fuel passenger cars.

Umweltbonus offers purchase and leasing grants for private and company vehicles, which are based on the vehicle prices. Cities and states can also offer incentives of up to €1,500 on top of the Umweltbonus. These grants are primarily applied for dealerships, but consumers can apply themselves, too.

In 2022, the German government decided to phase out PHEV and BEV subsidies arguing they are “marketable and no longer need public funding”, and plan to slowly reduce BEV subsidies between January 2023 and January 2025. The choice to phase out these subsidies feels at odds with the reality that the German clean car adoption rate is still very low, at only 3%. Time will tell whether this move will prove effective.

Final Thoughts

There’s little room for doubting the success that government financial incentives have had in increasing clean car adoption around the world and across a range of conditions. Our case studies of state incentive programs across the United States correspond with greater total clean car sales in those states, when compared to similar states lacking financial incentives. In 2019, the state of Connecticut, for example, had nearly five times as many clean car sales than its non-incentives neighbor, Rhode Island. Meanwhile, California leads the nation in total clean car sales, and experienced more sales than the combined total of its western-state neighbors without financial incentives: Arizona, New Mexico, Utah, Nevada, and Idaho. Even Georgia, with its canceled incentive program, saw thousands more clean car sales in 2019 than its non-incentive neighbors, Alabama, Tennessee, and Mississippi. This success can also be partially attributed to states establishing infrastructure for clean cars. States that incentivize clean cars are more likely to invest in the infrastructure necessary for their success, as we’ll explore in greater depth specifically for California in our next blog, coming soon!

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