Evolution of incentives to sustain the transition to a global electric vehicle fleet
Funding the transition to all zero-emission vehicles
This white paper quantifies the costs, benefits, and appropriate government funding associated with the transition to all passenger zero-emission vehicles (ZEVs). It assesses the key government support programs needed, for how long the need continues, and how public expenditures compare to societal benefits as the ZEV market develops. The work also identifies opportunities to phase down government expenditures, including shifting to polluter-pay programs, adopting long-term policies with minimal outlays, and transitioning costs to the private sector.
The analysis supports the following conclusions:
Sustained funding is critical to growing the early ZEV market. The near-term costs required to address ZEV market barriers are substantial. Incentives to defray upfront vehicle costs, infrastructure to ensure convenient charging, and outreach campaigns to educate consumers on ZEV options and their benefits are all necessary. As ZEVs reach cost parity with conventional vehicles and are more widely adopted, incentives and consumer awareness programs can evolve while infrastructure costs continue through the transition. Polluter-pay policies that tax higher-polluting vehicles could produce steady revenue, incorporate vehicle externalities, and help to avoid annual budget debates while incentivizing ZEVs.
The societal benefits of ZEVs far outweigh the costs. The costs of the ZEV transition are substantial but are greatly outweighed by the benefits. Benefits are estimated to outweigh costs before 2030, and 2020–2050 cumulative benefits will outweigh the costs by a factor of about 5 to 11. The figure below shows the annual ZEV transition costs and benefits over 2020–2050 for Germany. Costs include purchase incentives required before cost parity is reached, consumer education campaigns, and infrastructure. Benefits include fuel savings, maintenance savings, reduced vehicle prices after cost parity is achieved, and greenhouse gas emission reductions. Excluding the benefits from reduced greenhouse gas externalities, the 2020–2050 cumulative benefits outweigh the costs by a factor of about 7 in the United States, and by a factor of about 4 in Germany.
Costs in the ZEV transition are transitioning to the private sector. Costs can shift from governments to private industry and consumers through the 2020–2030 period, and policies can evolve accordingly. As government incentives are reduced, such programs could transition to durable systems of pollution-indexed taxation for all vehicles and ZEV consumer campaigns and marketing can shift to automakers. Infrastructure buildout could be funded by market-led investments and utility ratepayer-funded deployment. Collaboration between the public and private industry actors will remain crucial to identify funding gaps that governments, automakers, energy and infrastructure providers, and others can fill.
Governments are developing smart policies to support the ZEV transition. Dozens of government programs around the world demonstrate the policies needed to support ZEV growth while managing government expenditure over time. Persistent development of stringent vehicle emission or ZEV regulations in Canada, China, Europe, and many U.S. states ensures sufficient ZEV investment, volume, and widespread model availability. Norway and France have developed durable vehicle taxation systems. Carbon markets in British Columbia, California, and Québec create stable revenue streams and help fund several ZEV programs. British Columbia, California, Québec, and the United Kingdom have established multi-year action-oriented budgets that outline the key policies and associated funding to help overcome prevailing industry, infrastructure, and consumer awareness barriers.