Category: News Blog

Credits and Rebates Play a Key Role in Building Consumer Market for Cleaner Electric Vehicles

The transportation world is moving towards an electric future. More EVs are available than ever before. Leading global automakers are pledging to transition to cleaner electric fleets. Entire countries are planning to phase out fossil-fuel vehicles, thereby lowering harmful emissions that are detrimental to human health.

The United States is currently a leader in EV technology and innovation, thanks in part to the federal tax credit that has helped bridge the gap in cost between plug-in vehicles and their conventional gas-powered counterparts. Our research shows that these incentives play a key role in building the EV market—by creating policy certainty for automakers as well as encouraging the purchase of EVs.

Overview of the tax credit

The Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007 created a federal tax credit for EVs to serve as a purchase incentive. The credit applies to all plug-in vehicles (PEVs), including plug-in hybrid vehicles (PHEVs) and “pure” battery electric vehicles (BEVs) with a minimum battery size of 4kWh (which is met by all personal vehicles available to consumers. The amount of the credit depends on the vehicle size and battery capacity. Long-range PHEVs and all available BEVs receive the maximum credit of $7,500, while shorter range PHEVs receive $2,500 or an intermediate amount. More than twenty states also provide some form of purchase incentive, generally at significantly less value than the federal credit.

The credits are designed to support the EV market until it becomes self-sustaining. This is a strategy that has worked in the past: telecommunications, aerospace, computers, and pharmaceuticals are examples of new market sectors that launched and flourished thanks to early government support. As companies bring EVs to market, manufacturing costs will drop. Indeed, manufacturing costs of batteries and EVs have fallen dramatically already. Because EV fuel and maintenance costs are very low, providing government assistance to help offset initially high upfront costs is key to ensuring consumer access to EVs.

The federal EV tax credit is strategically designed to avoid wasting taxpayer money on mature businesses that do not need extra support. The total number of rebates provided to a given EV manufacturer phases out after that manufacturer reaches 200,000 qualifying sales. The credit remains available for other manufacturers to encourage latecomers to enter the market. The first wave of EV manufacturers—such as General Motors and Tesla —will hit the 200,000 sales mark in 2018 leading to a phase-out of federal assistance for their vehicles. However, many other automakers are just entering the EV market in a serious way now. If the tax credit vanishes, this momentum may too.

The impact on the EV market

Research shows that the federal EV tax credit is having a real and positive impact on the EV market. Surveys conducted by the Institute of Transportation Studies at University of California, Davis (ITS-Davis) show that nearly 30% of consumers who bought EVs in early markets cited the EV credit as a factor that influenced their purchasing decisions. The availability of the credit had much less influence on (presumably less price-sensitive) buyers of the more expensive Tesla Model S. Almost half of Nissan Leaf buyers and 40% of Chevrolet Volt buyers said that they would not have purchased their cars without the credit incentive. This finding was validated by a systematic literature review released by ITS-Davis in 2017. 32 out of the 35 studies examined in the review identified clear relationships between financial purchase incentives and the sales of PEVs in the U.S. and around the world. The review also found that removing incentives too early could negatively impact EV markets. In 2015, for instance, the Netherlands decided to focus their incentive on only all-electric vehicles, removing support for plug-in hybrids. Plug-in hybrid sales dropped precipitously the following year.

Closer to home, we can look at what happened to electric vehicle sales in the state of Georgia. When the state purchase rebate was removed at the end of 2015, the federal tax credit remained as the only EV purchasing incentive. This was not enough to sustain the budding EV market, and sales plummeted as a result.

The Netherlands effectively forced a switch to all-electric vehicles for buyers who were influenced by the incentive. In Georgia, unfortunately, EV sales dropped and shifted back to conventional vehicles.

Need for stable, research-informed policy

Automakers rely on predictability in the regulations that govern their sales, whether those are fuel-economy standards, zero-emission vehicle targets, or purchase incentives to help launch new promising technologies. Automaker plans for upcoming plug-in vehicle models were based on an expectation that the federal tax credit would remain in place for the first 200,000 PEV sales from each manufacturer. With this in mind, they have plans to introduce dozens of new and updated models to the market in the next 3–5 years, including nearly 10 new and second-generation releases in 2017 alone. Canceling the credit will have disproportional effect on companies who sell most of their electric cars in the U.S. market. In 2012, half of EV sales were in the U.S. But the rapid development of other markets has reduced the U.S. share today to less than 20% and next year it probably will be half of that.

Removing the federal credit will reduce the ability of domestic car companies to compete in this global market.

There are certainly ways that EV incentives could be improved. Because incentives are less important to wealthy buyers of expensive vehicles, and to improve access to EVs across income groups, some states are considering capping rebates based on purchaser income or vehicle manufacturer’s suggested retail price (MSRP). Research also shows that full electric vehicles have higher benefits to the environment and should receive higher incentives. Some studies show that point of sale rebates are more effective at incentivizing sales than tax credits. There have also been proposals to provide some incentives to car dealers, who are generally less familiar with EVs and may be less inclined to sell EVs than conventional vehicles, which bring in more recurring revenue from maintenance.

We should debate the best and most cost-effective incentives to support the domestic automotive industry and the development of the EV market. What is certain, is that incentives are hugely important. The federal EV tax credit could certainly be improved, but incentives are clearly needed. Our nation’s health and highways will benefit from a growing number of cleaner vehicles that are within reach of all American consumers.

Gil Tal is a researcher at the Plug-in Hybrid & Electric Vehicle Research Center of ITS-Davis and graduate advisor for the UC Davis Transportation and Technology Graduate Group.

Austin Brown is executive director of the UC Davis Policy Institute for Energy, Environment, and the Economy.

Download a PDF of this blog.

How to Combine Three Revolutions in Transportation for Maximum Benefit Worldwide

Three transportation revolutions are in sight, and together, they could help reduce traffic, improve safety, improve livability, and eventually save trillions of dollars each year and reduce urban transportation carbon dioxide emissions by 80 percent or more worldwide by 2050. Our new report from the Sustainable Transportation Energy Pathways (STEPS) program of ITS-Davis, done in cooperation with the Institute for Transportation & Development Policy and released May 3rd, tells us how.

• For the UC Davis press release and full “Three Revolutions in Urban Transportation” report, click here.
• For GIF/animations that show the dynamics of changes depicted in the report, click here.
• Also, for information on the ITS-Davis 3 Revolutions Policy Initiative, click here.

The revolutions in question are electric vehicles, automated (driverless) cars, and shared mobility (multiple people sharing a trip, in the form of ride hailing or transit). All three of these revolutions are coming but it is not clear how fast, or which if any will dominate. But one thing is certain: to receive the most benefit from these revolutions, the most critical component is something most preschoolers know: Sharing is caring.

The report looks at how the revolutions may unfold out to 2030 and on to 2050 around the world, and delves into three urban travel scenarios surrounding the three transportation revolutions:
• Business as usual (BAU): a future without widespread electrification or automation
• “2 Revolutions:” electrification and automation are embraced but shared mobility is not
• “3 Revolutions:” electrification, automation and shared mobility are all widespread

Each revolution can provide important benefits. Electric vehicles have the potential to be near-zero CO2 emission, since they do not emit any emissions directly, and it is possible (and necessary) to decarbonize electric grids around the world over the coming decades. Automation may provide important safety benefits, particularly in the developing world where accident and injury/mortality rates today are often very high.

But the analysis and scenarios in this study find that it is shared mobility that provides the largest potential benefits, in the form of vastly reduced traffic, for starters. In fact widespread ride sharing could help move global transportation into a future that not only saves energy and emissions but also decongests highways, frees up parking spaces for other urban uses, cuts transportation costs, and improves walkability and livability.

It is important to emphasize that the use of “shared mobility” here does not include single-occupant ride-hailed Uber or Lyft vehicles, but only cases where multiple people share the ride. It also includes new forms of on-demand public transportation, such as small commuter buses with flexible routes. Active transportation, such as cycling, complements this scenario.

Benefits worldwide

The report spans eight global regions, including five major markets: United States, Europe, China, India and Brazil.

The different global regions vary considerably in their starting points. For example, the United States is highly car-dependent, whereas India’s challenge will be to preserve and enhance shared mobility options they already have. Yet, across the globe, the 3 Revolutions, or 3R, scenario holds the most environmental and societal benefit.

As shown in the figures below, the greater range of modes (on a passenger kilometers basis) in India is clearly evident compared to the U.S., but in both cases the overall travel levels are lowest in the 3R scenario, with a far higher share of shared mobility (saving even more vehicle kilometers) than in the other scenarios.

Potential pitfalls of not sharing

Without a concurrent shift away from private vehicle ownership and toward ride sharing, the potential for electric, autonomous vehicles to reduce traffic and sprawl are severely limited, and CO2 reductions will be significantly less than with sharing.

Driverless vehicles alone could actually increase traffic congestion. Imagine people spending even more time in their cars or the possibility of zero-occupant, driverless vehicles continuously circling the streets rather than parking.

Electrification is also very important. We estimate that an autonomous vehicle world without electrification or trip sharing would not cut carbon dioxide emissions at all, and might actually increase them.

The road to achieving emissions targets

The report, “Three Revolutions in Urban Transportation,” comes the week before an international climate change meeting begins in Bonn, Germany. The climate talks will focus on implementing the 2015 Paris Agreement, which targets a 2 degree Celsius or lower cap to an overall temperature change from global warming. This target requires all nations to cut their carbon dioxide emissions dramatically by 2050. We note that the “3R” scenario would meet that benchmark for cities, and possibly go further. As shown in the figure below, the global urban passenger transportation CO2 emissions about 3 gigatonnes in 2015 rises to over 4.5 gigatonnes by 2050 in our BAU scenario, whereas it drops to below 2 in our 2R scenario (mainly due to electrification) and to below 1 gigatonne in 3R (due to much greater use of transit, non-motorized modes, and ridesharing in that scenario. It is also less dependent on decarbonized electricity to reach its 2050 level.

The effects of 3R on travel, and the numbers of light-duty vehicles, are shown in the figure below. Due to the much more intensive use of each commercial, shared vehicle, along with greater use of transit and non-motorized modes and a general reduction in trip lengths due to more compact cities, results in more than a 2/3 reduction in the stock of LDVs worldwide (and, as shown here, in the U.S.) in 2050 compared to the peak level in 2025 (and 75% below the peak reached in 2R). This opens up tremendous possibilities for re-tasking land use, such as for more bike lanes, more dense development (given fewer parking lots) and other changes to cityscapes.

3R would cut transportation costs by $ trillions

Perhaps the most surprising result is that the 3R scenario costs far less to society by 2050 than the 2R scenario, with savings beginning around 2030 and increasing per year to reach over $5 trillion per year worldwide in 2050. This includes savings in fuel costs, the costs of new vehicle purchases (given dramatically lower sales and stocks of vehicles), and the costs of building and maintaining road and parking infrastructure. Even higher expenditures on better and more extensive transit systems do not offset the other savings very much.

We recognize that bringing about these revolutions won’t be easy. The report outlines needed policies, and says unprecedented levels of policy support and coordination are needed at the local, state and national levels.

The report assesses policies including those that incentivize widespread adoption of electric and driverless cars, as well as support for ride sharing, public and active transport, and land-use planning that helps shorten most vehicle trips. Such policies could consider fees tied to vehicle CO2 emissions, vehicle occupancy, and possible restrictions or heavy charges on private ownership of autonomous vehicles, along with strong disincentives for zero-occupant trips. Bicycle and e-bike sharing systems also need to be encouraged along with transit system innovations.

The report was funded by ClimateWorks Foundation, William and Flora Hewlett Foundation, and Barr Foundation.

Paris Climate Accord: A Strong Call to Action, Including Transportation

The Paris Climate Accord reached on Saturday, December 12, feels like a home run. Nearly 200 countries fully agreed on text in which they pledge to make large reductions in greenhouse gas emissions over the next 15 years, with mechanisms to help ensure that this goal is achieved. It includes quantified CO2 mitigation commitments from all major economies around the world; mechanisms for reporting and verifying progress; commitments for $100 billion in financing of actions; and many other key elements.

Paris 2015 COP21 logoHowever, as President Obama said in his speech that day, this agreement does not “solve” the global climate change problem.

“Even if all the initial targets set in Paris are met, we’ll only be part of the way there when it comes to reducing carbon from the atmosphere, so we cannot be complacent.”

The president is correct: This is only a partial solution that does not (yet) limit temperature change to 2 degrees Celsius, and it needs to be fully implemented over the coming years, with all the uncertainties around that. But it does contain many promising elements. For example, it includes specific pledges from most of the signatories to cut CO2 emissions by 2030. These commitments vary widely, as do each country’s circumstances.

What’s the outlook for transportation? Last week I noted some of the measures that feature in the Intended Nationally Determined Contributions (INDCs) of a range of countries. Today I’ll show a comparison of actual targets under the accord, with one possible scenario for transport. This is highly speculative since few countries have indicated the sectoral breakdowns of their targets; for example, even countries shooting for 40% reductions in CO2 emissions have not indicated if that means 40% in each sector (transport, buildings, industry, electricity generation, etc.) or 40% on average with individual sectors varying. But if you take for a moment the possibility that transportation delivers reductions at an average intensity, you can gain a sense of the challenge ahead.

The first figure below shows the 2014 estimated energy-related CO2 emissions for six major economies, and the 2030 target (taken as the midpoint in cases where a range of targets is possible, based on analysis presented here). The second figure shows hypothetical targets if transportation CO2 were reduced in the same proportion as the overall targets for each country, starting from 2014 transportation CO2 emissions as estimated by the International Energy Agency.

As you can see in the first figure, the U.S. commitment is ambitious – a major reduction from nearly 20 tons per capita to less than 13 by 2030. As shown in the second figure, if the U.S. reduced transportation-related CO2 emissions in proportion to this total, it would be a cut from about 6.5 tons per capita to about 4.5 by 2030.

This would still leave the U.S. at a higher per-capita emissions level than any of the other countries or regions shown. But it certainly would put the U.S. on a strong downward trajectory. China and India would actually increase their per-capita transportation emissions, but not by as much as would have occurred without their commitments – and both would remain at a very low CO2 level in 2030. Russia would retain a more average position; though Russia is noticeable in its overall target (Figure 1) in that it starts with fairly high emissions and these increase significantly – it would become the highest per capita of the six countries by 2030.


Figure 1. All energy-related CO2 emissions per capita for selected countries, for 2014 and explicit or implied targets for 2030 (based on analysis conducted by, using national INDC reports; for 2030 approximate midpoints are used where a range of targets or uncertainty in targets may exist; these are meant to be indicative and are not official numbers).

Figure 2. Transportation-related CO2 emissions per capita for selected countries, for 2014 and hypothetical targets for 2030 (based on the analysis conducted by, and adjusting the national commitments in Figure 1 for transportation, assuming transportation reductions are taken in the same proportion. Transportation CO2 estimates for 2014 are taken from the IEA Mobility Model).

Figure 2. Transportation-related CO2 emissions per capita for selected countries, for 2014 and hypothetical targets for 2030 (based on the analysis conducted by, and adjusting the national commitments in Figure 1 for transportation, assuming transportation reductions are taken in the same proportion. Transportation CO2 estimates for 2014 are taken from the IEA Mobility Model).

Whether or not countries decide to tackle transportation at the same level of intensity as other sectors, they will need to include ambitious goals for transportation to succeed. How will they achieve targets like these and move from planning to doing?

“You have to do many different things and each place it’s different,” noted California Governor Jerry Brown in Paris.

Among the combinations of measures that make sense for most countries to include: promote much better fuel economy of new cars and trucks (and also of second-hand imports, for those countries that import many such vehicles); shifts of travel from high CO2 modes (like cars and trucks) to lower CO2 modes (mass transit, cycling and walking, along with more rail freight). Alternative fuels will also need to play an expanding role. The only three potentially very low-emission fuels are electricity, hydrogen and biofuels, and these will need to lead the way to very low CO2 emissions. International aviation and shipping are particular challenges, since they are not covered under individual country commitments. The international bodies International Civil Aviation Organization (ICAO) and International Maritime Organization (IMO) have been asked to redouble their efforts to work with industry on commitments and strategies for these sectors, and they too will need to put a large emphasis on efficiency and alternative fuels.

The best combination of measures will vary by country, as will the role of transportation in achieving overall CO2 targets. During 2016, the STEPS program at UC Davis will be looking more closely at the plans of different countries and assessing combinations of transportation measures that can help get the job done.

All told, the U.N. Framework Convention on Climate Change Conference of the Parties (COP21) in Paris was the subject of exhaustive negotiations (and a 31-page agreement); extensive coverage in traditional media; and enormous attention on social media.

What’s yet to be written is whether the conference ultimately achieves its lofty goal: ensuring a “shared future and shared environment” for our planet.