ICCT study finds state EV incentives playing a significant role in driving sales

31 October 2014

A study by a team from the International Council on Clean Transportation (ICCT) shows that state electric vehicle incentives are playing a significant early role in reducing the effective cost of ownership and driving electric vehicle sales.

As described in their white paper, “Evaluation of state-level
US electric vehicle incentives”, the researchers found that some of the states with the largest electric vehicle incentives—i.e., California, Georgia, Hawaii, Oregon, and Washington—have electric vehicle sales shares that are approximately 2–4 times the national average. A statistical regression revealed that the total monetary benefit to consumers from state incentives significantly positively correlates with BEV sales when all 50 states and the District of Columbia are included.

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Consumer benefit and new vehicle share for US states with largest total battery electric and plug-in hybrid electric incentives. Source: ICCT. Click to enlarge.
 
Total benefit and electric vehicle sales share for the ten states with the highest sales share of BEVs and PHEVs. Source: ICCT. Click to enlarge.

These findings suggest that future state efforts to incentivize BEV sales through incentives that substantially drive down the total cost of owning and operating electric vehicles are likely to be effective.

Other major findings of their study included:

• Some types of incentives appear to be more effective in driving electric vehicle sales than others. A stepwise regression analysis shows that the most effective incentives are subsidies; carpool lane access; and emissions testing exemptions initiatives. In addition, a basic benefit-to-cost analysis that compares incentives’ benefits to consumers to state spending shows that public charger availability is an especially cost-effective incentive for BEV owners, and carpool lane access is cost effective for electric vehicle owners.

• Further research is needed to more deeply analyze the impact of other factors on electric vehicle sales. Many factors remain outside the scope of this state-level assessment, the researchers said. Examples of electric vehicle promotion actions not included in the study were those related to RD programs; fleet-specific policy; vehicle regulations; low-carbon fuel policy; zero emission vehicle requirements; as well as incentives offered by cities, utilities, workplaces, automakers, and insurance companies.

  Tracking how the level of automaker marketing activity or the limited geographic electric vehicle roll-out strategies play a role in connecting policy actions to market uptake of the new technology is also a key unexplored question. The current study does not include how technology costs could decline with battery innovation, greater mass-market economies of scale, or other technical factors. Further study on these factors may help explain how some cities and states are more or less effective at accelerating electric vehicle adoption in the future.

The study compared the total monetary benefit available to consumers through US state incentives to electric vehicle sales in those states in 2013. To compare quantitatively the total benefit for electric vehicle consumers offered by different states, the study introduced a methodology to monetize the major direct and indirect incentives.

This new study builds on a previous ICCT study that suggested fiscal incentives could potentially be driving electric vehicle sales on a national level when comparing countries around the globe but did not include the value of sub-national level and indirect incentives to consumers. (Earlier post.)

The ICCT team first monetized the direct incentives by evaluating the effective benefit available to consumers—e.g., if a state covers 50% of the cost of a home charger installation, the effective benefit is equal to half the cost of a typical home charger. Second, the monetized indirect incentives based on the type of benefit provided to consumers—assumed to be time savings for HOV lane access and emissions testing exemptions and avoidance of rental car cost for public charger availability. They calculated benefits over the duration of ownership of the vehicle, assumed to be six years based on the average length of time a new vehicle is retained by the purchaser.

Purchase subsidies, home Level 2 charger subsidies and one-time registration fee reductions were all assumed to be upfront benefits, with the value of the benefit realized at the time of purchase. Benefits from annual registration fees, annual license fees, annual or biennial emission test fees, free parking, HOV lane access, and the value of public charger availability were summed over a period of six years, assuming a discount rate of 5% per year for future-year benefits.

They did not discount the value of free electricity at public Level 2 chargers as they assumed that electricity prices increase over time at a rate comparable to the discount rate (actual electricity rate increases have been 1.4% to 3.1% per year in recent years.

The sales dataset was purchased from IHS, and included electric vehicle regulations by make and model in each state in 2013. The ICCT authors assumed new vehicle registrations as being approximately equivalent to, and synonymous with, vehicle sales over 2013.

Comparing California and states with little EV incentives or sales also helps illustrate the effect of total electric vehicle incentives on sales. California offers an assortment of different benefit types, ranking #3 in the total incentive benefit offered to consumers for BEVs and #4 for PHEVs, and it has the highest electric vehicle sales and sales share overall. Subsidies and HOV lane access, two major incentives offered in California, have a higher benefit-cost ratio than some other incentives. In addition, California’s Zero Emission Vehicle (ZEV) program requires that an increasing share of auto sales be electric vehicles in that state and this, as well as similar programs in other ZEV-adopting states, is not included in this analysis. The ZEV program clearly contributes to automakers’ deployment and marketing efforts. On the other hand, Mississippi, Oklahoma, North Dakota, and Wyoming are examples of states offering nearly no benefits to electric vehicle owners, and have nearly no EV sales. Whereas California has over 2.4% combined PHEV and BEV sales share, these four low-EV-incentive states each have less than 0.08% combined PHEV and BEV sales share.

Overall, the total monetary benefit to consumers of state incentives is significantly correlated with BEV sales in 2013. In other words, these incentives are effective at driving BEV sales. While the federal tax credit of $7,500 per vehicle may be thought to be the major factor in consumer decision making in the U.S., our analysis shows that adding up the value of all state incentives together can nearly approach this value for the states that are offering the highest incentives for electric vehicles. Based on this analysis, these suites of state-level incentives are impacting BEV sales. These results suggest that state electric vehicle incentives are playing a significant early role in reducing the effective cost of ownership and driving electric vehicle sales.

…we emphasize that caution should be taken in interpreting these results of the effectiveness of different incentives before additional research is conducted. This analysis only considered the benefits to consumers we were able to approximately monetize. The total benefit to society of promoting electric vehicles is much higher, as electric vehicles reduce negative externalities that are associated with conventional vehicles’ impacts on local air pollution, contribution to climate change, and consumption of petroleum.

Resources

• Lingzhi Jin, Stephanie Searle, and Nic Lutsey (2014) “Evaluation of state-level U.S. electric vehicle incentives”