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Sustainable EV Market Incentives: Equitable Revenue-Neutral Incentives for Zero-emission Vehicles in the United States

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  • Ramji, Aditya
  • Fulton, Lew
  • Sperling, Daniel

Abstract

The United States (US), under the Biden Administration, has set a goal of reaching a 50% sales share for zero-emission vehicles by 2030. The administration is pursuing a combination of aggressive fuel economy and greenhouse gas performance standards along with tax credits for consumers who purchase electric vehicles (EVs). Given the anticipated high costs of the EV transition and limited public funds, policy mechanisms that generate extra-budgetary funding are enticing. Feebates—where a fee charged on some purchases is used to offer a rebate for others—can serve as a self-sustaining tool. Feebates have been attempted at the state and federal level in the US but did not pass legislatures due to a lack of political support for levying a fee on internal combustion engine (ICE) vehicles. However, as governments face increasing fiscal constraints, there is greater support for self- funding EV incentive programs. Feebate policies can provide certainty for both producers and consumers to facilitate a steady transition to sustainable transportation. This paper assesses the potential utility of feebates for shaping the US light-duty vehicle market. The analysis demonstrates that: (1) revenue-neutral incentive systems are possible and (2) revenue-neutrality can be achieved with relatively low fees on ICE vehicles to support economic equity among buyers. From an industry perspective, market certainty can be created by incorporating fuel economy targets into a fee schedule as pivot points and allocating fees to finance rebates. This would likely influence industry investment decisions in ways that increase EV production and model availability. View the NCST Project Webpage

Suggested Citation

  • Ramji, Aditya & Fulton, Lew & Sperling, Daniel, 2024. "Sustainable EV Market Incentives: Equitable Revenue-Neutral Incentives for Zero-emission Vehicles in the United States," Institute of Transportation Studies, Working Paper Series qt6qx2x5zz, Institute of Transportation Studies, UC Davis.
  • Handle: RePEc:cdl:itsdav:qt6qx2x5zz
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    References listed on IDEAS

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    1. Stavins, Robert N., 2003. "Experience with market-based environmental policy instruments," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 9, pages 355-435, Elsevier.
    2. Isis Durrmeyer & Mario Samano, 2018. "To Rebate or Not to Rebate: Fuel Economy Standards Versus Feebates," Economic Journal, Royal Economic Society, vol. 128(616), pages 3076-3116, December.
    3. Adamos Adamou & Sofronis Clerides & Theodoros Zachariadis, 2014. "Welfare Implications of Car Feebates: A Simulation Analysis," Economic Journal, Royal Economic Society, vol. 124(578), pages 420-443, August.
    4. Xing, Jianwei & Leard, Benjamin & Li, Shanjun, 2021. "What does an electric vehicle replace?," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
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    Keywords

    Social and Behavioral Sciences; Automobile ownership; Electric vehicles; Fees; Incentives; Market assessment; Policy;
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