Incentives for used EVs and tiered subsidy levels based on income would bring the benefits of vehicle electrification to a more diverse cross-section of Canadians, explain researchers at the International Council on Clean Transportation
Higher sticker prices are one of the primary barriers to widespread adoption of electric vehicles (EVs), and policymakers in Canada and around the world have implemented subsidies as a way to catalyze sales. At present, however, there are still relatively few electric vehicle offerings, many of them marketed as luxury vehicles, such that EV sales and subsidies have typically gone to relatively wealthy households.
Whether you’re a proponent of greater EV adoption, or simply value equity, this dynamic is untenable. To reverse it, it is incumbent on policymakers to design funding programs that are more inclusive and allow the economic benefits of vehicle electrification to be shared across a wider cross-section of people.
Fortunately, the addition of two relatively simple fixes can give EV subsidy programs an equity makeover:
1) Allow pre-owned EVs to be eligible for incentives;
2) Create a tiered funding approach that correspond to consumer income levels.
With these policy interventions, governments can ensure EVs increasingly make their way across socioeconomic strata — particularly to lower-income households where, according to a recent study conducted by our organization, the cost savings associated with owning an EV can be much more impactful.
Wider consumer participation
Opening up incentive programs to pre-owned EVs widens the consumer participant base significantly. Last month, when Prince Edward Island announced the launch of an incentive program in which both new and used EV sales from vehicle dealerships are eligible for a $5,000 rebate, making access to EVs more equitable was the primary motivation. PEI’s goal is to have all electric vehicles on the road by 2030 and making EVs accessible to as many consumers as possible is a central feature of the program.
PEI follows Nova Scotia and Quebec as the third province to offer a rebate for used EV purchases. The federal government can take cues from these equity-minded provinces in re-designing the iZEV program, which has offered rebates of up to $5,000 to consumers and businesses that purchase EVs, but only for new vehicles.
Income verification is another element that can be added to EV incentive programs to allow for more equitable funding distribution. One such example is California’s Clean Vehicle Rebate Project, which introduced income verification as part of its program in 2016. Federal tax returns are used as proof of income, which then determines the amount of funding the applicant is qualified to receive. Those with income levels above a certain threshold — US$150,000 for individuals or US$300,000 for joint filers — are not eligible for CVRP subsidies. For low- and moderate-income consumers (i.e., combined annual incomes of up to roughly US$100,000 for a family of four), the standard rebate amount is increased by US$2,500.
California also has two additional incentive programs targeted specifically at lower-income consumers — Clean Cars For All and Clean Vehicle Assistance Program — which can reduce the cost of a new or used EV by up to US$9,500 for eligible households. Several studies (from 2017, 2018 and 2019) have shown that not only does targeting incentives towards low-income households increase equity, it also makes the incentive program more cost-effective, as wealthier households are more likely to buy an EV without any subsidy. By adopting a similar approach with Canada’s iZEV program, funds would more easily make their way to middle- and working-class families, and to consumers who would not otherwise purchase an EV.
Beyond these two fairness fixes for EV incentive programs, there are a bevy of other actions that governments can take to help ensure a more equitable uptake of EVs.
Continued investment in public and workplace charging networks will address one of the foremost barriers to EV adoption, particularly for consumers that cannot rely on home charging as a viable option. Regulators can also help by incentivizing charger installation in multi-unit dwellings (MURBs) and renter-occupied housing.
For members of disadvantaged communities, access to capital can be another considerable impediment to purchasing a vehicle. Government-backed programs could provide financing to consumers who would otherwise find it very difficult to secure a loan. Other examples of measures to improve EV equity include targeted education and outreach campaigns such as ride-and-drive events in underserved communities.
Pocketbook boost for low-income households
Once governments ramp up these focused measures for improving EV equity, lower-income consumers in particular can increasingly start to enjoy the substantial pocketbook boost from EVs.
Low-income households that do own cars often must spend larger proportions of their income on vehicle-related expenses. In our study, we found that the average vehicle-owning U.S. households earning less than US$25,000 spend 50 per cent of their income on vehicle ownership and operation annually. In contrast, median-income (US$50,000 to US$75,000 per year) vehicle-owning households spend approximately 15 per cent of their income on vehicle ownership and operation. As EV technology improves, it holds the potential to reduce several cost components, including vehicle purchase, maintenance, and fueling, which together account for over two-thirds of total vehicle ownership costs. Such changes could dramatically change transportation costs relative to household income, especially for low-income households.
All told, our analysis finds that savings from EVs relative to income are significantly higher for low-income households, non-White households, and households in areas with higher levels of pollution. For car owners in the lowest-income quintile, savings from switching to EVs amount to US$1,000 per household annually, or 7 per cent of income, by 2030. Moreover, it is generally recognized that electric vehicles can dramatically improve air quality in disadvantaged communities that are most affected by vehicle pollution. Given that low-income households are likely to benefit most from an EV yet are typically less likely to adopt one, there is a clear justification for targeting purchase incentives towards low-income consumers.
Even with EV up-front costs falling precipitously and leading to widespread affordability, additional policy action is needed to ensure more equal access to EVs. While Canada’s federal government should be commended for its iZEV program to support EV sales and infrastructure roll-out, opening up the eligibility to used EVs and adding tiered subsidy levels based on income will allow a more diverse cross-section of Canadians to reap the benefits of vehicle electrification.
Ben Sharpe, Ph.D., is a senior researcher with the International Council on Clean Transportation and leads the organization’s Canada Program.
Gordon Bauer, Ph.D., is a researcher with the International Council on Clean Transportation on the electric vehicles team.