Incentivizing Electric Vehicle Adoption

August 19, 2019

Policy incentives encouraging people to drive electric vehicles (EVs) are increasing as policymakers tackle the challenge of reducing transportation emissions to address growing concerns about climate change.

Policies fall into two two main categories: purchase-based incentives and use-based incentives. Purchase-based incentives affect the upfront net purchase cost of the vehicle, while use-based seek to reduce EV operating costs or offer additional “perks” to encourage adoption.

Because EVs cost more than gas-powered cars, incentives bringing down the upfront cost help alleviate one major roadblock to large-scale adoption. Purchase-based subsidies and tax rebates apply to all car purchasers within the country or state in which that incentive applies, although certain states apply income restrictions.

Regardless of the financial situation of the consumer, a financial stimulus provided by the government can increase confidence in the market, especially because cars are expensive, and therefore a large purchase decision. [1] When financial incentives are removed, demand drops dramatically, as we have seen in Denmark and the Netherlands and the state of Georgia in the United States.

Use-based policies offer EV drivers incentives such as free parking with charging or HOV lane use. Usually these types of policies are location-based, meaning they are confined to a certain jurisdiction, and their effectiveness may be greater based on local factors like traffic or expensive parking. [2]

Although use-based incentives do not directly address an EV’s higher upfront-cost barrier compared to gas-powered cars, these policies often cost less for the government to implement, and the cost of implementation is spread out over time.

Patchwork of Policies

EV incentives and policies vary dramatically by state across the United States. Most U.S. policies have been implemented at the state or local level, resulting in a patchwork of permitting requirements and incentive programs.

In the Northwest, Washington, Oregon, and Montana all offer purchase-based incentives, and Idaho offers financial assistance to build public chargers. About half of  of the states offer their own form of financial incentive to encourage EVs, and many states and cities also offer use-based incentives.

For example, in Washington state, drivers who purchase a used or new EV do nothave to paydo not have to pay the sales tax. Oregon has a rebate of $2,500 for drivers who purchase or lease a new EV.

In addition to state-specific incentives for EVs, there are several federal incentives offered in the United States.

A federal tax rebate allows EV consumers to credit $2,500 to $7,500 of their annual income tax. Unfortunately, consumers that pay less than $7,500 in federal income tax cannot claim that full incentive so this incentive is only available to some consumers.

The federal government also offers a offers a federal tax credit that covers up to 30 percent (but not more than $30,000) of the cost of installing alternative fueling equipment, which can include charging stations installed for public or private use.

Another Another federal incentive offers financial assistance for research, demonstration, and deployment projects relating to low emissions vehicles, as long as those vehicles are used for public transportation and reduce energy consumption or harmful emissions.

This incentive aims to encourage innovation within the alternative fuel sector.

Finally, the federal government created the Clean Clean Cities program to support local initiatives aimed at reducing petroleum use in the transportation sector. Clean Cities is a network of coalitions to encourage more sustainable transportation fuels and provide information and technical assistance to encourage cleaner transportation.

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[1] Angela Konert, Vice President of Government and External Affairs California at BMW North America, Interview, November 20, 2018.

[2] Keiichi Kitahara and Davin Beltran, Director of OEM Development and Regulatory Compliance & Senior Manager of Regulatory Compliance at Nissan, Interview, November 14, 2018.


This blog is part of a seven-part series on electric vehicles: