Zero-Emission Vehicle Package

Background

State Has Ambitious Climate Change and Air Quality Goals. California has a variety of goals related to reducing greenhouse gas (GHG) emissions, as well as regional and local air pollution. For example:

• GHG Limit. Chapter 249 of 2016 (SB 32, Pavley) established a statewide GHG limit of 40 percent below 1990 levels by 2030. (The Governor also has an executive order establishing a goal of statewide carbon neutrality by 2045, but this target is not in state law.)
• Federal Air Quality Standards. California has two areas with the most critical air quality challenges in the nation—the South Coast Air Basin and the San Joaquin Valley. Substantial reductions in criteria pollutants from all sources—specifically, nitrous oxides (NOx) and fine particulate matter (PM2.5)—are needed to meet increasingly stringent federal air quality standards in the coming years.
• AB 617 Community Emissions Reduction Plans. Pursuant to Chapter 136 of 2017 (AB 617, C. Garcia), some of the communities with the worst air quality in California have adopted plans that identify five‑ and ten‑year targets to reduce air pollution exposure from various sources.

Mobile Sources Represent a Large Portion of Emissions. Emissions that come from vehicles and other types of mobile equipment are also known as “mobile sources.” Mobile sources include several different types of vehicles and equipment, such as:

• Light‑Duty Vehicles. This includes passenger cars and smaller pick‑up trucks. Currently, most of these vehicles have gasoline‑powered internal combustion engines.
• Medium‑Duty Vehicles. This includes vehicles that weigh more than 8,500 pounds up to 14,000 pounds, such as larger pick‑up trucks and neighborhood delivery vans. Currently, these vehicles are primarily fueled by gasoline or diesel.
• Heavy‑Duty Vehicles. This includes large trucks (such as long‑haul trucks), garbage trucks, some port equipment (such as drayage trucks), and buses. Currently, most of these vehicles are powered by diesel engines, or in some cases the vehicles use hybrid technologies or engines powered by natural gas.
• Off‑Road Equipment. This includes a wide range of equipment types, including locomotives, ocean‑going vessels, commercial harbor craft, portable generators, agricultural equipment, construction equipment, lawn and garden equipment, forklifts, aircrafts, and recreational boats. Currently, most of this equipment is powered by diesel engines.

As shown in Figure 1, mobile sources represent a substantial share of California’s GHGs and air pollution. In particular, these sources represent about 40 percent of GHGs and over 70 percent of statewide NOx emissions. (This does not include “upstream” GHG emissions, such as emissions related to producing or refining crude oil.) Light‑duty vehicles make up the largest share of mobile source GHG emissions, while heavy‑duty vehicles and off‑road equipment make up the majority of mobile source NOx. Heavy‑duty vehicles and off‑road equipment are also primary sources of diesel particulate matter, which the California Air Resources Board (CARB) estimates is the source of 70 percent of total known cancer risk related to air toxics in California.

Air Pollution Differs Between Regions and Communities. Certain regions—such as the Central Valley and South Coast—and communities—such as those near ports, highways, and freight corridors—are disproportionately impacted by air pollution from mobile sources. In addition, as shown in Figure 2, research supported by CARB found that PM2.5 exposure from on‑road sources is 53 percent higher in disadvantaged communities (as defined by the California Environmental Protection Agency) than the statewide average. The higher exposure in disadvantaged communities is at least partially because of the way disadvantaged communities are defined, which is—in part—based on estimated exposure to PM2.5. This research also found that PM2.5 exposure from on‑road sources was 10 percent higher for low‑income households and 18 percent higher for Black and Hispanic populations. Policies that reduce PM2.5 exposure from on‑road sources could have disproportionate benefits for these communities.

State Has A Variety of Programs to Reduce Emissions and Promote ZEVs. The state administers a wide variety of programs intended to reduce mobile source emissions, including programs that promote zero‑emission vehicles (ZEVs). This includes funding for light‑duty vehicles, heavy‑duty vehicles, off‑road equipment, and ZEV fueling infrastructure. For example, the 2021‑22 budget agreement provided $3.9 billion over three years for various programs to reduce emissions and promote ZEVs. (For more detail, see our post, The 2021‑22 California Spending Plan: Natural Resources and Environmental Protection.) In addition, the state has a wide range of regulatory programs that are meant to encourage ZEVs, including a ZEV mandate requiring a certain number of light‑duty vehicles sales be ZEVs. (For more information about some of the key state programs intended to reduce transportation GHG emissions, see our 2018 report Assessing California’s Climate Policies—Transportation.)

Proposal

Governor Proposes Additional $6.1 Billion for ZEV‑Related Activities. The Governor proposes a total of $6.1 billion from various fund sources (General Fund, Greenhouse Gas Reduction Fund [GGRF], and federal funds) over five years for a package of proposals related to ZEVs. Figure 3 summarizes the Governor’s proposed ZEV package, as well as the ZEV package adopted as part of last year’s budget. In 2022‑23, most of the proposed $2.7 billion is for school buses ($1.5 billion), and heavy‑duty vehicle and infrastructure incentives ($700 million).

Mostly Expands Existing Programs, but Creates Some New Programs. Most of the proposed funding would continue and/or expand existing programs, such as heavy‑duty and off‑road programs, ZEV fueling infrastructure programs, and programs focused on cleaner vehicles and mobility for low‑income households and disadvantaged communities (also known as transportation equity programs). The most significant new programs and programmatic changes proposed by the Governor include:

• School Bus Program ($1.5 Billion Proposition 98 General Fund). This program would provide competitive grants to school districts to replace nonelectric school buses with electric buses and purchase related infrastructure.
• ZEV Fueling Infrastructure Grants ($600 Million General Fund). The proposal includes a total of $600 million over four years—with $100 million in 2022‑23—for electric vehicle (EV) charging infrastructure. Unlike last year’s ZEV package, this proposal would prioritize fast chargers.
• Federal Funding for ZEV Infrastructure ($383 Million Federal Funds). The proposal includes federal funding available to California through the federal Infrastructure Investment and Jobs Act (IIJA) enacted in November 2021. Specifically, it includes $383 million for five years from the National Electric Vehicle Infrastructure Formula Program, which is intended to support fueling infrastructure along designated alternative fuel corridors, such as along the Interstate Highway System.
• Equitable At‑Home Charging ($300 Million General Fund). The proposal includes a total of $300 million over four years—with $60 million in 2022‑23—for EV charging infrastructure at multi‑unit dwellings and low‑income, single‑family homes. The funds would be used for Level 2 charging stations and electrical panel upgrades. (Level 2 charging stations provide about 14‑35 miles of driving range per hour of charging.)
• Potential Sustainable Communities Strategies (SCS) Pilots. As part of the proposed funding for SCS pilots and other equity programs, CARB would consider creating a new pilot program that would incentivize transportation agencies to prioritize projects that reduce vehicle miles traveled (VMT), rather than roadway expansion projects. The proposed budget does not provide funding explicitly for this pilot project, but CARB would consider it as part of its typical Low Carbon Transportation Investment Plan process after the budget is adopted.

Assessment

In this section, we provide our assessment of the Governor’s proposed ZEV package, except the $1.5 billion proposal for electric school buses which we discuss in our recent brief, The 2022‑23 Budget: Green School Bus Grants.

Package Funds Different Types of Vehicles and Prioritizes Heavy‑Duty ZEVs

Funding Expected to Support a Variety of Vehicle Types and Fueling Infrastructure. As shown in Figure 4, the proposed funding would support a variety of vehicles, EV charging stations, off‑road equipment, and other projects. The estimated amounts are subject to uncertainty because (1) the final allocations will depend on decisions made by departments about how to allocate the funding to specific subprograms or projects and (2) actual deployment amounts could also depend on which technologies are actually purchased. For example, the number of vehicles supported through the clean truck and bus vouchers depends on which technologies businesses and governments ultimately choose to purchase with the vouchers.

Two‑Thirds of New Funding for Heavy‑Duty Vehicle Programs. Over two‑thirds of the proposed funding would support heavy‑duty vehicle programs, as shown in Figure 5. (This includes the $1.5 billion for electric school buses.) A majority of the funding in the 2021‑22 ZEV package was also targeted at such programs. Under the Governor’s plan, about 62 percent of the combined $10 billion total from both ZEV packages would go to heavy‑duty vehicle programs. Funding for light‑duty vehicles would be targeted to transportation equity and mobility programs, as well as fueling infrastructure. No new funding would be allocated to the state’s main ZEV rebate program, the Clean Vehicle Rebate Project (CVRP), but $100 million would be available to support higher CVRP rebate amounts for low‑ and moderate‑income households. We note that the $525 million allocated to CVRP in the 2021‑22 budget was intended to cover three years of funding for the main CVRP program.

Programs Target Different Policy Goals With Varying Levels of Effectiveness

Mobile Source Emission Programs Aim to Achieve Different Policy Goals… The state has a wide variety of mobile source incentive programs. These programs aim to achieve one or more different policy goals, including: (1) near‑term GHG reductions; (2) near‑term air pollution reductions; (3) advancements in zero‑emission technologies, which could have longer‑term GHG and air quality benefits; and/or (4) ensuring program benefits are distributed equitably across different areas and populations, often with a focus on reducing pollution in areas that are disproportionately low‑income and/or have poor air quality. All four of these are reasonable policy goals. However, in many cases, the Legislature will have to balance the trade‑offs between these goals when determining how to prioritize funding across different programs. In addition, some programs might have other policy goals, such as increasing mobility.

…And Degree of Effectiveness Varies Between Programs. As shown in Figure 6, the degree to which mobile source incentive programs achieve each policy goal varies by program. For example, some programs are more cost‑effective at reducing GHGs, while other programs are more cost‑effective at reducing air pollution. Furthermore, some programs do more to promote zero‑emission technological advancements that can help meet long‑term emissions goals, while others do more to target funding in ways that benefit low‑income and disadvantaged communities. We discuss these key differences in more detail in the remainder of this section. (For more detail on the methods used to determine the measurements identified in Figure 6, see the box nearby.)

Notably, Figure 6 does not include an evaluation of the state’s main vehicle rebate program (CVRP) or ZEV infrastructure funding. As discussed in the box below, evaluating the net effects of mobile source programs on GHGs and air pollution can be especially challenging and a more rigorous analysis is likely needed to provide reliable information on program cost‑effectiveness compared to other programs.

Mobile Source Emission Reduction Programs Are Relatively Costly Approaches to Near‑Term GHG Emission Reductions. Of the programs listed earlier in Figure 6, the most cost‑effective program for reducing near‑term GHGs is the Clean Truck and Bus Voucher Program with estimated costs of $350 per ton. The other incentive programs have costs close to or exceeding $1,000 per ton. By comparison, other state programs are likely more cost‑effective. For example, current cap‑and‑trade allowance prices are about $30 per ton and Low Carbon Fuel Standard credits are about $150 per ton. (In our view, these allowance and credit prices are a reasonable proxy for the marginal costs of near‑term GHG emission reductions from these programs.) Also, according to the administration’s estimates, other GGRF funded incentive programs, such as methane reduction programs, cost less than $100 per ton.

Heavy‑Duty Retirement and Replacement Programs Are Relatively Cost‑Effective Approach for Air Pollution Reductions. The most cost‑effective programs for reducing near‑term local criteria pollutants appear to be the Funding Agricultural Replacement Measures for Emission Reductions (FARMER) Program, the Carl Moyer Program, and AB 617 incentives (also known as Community Air Protection incentives). Estimated costs to reduce a weighted ton of criteria pollution ranges from $8,979 to $12,486 per ton in these programs, compared to costs ranging from the hundreds of thousands of dollars to millions of dollars per ton for most other programs. These programs largely provide funding to retire older, high‑polluting engines and replace them with cleaner fossil fuel engines (such as natural gas), rather than focusing on zero‑emission technologies such as battery electric and fuel cells. Each of these programs would receive funding under the Governor’s budget, but they would not receive additional funding as part of the proposed ZEV package.

The cost‑effectiveness estimates for GHGs and air pollution reductions illustrate some of the important trade‑offs the Legislature faces when determining its budget priorities for programs intended to reduce emissions. For example, Figure 7 shows the estimated GHG reductions and local air pollution reductions associated with providing $1 million in funding to each program. Of the programs analyzed in this report, the Hybrid and Zero‑Emission Truck and Bus Voucher Incentive Project (HVIP) would achieve the greatest GHG reductions, but the heavy‑duty retirement and replacement programs would achieve the greatest air pollution reductions. Notably, in the near term, none of the programs would cost‑effectively reduce both GHGs and air pollution.

Programs Promoting Technological Advances Could Help Achieve Long‑Term Emission Reductions. Some programs aim to help advance ZEV technologies, which could help achieve long‑run GHG and air pollution reduction goals. Also, in our view, policies that attempt to promote research, development, and demonstration of new technologies is a reasonable role for government. This is because, without such support, the private sector would tend to underinvest in these activities and cleaner technologies might not reach the commercial market in a timely manner (or at all).

Unfortunately, it is difficult to assess these technology benefits quantitatively. In general, heavy‑duty and off‑road technologies are farther behind in technological and market development than light‑duty ZEVs, so there is greater potential for technological advancement. In our view, pilot and demonstration projects generally have the most potential technological benefits because they are supporting early stage technologies and projects that very likely would not otherwise be funded by the private sector.

Role of Transportation Equity Programs in Achieving Policy Goals Is Unclear. Compared to other mobile source programs, it is unclear whether the transportation equity programs achieve any of the Legislature’s policy goals effectively. First, transportation equity programs appear to be a relatively costly way to reduce both local pollution and GHGs. Second, most of these programs focus on light‑duty vehicle and mobility programs which, in our view, only have modest potential to drive technological advancements—likely less than some of the heavy‑duty ZEV programs. Finally, although the vast majority of funding from these programs goes to projects that benefit low‑income and disadvantaged communities, the percentage is not significantly more than some of the other programs. For example, the AB 617 incentive program allocates 94 percent of funds to projects that benefit priority populations and achieves criteria pollutant reductions much more cost‑effectively than the transportation equity programs.

New Programs Raise Several Key Implementation Questions

Some of the funding proposed by the Governor would go to new programs where key program design and implementation details are unclear. Below, we identify several questions about the implementation of two new programs—the Equitable At‑Home Charging program and the potential SCS pilots.

Equitable At‑Home Charging Program. At the time of this brief, the administration has not provided information on some of the key design features for this program. This includes:

• How is this program different from other efforts to fund EV charging infrastructure for low‑ and moderate‑income households? Currently, the state, local air districts, and utilities administer programs that offer financial incentives for charging infrastructure, including infrastructure for multifamily dwellings and single‑family households. For example, the Clean Cars 4 All program in the South Coast offers low‑ and moderate‑income households financial support for home EV charging infrastructure.
• What is the program outreach strategy? For example, will incentives for charging infrastructure be provided at the car dealership upon purchase of the ZEV, or will households access this program in some other way?
• How will this program target renters? Low‑income households are more likely to rent their homes. As a result, an effective infrastructure program targeted at low‑income households will likely need to focus on rental properties.

Potential SCS Pilots.The administration might use some of the funding for transportation equity programs to pilot SCS intended to reduce VMT. We find that piloting potential strategies to reduce VMT could have merit, especially given the lack of progress the state has made in this policy area over the past several years. However, there are very few details about how these pilots would be structured and how they would be different from other state programs targeted at reducing VMT, such as the Active Transportation Program administered by the California Department of Transportation (Caltrans) and the Clean Mobility Options program administered by CARB.

Plan for Complementing Federal ZEV Infrastructure Funding Unclear

As shown in Figure 8, the federal IIJA established three main ZEV infrastructure programs. Funding for one of the programs—$383 million to Caltrans through the National Electric Vehicle Infrastructure Formula Program—is already part of the Governor’s proposed budget. According to recently released federal guidance, the state must submit a plan to the federal government describing how funding will be used. At the time this brief was written, the administration has not provided detail on how the $383 million will be used. The other two charging and fueling infrastructure grant programs are competitive programs and detailed federal guidance is not yet available. For all programs, the federal government will only pay for a portion of the costs, with the remainder coming from other private or public sources.

Given the limited detail, it is unclear how the proposed state funding for ZEV infrastructure—ZEV infrastructure grants and Equitable At‑Home Charging—will be used to best complement federal funding. For example, will any state funding be needed to leverage federal funding? How do these state funding proposals help fill key gaps in federal funding?

Multiyear Funding Approach Presents Trade‑Offs

Multiyear Funding Can Be Helpful for Market Certainty and Program Administration. The Governor’s proposal includes $3.4 billion in new out‑year funding commitments—mostly from the General Fund. Multiyear funding commitments can have programmatic benefits. First, for programs that aim to advance newer technologies, a long‑term funding commitment can help provide a market signal to businesses making long‑term investment decisions. For example, a long‑term state funding commitment to heavy‑duty ZEV programs could provide greater certainty to businesses or government that are deciding whether to shift their vehicle fleet to ZEVs. Second, long‑term funding can help state and local agencies design programs. For example, it could help CARB make program design decisions (such as rebate levels and eligible technologies) that help avoid the need to implement waitlists.

…But Reduces Legislative Oversight and Creates Future General Fund Pressures. Multiyear funding comes with some potential downsides too. First, since funding would be built into the “base” budget, the administration would not submit budget change proposals for this spending in future years. This could reduce future legislative oversight by eliminating a process that is often used to assess program implementation and outcomes prior to committing additional funding. One potential solution to this would be to require the administration to report annually on the progress of how funding has been spent, key outcomes, key challenges, and plans for spending in future years. Second, multiyear funding commitments can create out‑year General Fund pressure, which could limit the Legislature’s ability to fund other priorities in future years.

Some Proposed Spending Is Excluded From State Spending Limit

The California Constitution imposes a limit on the amount of revenue the state can appropriate each year. The state can exclude certain spending—such as on capital outlay projects—from the state appropriations limit (SAL) calculation. The Department of Finance estimates that $260 million of the proposed 2022‑23 spending in the Governor’s ZEV package is for activities that are excludable from the SAL. In constructing its final ZEV package, the Legislature will want to be mindful of SAL considerations. For example, if the Legislature were to approve a lower amount of spending on the proposed activities that the administration excludes from SAL, it would generally need to repurpose the associated funding for other SAL‑related purposes, such as tax reductions or an alternative excluded expenditure.

Recommendations

Consider Whether Different Mix of Spending Better Achieves Legislative Priorities. Ultimately, budget allocations for mobile source programs will depend on how the Legislature prioritizes different policy goals. In determining its priorities, we recommend the Legislature consider such factors as:

• Near‑Term GHG Reductions. To the extent near‑term GHG reductions are a priority, HVIP is one of the most cost‑effective mobile source incentive programs. However, overall, the GHG reduction costs for mobile source incentive programs are relatively high, and the Legislature might want to consider relying on other programs for the most cost‑effective GHG reductions, including regulatory programs (such as cap‑and‑trade) or other spending programs that have lower costs (such as methane reduction programs).
• Near‑Term Local Air Pollution Reductions. To the extent total near‑term reductions in local air pollution are a priority, then heavy‑duty retirement and replacement programs such as Carl Moyer and FARMER are most cost‑effective.
• Technology Advancement. To the extent long‑term GHG and air pollution reductions are a priority, then the Legislature could target funding to programs that focus on advancing ZEV technologies in their early stages of market development. For example, it could prioritize funding for heavy‑duty pilots and demonstration projects and vouchers for heavy‑duty vehicles and off‑road equipment.
• Air Quality Benefits in Disadvantaged Communities. If a priority is ensuring air quality improvements mostly accrue to disadvantaged and low‑income communities, then the Legislature could target funds to programs that reduce criteria pollutants cost‑effectively and where the vast majority of the spending benefits low‑income and disadvantaged communities, such as the AB 617 incentive program.

Direct Administration to Provide More Detail on New Programs. We recommend the Legislature direct the administration to report at budget hearings on the details of the new programs that are being proposed, including the Equitable At‑Home Charging program and potential SCS pilots. For example, how will the Equitable At‑Home Charging program target renters? How will the potential SCS pilots be different from other programs aimed at reducing VMT? Additional detail could help the Legislature better evaluate the merits of the proposed programs.

Consider Delaying Funding for Infrastructure Until Administration Develops Plan to Best Leverage Federal Funds. We recommend the Legislature direct the administration to report this spring on its plan for ensuring state funding for EV charging infrastructure will complement new federal funding. This includes a description of how, if at all, state funding can be used to leverage federal funding for EV charging infrastructure or fill in the major gaps in federal funding. So far, there is limited detail available from the federal government about how some of the new programs will be implemented. If there is still insufficient detail at the time the Legislature needs to adopt a budget to meet its constitutional requirement to pass a budget, the Legislature could delay additional state funding for light‑duty ZEV infrastructure until more details are available and the administration develops a clear strategy.

Direct Administration to Report on Program Evaluation Strategies. To ensure the Legislature has good information about the net effects of its mobile source programs, we recommend the Legislature direct the administration to report at budget hearings about current efforts to improve its program evaluation efforts. This report should include an update on efforts to more accurately assess the effects of individual programs in light of the interactions and overlap between regulatory and incentive programs. To the extent the Legislature authorizes funding to create new programs or expand existing programs, we recommend requiring the administration to develop a plan for program evaluation prior to implementing the program and awarding the funds. We recognize that this would likely delay project implementation slightly, but would greatly improve the quality of information available to the Legislature in future years to help inform future budget and policy decisions.

Consider Trade‑Offs of Multiyear Funding Commitments. We recommend the Legislature consider the trade‑offs associated with over $3 billion in multiyear General Fund commitments proposed by the Governor. On the one hand, these commitments can provide market certainty and make it easier for departments to design and administer programs. On the other hand, they have the potential to reduce future legislative oversight and create General Fund pressures in future years. It is also worth noting that the 2021‑22 budget package already included 2023‑24 funding commitments for many of these same ZEV‑related programs. To the extent the Legislature provides additional multiyear funding, we recommend it prioritize out‑year funding for programs that can help provide market signals to businesses making long‑term investment decisions, such as heavy‑duty and off‑road voucher incentives.