Will Calif.’s ambitious policies to promote electric vehicles sell in other states?

Source: Brittany Patterson, E&E reporter • Posted: Thursday, July 16, 2015

From the muscle cars of the 1950s to Volkswagen buses with sandy surfboards strapped to the roof, cars have long been part of the culture of California. Highways and freeways crisscross the state, and drive-ins and drive-thrus grew up there. The state’s latest ambition is to slash its greenhouse gas emissions by switching its car culture from gas guzzlers to electrics.

That’s a tall order. California’s transportation sector produces about 40 percent of the state’s greenhouse gas emissions. As the state reaches toward its climate change goals — emissions reductions of 40 percent below 1990 levels by the year 2030 and 80 percent by 2050 — vehicles and emissions reductions will be inextricably tied.

“The targets for 2030 are aggressive,” said David Roland-Holst, a professor in the University of California, Berkeley’s Department of Agriculture and Resource Economics. “Electrification of light-duty vehicles is essential.”

In 2008, the California Air Resources Board (ARB) created its own climate change plan, which said zero-emission vehicles are “needed as vital components” for the state to achieve its greenhouse gas emission reduction goals. In 2012, Gov. Jerry Brown (D) signed an executive order that strengthened the EV agenda by calling for 1.5 million zero-emission vehicles to be on California roads by 2025. To realize this goal, the governor’s Interagency Working Group on Zero-Emission Vehicles published a plan that spells out how state agencies should work together.

But with just 10 years until Brown’s mandate comes due, the state still has a long way to go. In 2014, electric cars made up a little more than 1 percent of new vehicle purchases in California, according to research firm IHS Automotive. Many in the industry say smarter infrastructure investments need drive adoption, and even as California sees some success, the question remains: What does the industry need to do in order to see sales increase outside the Golden State and grow across the country?

Establish some big-time incentives

The pro-EV signal from California’s leadership has allowed the private sector and the auto manufacturing industry to invest in the technology, explained Ethan Elkind, associate director of the Climate Change and Business Program, with a joint appointment at the UC Berkeley School of Law and the University of California, Los Angeles, School of Law.

“It’s pretty amazing the progress we’ve seen — battery prices down 8 to 10 percent a year, technology costs falling,” he said. “In the short run, you need big markets like California to jump-start the industry and provide that guaranteed demand.”

About 40 percent of all EV sales in the United States occur in California. In 2014, nearly 60,000 new hybrid and electric cars were registered in the state, bringing to nearly 130,000 the total since 2010, according to the California New Car Dealers Association.

The uptick in adoption can be attributed to a confluence of factors, Elkind said, not just a top-down push. There’s a cultural component — Californians tend to be pro-environment and open to green technology. But the biggest piece, he said, has been the implementation of the state’s financial incentives programs.

Legislation signed by then-Gov. Arnold Schwarzenegger (R) in October 2007 created California’s Clean Vehicle Rebate Project (CVRP), which provides a $2,500 cash rebate to those who buy or lease an electric vehicle. In addition to the funds, which are administered by the Center for Sustainable Energy (CSE) for the ARB, buyers get to skip the state’s notoriously bad traffic and jump into carpool lanes. Buyers of fuel-cell vehicles and plug-in hybrids are eligible for state rebates of $5,000 and $1,500, respectively, through CVRP.

Since the program began, more than $225 million in rebates has been issued, according to CSE’s website. The program has also fallen under scrutiny, with some saying it mostly benefits wealthy drivers. According to a state survey of buyers released in 2014, nearly four-fifths of the rebates went to households earning $100,000 or more.

Last fall, Brown signed several bills aimed at jump-starting the electric car market, including legislation that replaces the flat-rate $2,500 incentive to an income-based one. The ARB approved the funding plan for the new rebate program in late June, and CSE estimates the new program should go into effect later this year or early next year.

In addition, funds totaling $4.8 million from California’s cap-and-trade system have been earmarked for rebates to low-income families (ClimateWire, May 28).

“Incentives have put California in a leadership position,” Elkind said. “I don’t know if we’ve inspired other states, but certainly other states have looked at our incentives. By changing it now to be income-based, we’ll see if that’s an area that boosts adoption.”

In addition to the state rebates, the federal government offers an additional $7,500 tax credit to buyers of electric cars. However, to take advantage of it, buyers must have at least $7,500 in tax liability.

Get utilities to pony up for infrastructure

Another area that California has invested money in is EV charging infrastructure, now that the state wants its utilities to continue that investment stream. In December, the California Public Utilities Commission (CPUC) ruled that utilities could invest in EV charging infrastructure, a reversal of its previous decision. Three of California’s investor-owned utilities (IOUs) have submitted proposals totaling more than $1 billion.

Pacific Gas & Electric (PG&E) submitted a plan to build 25,000 level 2 charging stations and 100 direct-current fast-charging stations, or about 25 percent of the infrastructure needed by 2020 in Northern and central California, the region PG&E serves. Ratepayers would cover the $653.8 million cost (ClimateWire, Feb. 10).

San Diego Gas & Electric (SDG&E) has proposed building 5,500 charging stations, primarily at multifamily housing and workplaces, between 2015 and 2025. The stations are projected to cost about $59 million, and operations and maintenance would be an additional $44 million. Southern California Edison (SCE) proposed a program that includes a five-year, $22 million component for the installation of up to 1,500 chargers and education about EVs.

Despite the urgent need, Noel Crisostomo, a public utilities regulatory analyst with the CPUC, said it’s crucial the commission makes a sound decision in order to both boost the installation of EV infrastructure and protect ratepayers who do not drive electric vehicles.

“It is relevant because we don’t want to star in the next episode of ‘Who killed the electric car?'” he said, speaking at the EVs and the Grid Summit held in Los Angeles last week. “We also know we’re running out of time before out 2020.”

The ARB also requires all large automakers that sell cars in California to bring in a certain percentage of zero-emissions vehicles or else purchase credits from other manufactures. By 2025, approximately 15 percent of all new light-duty vehicles sold in the state must be either electric or fuel-cell-powered. Brown has also said he wants the state by 2030 to halve the petroleum use from cars and trucks.

“The investments that utilities make or that the ARB funds with cap-and-trade funds are going toward transforming the market for vehicles,” said Nancy Ryan, director of policy and strategy for Energy and Environmental Economics.

Ryan said that when the EV market began taking off in 2009, she hoped the push from Sacramento would spur a vibrant and competitive free market. “I envisioned we would reach a point where we would put the muscle and scale of the utilities behind it, but with understanding about what their role is,” she said, speaking at the summit. “That’s exactly where we are.”

As the CPUC reviews the three IOU proposals for infrastructure investment, Edward Kjaer, director of transportation electrification for Southern California Edison, said the state must be smart moving forward.

“Build it and they will come does not work, and we know that,” he said, referring to the sometimes-disconnected charging station infrastructure the state currently has. “There is absolutely a utility role, but that role has to be in synch with the marketplace.”

The electric vehicle industry is still nascent, he added, and if it’s to see growth both in and beyond California, policies need to be crafted to accelerate the market, but research and development still needs time to percolate.

“Remember, we have lofty goals in the state of California when it comes to zero-emissions vehicles,” Kjaer said during the summit. “Part of the challenge is how does this get out of California?”

Help automakers sell more vehicles

California is by no means the only state with incentives, nor the most generous ones, according to Alexander Keros, manager for advanced vehicle and infrastructure policy at General Motors.

According to Plug-in America, more than 25 states and the District of Columbia offer some sort of EV incentive. Colorado currently offers one of the best: a $6,000 tax credit.

“I think other states are getting there,” Keros said, adding that policymakers need to do a better job of asking EV drivers and potential drivers what they need. “We just need to get creative. More plugs, non-financial incentives? Trust me, you give free parking to people in New York City and you’ll see a bump.”

Another hurdle to wider adoption lies with a lack of education from automakers to regulators and policymakers. The industry is still small and fragile, and incentives are a crucial part of growing it, said Frank Breust, vice president of governmental affairs for BMW Group. For example, on July 1, the Georgia Legislature allowed the state’s $5,000 tax credit to expire.

“It’s unfortunate that on one hand the goals are getting more ambitious, but on the other hand it feels like the support is being kept,” he said at the summit. “We see as incentives sunset or expire that it has an impact on sales. We need to be educating all the time.”

Still, growth has been strong in the United States. In 2014, the EV industry saw a growth rate of 69 percent, bringing the total number of cars in the country to about 290,000, according to an analysis from the Centre for Solar Energy and Hydrogen Research.

“We see rates of innovation that even optimists didn’t expect,” said Roland-Holst at UC Berkeley. In 2012, he published an economic assessment on the deployment of EVs in California and found light-duty vehicle electrification could create 100,000 jobs by 2030. In addition, every dollar saved at the gas pump and spent on goods and services contributed to 16 times more jobs.

He said he’s gotten calls from interested states hoping to make the business case for EVs; however, there remains a lot of resistance in areas where oil and gas energy interests are entrenched. “It’s a direct competition to their interests,” he said.

Ultimately, the industry does want to see electric cars all over the country, Elkind said. By 2030, he believes there will be mainstream adoption. “When I think about the technology we need to combat climate change and keep our emissions to only a manageable increase in temperatures, electric vehicles are the most important technology out there.”