Electric Vehicles

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The transportation sector is America’s single largest source of greenhouse gas pollution, responsible for 29% of U.S. emissions. As climate pollution fuels more severe droughts, floods, wildfires and storms, transitioning to clean, renewable electricity as transportation’s primary fuel source provides a critical pathway toward decarbonization.

Electric vehicles (EVs) provide an opportunity for consumers, manufacturers and fleet operators to reduce greenhouse gas emissions and spend less per mile to fuel and maintain their vehicles compared to gasoline or diesel vehicles. In addition, transitioning to clean transportation will help mitigate the serious health risks associated with gasoline and diesel exhaust emissions. It will also reduce reliance on global oil markets, which leaves U.S. consumers vulnerable to volatile gas prices.

With Inflation Reduction Act tax credits, the upfront cost of purchasing a new or used electric vehicle will be reduced. When coupled with EV charging infrastructure funds from the Bipartisan Infrastructure Law, consumers, governments and industry are well equipped to kickstart the urgent and necessary transition to electrify our transportation sector.

U.S. Investment in Electric Vehicles to Date

In the light-duty segment, electric vehicles accounted for 5.8% of all new car sales in 2022, up from 3.1% the year prior. A key policy driver of electric vehicle adoption has been the federal EV tax credit that was first established under the American Reinvestment and Recovery Act of 2009.

Some states, electric utilities and municipalities have implemented additional policies and programs to drive EV adoption, such as rebates and state tax credits, access to high occupancy vehicle lanes, investments in EV charging infrastructure, adoption of manufacturer sales requirements like the Advanced Clean Cars rule, and taxes on petroleum-based fuels. These diverse policies have driven significant variation in electric vehicle adoption rates across states: EV market share was 17.1% in California in 2022 compared to less than 1% in North Dakota (as of 2021).

In addition, EV adoption throughout the country has not been equitable across sociodemographic factors like income, gender, homeownership and education. Upfront price, charging access and rebate design have all served as barriers to more equitable adoption.

EV adoption in the medium- and heavy-duty vehicle segments lags behind the light-duty segment, with electric vehicles making up only 1% of U.S. bus sales and 0.1% of U.S. truck sales in 2021. The U.S. also trails medium- and heavy-duty EV adoption rates in China and Europe. States are leading efforts to increase adoption by offering vehicle purchase vouchers; adopting enabling policies like the Advanced Clean Trucks and Heavy-Duty Omnibus rules; and collaborating on policy through the Multi-State Zero Emission Vehicle (ZEV) Task Force.

Electric Vehicle Initiatives Under New Climate Legislation

The 2022 Inflation Reduction Act and the 2021 Bipartisan Infrastructure Law provide billions of dollars in funding, incentives and tax credits to help accelerate the transition to clean transportation for consumers, manufacturers and fleet operators. These funds and tax credits will enable individual consumers to play an active role in the electric vehicle revolution.

The information below outlines funding options and policies related to light and medium-heavy duty EV procurement. Detailed information regarding EV charging investments can be found here. Detailed information regarding electrification of the nation’s school bus fleet can be found here.

EV investments in the Bipartisan Infrastructure Law

The Bipartisan Infrastructure Law includes the following programs to support EV procurement and infrastructure:

• Clean School Bus Program (Sec. 71101): Provides $5 billion in funding for zero- and low-emission school buses, with $2.5 billion specifically set aside for electric, zero-emission school buses. As of October 2022, the first round of funding was awarded and due to unprecedented demand, EPA nearly doubled the amount of funding from $500 million to $965 million. EPA will make another $1 billion available for clean school buses in Fiscal Year 2023 and again in the next three fiscal years.  
• Grants for Buses and Bus Facilities (Sec. 30018): Provides $5.25 billion to transit agencies to replace, rehabilitate and purchase buses and related equipment and to construct bus-related facilities. This provision amends the Federal Transit Administration’s existing competitive, formula, and Low or No Emission Vehicle grant programs and includes requirements for zero-emission vehicle projects to implement fleet transition plans with 5% of funds dedicated to workforce development. Additionally, the amended provision requires that at least 25% of Low-No funds go to low-emission vehicles other than EVs.
• Formula Grants for Rural Areas (Sec. 5311): Provides approximately $4.1 billion in formula grants to states, counties, cities, townships, special districts, tribal governments and other organizations. Funds can be used to improve, initiate or continue public transportation service in non-urbanized areas (rural areas and small cities under 50,000 in population) and to provide technical assistance for rural transportation providers. (Note: These funds may be used for EVs but there is no dedicated funding set aside specifically for EVs.)
• Public Transportation Innovation (Sec. 30007): Provides $193 million to develop innovative products and services assisting transit agencies in better meeting the needs of their customers. 
• Amendments to the Public Utility Regulatory Policies Act (PURPA): The Bipartisan Infrastructure Law amends PURPA 111(d) to add a requirement that each state regulatory authority, with respect to each rate-regulated electric utility, consider measures to promote greater electrification of the transportation sector (Sec. 40431) and utility demand response (Sec. 40104).
• Carbon Reduction Program (Sec. 11403): Provides $6.4 billion to the U.S. Department of Transportation to establish a carbon reduction formula program for states to reduce transportation emissions.

EV tax credits in the Inflation Reduction Act

The Inflation Reduction Act includes a range of EV tax credits to reduce the upfront cost of transitioning to electric vehicles for both individual and commercial use:

• Clean Vehicle Credit (30D): Provides individuals with a consumer tax credit of up to $7,500 when purchasing new, qualifying clean vehicles. The Inflation Reduction Act made significant modifications to the existing 30D tax credit, including setting household income and vehicle sales price limits; removing the manufacturer cap (previously, only the first 200,000 vehicles from a manufacturer qualified); and adding various industrial sourcing requirements for critical minerals and battery components as well as final assembly. A list of vehicles that currently qualify for the tax credit is available here and will be updated regularly as requirements and vehicle availability change.
• Previously Owned Clean Vehicle Credit (25E): Provides individuals with a consumer tax credit of up to $4,000 when purchasing used clean vehicles. This is a new tax credit that covers previously owned clean vehicles. The vehicle must be a model year at least 2 years earlier than the year in which it is acquired, be sold at a dealer to the non-original owner and have a sales price less than $25,000. This credit is subject to household income limits but not to battery and critical mineral sourcing requirements.
• Qualified Commercial Clean Vehicle Credit (45W) for smaller vehicles: Provides up to a $7,500 tax credit to offset up to 30% of the cost of purchasing qualifying commercial electric vehicles under 14,000 lbs. (including cars, pick-up trucks and utility vans). The credit cannot exceed the incremental cost of the vehicle compared to an equivalent diesel- or gas-powered vehicle.
• Qualified Commercial Clean Vehicle Credit (45W) for larger vehicles: Provides up to a $40,000 tax credit to offset up to 30% of the cost for commercial electric vehicles over 14,000 lbs. (including school and transit buses, large vans and freight trucks). The credit cannot exceed the incremental cost of the vehicle compared to an equivalent diesel- or gas-powered vehicle. Tax-exempt entities, including state, local and tribal government entities as well as school districts, may elect to receive this tax credit in the form of a direct payment.

In general, most of the tax credits within the Inflation Reduction Act have base and bonus values, with bonuses added for projects that meet certain criteria including prevailing wage and apprenticeship requirements, Made in America components, or prioritization in energy communities and low-income communities.

The Inflation Reduction Act also includes a provision for Clean Heavy-Duty Vehicles (Sec 60101). This provides $1 billion which the EPA will distribute through grants or rebates for qualified purchases of zero-emission class 6 and 7 buses and trucks. Funding can be used to replace eligible vehicles with zero-emission vehicles (ZEVs), to maintain charging infrastructure, and for workforce development to support the deployment of ZEVs. Of this funding, $400 million is set aside to deploy ZEVs in non-attainment areas, which do not meet the air quality standards for certain pollutants set by the EPA through the National Ambient Air Quality Standards.

Next Steps for Advancing the Electric Vehicle Transition

State and local governments should consider the following policies and actions to support a rapid and widespread transition to electric vehicles:

• Build a supportive policy environment through available transportation, air quality and planning authorities. This may include adopting the Advanced Clean Cars, Advanced Clean Trucks and Heavy-Duty Omnibus rules.
• Adopt building codes supportive of electric vehicle supply equipment (EVSE) and review permitting requirements to expedite installation of EV charging stations.
• Increase EV charging accessibility through solutions like pole-mounted EV charging.  
• Establish an equity-centered technical assistance approach. Funding to establish such an offering (and other state EV programs) can come from the State Energy Program; the Bipartisan Infrastructure Law explicitly authorized this funding for use to plan programs that help reduce carbon emissions in the transportation sector, including electrification of vehicles.
• Enact requirements to complete public fleet conversions to zero-emission vehicles by a specified year. For example, New York will require that all school buses in operation are electric by 2035.
• Engage with utilities and at public utility commissions to support the development of integrated approaches to charging, renewable energy and storage, and to develop solutions for bidirectional charging (“Vehicle to Everything”) to enhance grid resilience. This may include evaluation of new and existing programs for EV charging rate design, make ready investments and beneficial electrification plans.

Overcoming Implementation Challenges

As implementing agencies flesh out the details of these new EV programs, advocates will play a critical role in ensuring that they are designed and implemented equitably.

For example, the IRS will provide guidance on how to apply and qualify for most EV tax credits. Through special provisions in the Inflation Reduction Act, tax-exempt entities such as school districts be able to access these credits as direct payments. However, some buyers may not have sufficient flexible operating capital to absorb the delay between date of purchase and date of reimbursement through an annual tax filing. It will be imperative for agencies like the IRS to produce detailed, equity-focused guidance on how entities can apply for funding and credits to help support uptake, minimize confusion, and maximize access in an equitable way.

To qualify for the full EV credit, vehicles must meet minimum levels for the North American content of battery components and the sourcing of critical minerals, as laid out in the Inflation Reduction Act. These standards, which ratchet up over time, may introduce some speed bumps in the EV market as manufacturers work to shift and stand up new supply chains. They may also create uncertainty about which vehicles qualify in a given year. While this may affect vehicle eligibility in the short term, the policy is designed to shift manufacturing to the U.S. and its allies and to secure U.S. supply chains in the green economy over the long run. State and local governments can play a key role by engaging communities to ensure responsible domestic mining and processing of critical minerals and community benefits from battery and EV manufacturing.

State governments will play a key part in shaping the environmental impacts of the EV transition due to their role in electricity markets. State legislatures and public utility commissions can reduce emissions from electricity consumption through renewable procurement policies, time-of-use electricity rates and other tools. These measures will translate to improved emissions profiles for the EV segment as transportation shifts away from liquid fossil fuels and towards electricity.

This transition will also test the electric grid’s readiness to accommodate new EV-related load and may expose underlying inequities in electrical infrastructure. States and utility regulators can prepare for these challenges by requiring utilities to update integrated resource plans and distribution system plans to account for new EV loads; increasing information transparency with up-to-date publicly accessible grid hosting capacity maps; and proactively engaging with EV fleets to ensure optimal siting and sequencing of electric system upgrades.

Equity Considerations

A recent study found that there is an overall high interest in electric vehicles across ethnic and racial demographics. However, interest is not translating to ownership: The average profile for an EV owner is a white, middle-aged, able bodied, educated male homeowner and city dweller making over $100,000 per year.

Although EV ownership is disproportionately skewed toward white, affluent buyers, the benefits of transitioning to electric transportation could have an outsized impact in disadvantaged communities and communities of color. While diesel exhaust pollution is dangerous for everyone, its effects are not felt equally. Today, communities of color face fine particulate matter pollution from on-road diesel exhaust that is 61% to 75% higher than for white residents.

As states, local governments and other entities begin leveraging new electric vehicle investments, there must be a focus on accelerating EV uptake in low-income and rural areas as well as historically underserved communities of color and tribal nations. Decision-makers must consider:

• Accessibility to renters as well as homeowners. Home charging is out of reach for many in communities of color, where homeownership rates are typically lower than in majority-white communities. It will be necessary to work with multi-unit property owners and utilities and to create innovative public charging infrastructure networks that are convenient, easy to use and offer cost parity to at-home charging in the region.
• Availability and reliability of public chargers. A lack of reliable charging infrastructure is a major barrier to equitable EV adoption. The expansion of public charging will need to be paired with maintenance and repair plans to ensure that broken chargers are brought online in a timely manner. Inoperable stations can add to perception of EV unreliability and contribute to EV anxiety.
• Building an EV-knowledgeable community. Multi-channel public education campaigns, such as the Electric for All campaign, will be critical to increasing EV uptake. These should speak directly to communities and stakeholder groups with low EV adoption rates. It will also be critical to build an awareness of the benefits of driving EVs; to promote opportunities available to purchase EVs, including the used EV tax credit; and to dispel longstanding myths about EVs, like range anxiety, variety in supply and safety.
• High upfront costs and affordability. While the used EV tax credit is an incentive to adoption, inequities in financing and insurance premiums create additional barriers to equitable EV adoption. 

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