DRIVING DOWN EMISSIONS: Improving the Environmental Efficacy of Federal Electric Vehicle Deployment Policy

Abstract

In meeting ambitious goals for Greenhouse Gas (GHG) reductions in the Untied States, electrification of the vehicle fleet is widely lauded for its “gamechanging” potential to substantially reduce emissions. However, there is an insufficient understanding of the environmental impacts of Electric Vehicles (EVs) in both the short and long term and how the federal policy efforts to support EV deployment interact with the emissions profile of these vehicles. This thesis evaluates the efficacy of present federal transportation policy aimed at accelerating the deployment of EVs as a policy instrument for substantively reducing the carbon intensity of the US light duty vehicle fleet. The federal income tax credit for EVs, which provides a subsidy of up to $7,500, is evaluated as the primary federal policy tool to propel deployment efforts. As with other environmental policies, abatement costs per unit of emissions reduced is the key metric for assessing the efficacy of the policy construct. Specifically, the environmental efficacy of federal deployment policy is evaluated under this framework for both cost effectiveness in driving deployment and associated environmental impact This evaluation brings to light three important policy conclusions that run counter to the widely held beliefs that have underpinned current EV policy. First, the structure of the federal income tax credit is not cost effective in deploying EVs because it does not account for the income demographics of potential customers and the behavioral dynamics of vehicle purchasing behavior. Second, the environmental profile of EVs depends upon the upstream emissions from the electric power used for vehicle charging. With either an average emissions or marginal emissions accounting, there is significant regional variation in the environmental profile of EVs, such that EVs offer net environmental benefits only in select regions based upon regional carbon intensity. Looking to the long-term, absent significant decarbonization of the electricity grid, EVs are not a game-changing technology and will lag beyond conventional vehicles in terms of environmental performance. Third, EPA’s structuring of EV credits for CAFE compliance unnecessarily trades off the near to mid-term GHG emissions reductions potential of EVs. Over-crediting for select deployment of EVs is levered by automakers to effectively reduce the level of fuel economy improvement across the balance of the non-EV fleet. This will more than double the lifetime emissions from the average EV deployed through 2025, resulting in an additional 101 million metric tons of CO2 emissions across the entire vehicle fleet through 2025, an emissions deficit that EVs are unlikely to climb out of. Taken together, the conclusions described above lie counter to the general policy consensus that the tax credit supports short -term deployment of EVs and that such deployment will propel decarbonization of the US energy economy. This raises the further question of whether EVs should still be promoted as a tool in achieving climate goals or otherwise how existing EV policies should be revised in order to retain the sought after environmental benefits. With significant revision to the federal tax credit in order to maximize cost effectiveness and environmental benefit, as well as the elimination of overcrediting for CAFE compliance, EVs can maintain their place at the table as an important long-term measure for GHG abatement. Absent such revisions, along with a parallel decarbonization of the electricity sector, it is questionable whether EVs should continue to receive policy support based on perceived environmental benefits.