Electrification of the passenger vehicle fleet is an essential component of transport decarbonization, but the typically higher up-front cost of electric vehicles (EVs) and concerns about sufficient charging infrastructure can hinder widespread adoption. To address these barriers, a variety of policies and programs have been deployed at the state and federal level. Offering purchase rebates has been effective in spurring increased deployment of EVs, but has thus far been insufficient in driving the rate of fleet turnover necessary to achieve deeper carbon reductions. In addition, some of these programs are may expire before we expect cost-parity to be reached and before a robust charging infrastructure ecosystem is fully developed, which threatens continued growth in EV ownership. California administers several EV incentive programs funded through cap-and-trade auction proceeds that have not kept pace with increasing EV sale volumes; as a result, California has scaled back the rebate amount and number of qualifying vehicles. At the same time, the Federal Tax Credit has already begun phasing out for some EV manufacturers. As these programs expire, a durable financial incentive for EVs can be found in California’s Low Carbon Fuel Standard (LCFS).
California’s LCFS requires a reduction over time in the carbon intensity of fuels, i.e. the lifecycle greenhouse gas (GHG) emissions from using a unit of fuel, supplied to the transportation sector. Alternative fuels generate LCFS credits according to their lifecycle GHG savings compared to conventional gasoline and diesel, and these credits can be bought and sold. Electricity supplied to EVs is eligible to generate LCFS credits, which are generally awarded to the supplier of the fuel. The number of credits awarded is calculated based on the carbon intensity of the grid and the volume of electricity sold. Base credits are awarded to utilities for home charging based on the average carbon intensity of that utility’s electricity. In addition, there is an option to generate incremental credits if the electricity supplied has a lower carbon intensity than the grid average electricity. This can be achieved through Smart Charging, through which customers shift their charging to less expensive or less GHG emissions-intensive times of day. Owners of public charging infrastructure can also generate and sell credits, including incremental credits, for EV charging.
The value of LCFS credits generated from EV charging contributes to incentives to encourage greater EV penetration. As of 2019, up to 67% of base credit revenue, based on utility size, must be used to support state-wide point-of-purchase rebates for EVs. Starting in 2022, half of the remaining base credits, called holdback credits, must support transportation electrification in low-income, and rural communities. All incremental credit revenue generated must be used to benefit current and future EV owners and for educational programs regarding the economic and environmental benefits of EV ownership.
Is the potential of these combined credit revenue streams for home charging enough to provide a sustained source of funding for EV owners? To assess this, we looked at California Investor Owned Utility (IOU) service areas, which contain approximately one-third of California EVs. We assume that 80% of EV charging takes place at home, that LCFS credits will remain near their present-day value of $200/tonne CO2e, that EVs travel 15,000 miles per year, that all EV owners participate in smart charging, and that EV growth follows sales projections from a previous ICCT analysis. These assumptions allow us to estimate the aggregate credit revenue, GHG savings, and approximate rebate amounts generated via residential EV charging in IOU service areas.
As shown in the figure above, we estimate that the average EV owner’s residential charging in IOU territory will generate $433 worth of credits for rebates, $97 worth of holdback credits, and save 3.14 tonnes CO2e from residential charging each year. Within California’s IOU territories, residential charging would generate annual GHG savings of 1.79 million tonnes CO2e, $249 million total credit revenue directed towards battery and hybrid electric vehicle rebates, and holdback credits totaling nearly $56 million in the year 2022. Annual EV sales in IOU territory are projected to grow from 34,000 in 2020 to over 62,000 in 2025. Over that time period, residential EV charging would generate sufficient credit revenue to support rebates of approximately $3,600 for newly-sold battery electric vehicles—nearly double the current California standard rebate value of $2,000 (though some low or moderate-income consumers qualify for an increased rebate of $4,500). The $56-$73 million projected annual holdback credit revenue provides funding for broader electrification projects such as building public charger stations or electrifying public transit, fleets, and school buses in underserved communities.
California’s ambitious goal of carbon-neutrality by 2045 necessitates long-term, coordinated policy support for decarbonization of the transportation sector. Central to this transition will be the success of the LCFS and other policies in driving widespread adoption of EVs and providing additional financial support for charger owners. California’s efforts to tie the credit generation from residential EV charging to subsequent EV purchase rebates and reinvestment in complementary infrastructure could be a template for federal policy moving forward.