Many policies support the growth of the EV market, such as purchase incentives, access to EVs, and many policies to build out charging infrastructure.
Other policies support EVs directly, through investment, and indirectly by limiting the carbon emissions from petroleum fuels. This approach can take the form of a clean fuels standard, limiting the carbon emissions per energy unit of fuel sold, or a cap and invest policy, limiting the total carbon emissions from fuels. California’s Low Carbon Fuel Standard (LCFS) is an example of the former. The Transportation and Climate Initiative Program (TCI-P) in the Northeast U.S. is an example of the latter.
A clean fuels policy establishes a standard for reducing the carbon intensity or the total carbon emissions of transportation fuels. This “clean fuel standard” is science-based, rewards performance in reducing greenhouse gases (GHGs), and technically is fuel-neutral. However, high-carbon transportation fuels like diesel and gasoline are impacted more. To comply with the standard, the high-carbon transportation fuel providers need to either reduce the carbon intensity of their fuels or purchase clean fuel standard credits (CFS credits) from suppliers of low-carbon transportation fuels. Examples of low-carbon transportation fuels include electricity, hydrogen, and some biofuels in light-, medium-, heavy-duty and non-road EVs. The cleanest transportation fuels receive the most credits.
Depending on how the regulatory framework is set up, utilities or owners of charging stations and/or non-governmental entities can receive credits for using clean electricity as a transportation fuel for charging EVs. The proceeds from these credits can be used in various ways to impact the EV market positively. The credit proceeds can be used:
- as EV purchase incentives (new or used EVs)
- for electric transportation equity programs for low-income, BIPOC, and rural communities,
- to further build out EV charging infrastructure,
- to purchase EV buses, and/or
- on general education and awareness about EVs or other hard-to-fund programs.
A significant percentage of the monetary value of the credits should be invested back into communities of color, low-income communities, and other communities that have been most adversely impacted by transportation pollution or need special attention to commercialize EVs. This percentage should equal the share of the program’s population that lives in such communities and ideally higher at a bare minimum. Such affected communities should also have meaningful input into how program proceeds are spent.
A cap-and-invest policy may cover one or more sectors of the economy. The states participating in the TCI Program already have their electricity sector emissions capped by a different program, so TCI-P solely addresses the on-road transportation sector. Other cap-and-invest programs are economy-wide, as in California, Washington, and Quebec. The proceeds from the sale of carbon allowances can be spent on EV projects and other clean transportation projects and prioritize investment in overburdened communities. However, fewer biofuel projects are typically funded compared to the clean fuel policy approach.
Current nations, states, or provinces with a clean fuels policy include European Union, Brazil, California, Oregon, and British Columbia. Clean fuel policy development has been approved in 2021 by the Washington Legislature, and Canada’s draft rules will take effect in December 2022. Current states that have a cap and invest (or cap and trade) policy or are in the process of developing regulations for such a policy include California, Washington, Connecticut, Massachusetts, and Rhode Island. In addition, it is possible to have both policies (California, Quebec, and Washington) and have a national Renewable Fuel Standard. Further information on these state and national policies is below.
Overall, depending on the state, fuel providers in the state, political interest, and other factors, both policies can work to be a substantial source of funding (e.g., billions) for EV programs that can provide purchase incentives and the build-out of charging infrastructure.
Clean Fuels Program / Low Carbon Fuel Standard: Carbon fuels intensity-based metric
Low Carbon Fuel Standard (LCFS) Program: California, Oregon, British Columbia
Regulators created the LCFS program under California’s AB 32 authority as a necessary tool to reduce carbon emissions from the transportation sector. The program was developed in 2009 and implemented in 2011, with changes made to the program in 2013, 2016, 2018, and 2019. The California program illustrates what a mature CFS can accomplish.
- Typical goal: reduce the carbon intensity (CI) of transportation fuels 20% by 2030, compared to a 2010 baseline
- Benefits to EV drivers:
- $1500 time-of-purchase incentive is available statewide, and individual utilities often fund additional incentives for used EVs in California. LCFS credits are given to utilities for every EV charged at residences in their service areas, and utilities monetize these credits to fund new and used EV rebates, equity programs, vehicle grid integration programs, and other EV programs.
- Charging station owners (site hosts or charging station network providers) also receive LCFS credits to build more stations and/or defray the charging costs.
- An additional benefit to drivers is possible if they are using solar or other zero-carbon electricity.
- There’s a special credit for DC fast charging until 2025 (limited to 5% of all credits) to encourage accelerated deployment by developers.
Other states considering
The Future Fuels Act (HF 2083) in Minnesota passed the House but was not accepted in Senate/House negotiations in June 2021. CFS policies were introduced in 2021 in New Mexico and New York and are under discussion in several Midwestern states.
Cap and Invest Programs: Overall carbon fuels reduction target
Transportation and Climate Initiative
The Transportation and Climate Initiative Program (TCI-P) is a binding cap on carbon emissions from transportation fuels in the Northeast and Mid-Atlantic states. At present, the signatories are the states of Massachusetts, Connecticut, and Rhode Island, as well as the District of Columbia; many other states are involved in the process and may join. Each fuel supplier is required to provide allowances for the carbon emissions of the fuel they supply. TCI-P auctions off these allowances and the available pool of allowances decreases over time. The proceeds from allowance auctions are given to the states to invest in clean transportation programs, with at least 35% required to be spent in communities overburdened by air pollution and underserved by the transportation system. Some states have established higher targets. The program includes elements to prevent allowance prices from falling too low (depriving the investment side of needed revenue) or too high (placing an undue burden on consumers). At present, the only fuels covered are gasoline and on-road diesel fuel. See more about TCI-P here. The participating states also participate in the Regional Greenhouse Gas Initiative (RGGI), which regulates carbon emissions from power plants.
Other examples: California has a mature cap-and-trade program similar to the TCI-P except that funds are raised from all sectors of the economy (whereas TCI-P states have a separate program for power plant emissions). Its benefits to EV commercialization are significant and illustrate the potential for TCI-P and similar programs:
- Funded for almost a decade, the Clean Vehicle Rebate Program (CRVP) typically provides a $2000 rebate for battery EVs, $1000 for long-range PHEVs, $750 for electric motorcycles, and much larger amounts for low-income drivers. (Higher rebate amounts in the early years). Total funding in the current fiscal year is $238M.
- Funded equity programs: total funding in the current fiscal year is $63M
- Funded grants and rebates for electric medium and heavy-duty vehicles: total funding in the current fiscal year is $182M
- UCS factsheet: California’s Clean Fuel Standard Boosts the Electric Vehicle Market
- California LCFS ARB’s comprehensive “basics” document
- Comprehensive federal RFS explanation, by the Congressional Research Service
- BioCycle, 101 For Low Carbon Fuel Standard. link
- Stillwater Associates, LCFS 101 – A Beginner’s Guide. Link
Plug In America Key Principles for Any Clean Fuels Policy:
In designing a clean fuels policy, policymakers should consider the following:
- Program design should be kept relatively simple for the regulator and scalable to any national or regional clean fuels policy created.
- Program design and oversight rules should be kept similar to the rules established from the Low Carbon Fuel Standard (LCFS) program adopted in California, Oregon, and British Columbia. This program has existed for over a decade and has been optimized to account for market changes.
- The program’s stringency should be designed so that credit prices are not too low or too high.
- CFS credits can be generated for any types of transportation fuels that are low carbon for use in light-, medium-, heavy-duty vehicles and other types of transportation. This includes electricity, electricity generated from renewable energy, and biofuels, but the use of the credits is likely different for the different fuels.
Key principles for credits generated from electricity used as transportation fuel
- Program design should help equitable transportation electrification based on discussions with all stakeholders and benefit directly or indirectly a wide coalition of electricity stakeholders, including equity groups, utilities, NGOs, consumer groups, EV charging station operators, and automakers. For example, CFS credits generated from non-residential EV charging should go to the site host/owner of the charging station. The site host/owner of the EV charging station should also be able to contractually designate another party to generate the credits and do the associated reporting and selling of credits.
- CFS credits generated by residential charging should not require the residences to do annual reporting and selling of credits. Rather, the CFS should designate a separate entity (NGO or state agency if possible) to be the residential charging credit generator and act on behalf of EV drivers. The regulator should estimate these credits, oversee the implementing entity and define the types of programs that can be funded. CFS credits generated by residential charging should not replace or discourage funding from other sources (e.g., government and utilities).
- Use of CFS credits generated by residential charging should be specific to state needs and flexible as the market evolves to support equitable transportation electrification (e.g., funding for municipal and rural co-op utility programs, dealer programs, e-truck programs, used EV rebates, equity and rural EV programs and broad awareness campaigns)
- Since the monetary value for residential CFS credits will be very significant in the 2030s. Yet, it is a small monetary amount today; measures that generate residential CFS credits should receive an up-front (e.g., 10 year) estimation of the credits they will generate in the future.
- Incremental credits (from both residential and non-residential charging) for exceeding the statewide grid average carbon intensity for electricity should also be measured /generated with rules on the use of these credits.
- Additional rules on the measuring and use of CFS credits from non-residential charging are also needed.
- Regulators should prevent electricity credits from going unclaimed.
Plug In America Key Principles for Any Cap and Invest Policy:
In designing a cap and invest policy, policymakers should consider the following:
- Program design should be kept relatively simple for the regulator and scalable to any national or regional cap-and-invest program created (as well as cap-and-dividend programs, which return the proceeds directly to the public).
- If limited to one sector of the economy, programs should be designed to integrate with other cap-and-invest programs covering different sectors.
- Program design and oversight rules should be kept similar to the rules established from the TCI Program. This program has drawn on extensive lessons learned from previous cap-and-invest efforts and employed a comprehensive stakeholder engagement process.
- The program’s stringency should be designed so that credit prices are not too low or too high. A minimum reserve price, cost containment reserve, and emissions containment reserve are all beneficial features in this regard.
- The trajectory of the cap should be ambitious and recognize the potential for rapid decarbonization of the transportation sector as EV technology improves.
Key principles for investment
- Accelerate EV adoption and transportation electrification in every category, emphasizing maximum impact in the program’s early years.
- Program design should support equitable transportation electrification based on discussions with all stakeholders and benefit directly or indirectly a wide coalition of electricity stakeholders, including equity groups, utilities, NGOs, consumer groups, EV charging station operators, and automakers.
- Some guidance should be provided to participating jurisdictions regarding the definition of “overburdened communities,” although this need not be overly prescriptive.
- The percentage of investment dedicated to overburdened communities should equal their share of the covered population, if not exceed it. This percentage will vary based on the stringency of the definition.
- Representatives of overburdened communities should have meaningful input into the investments in their communities.
- It is important to recognize that climate change is a global problem requiring rapid decarbonization of the transportation system. Investments not located in overburdened communities may have significant potential for advancing decarbonization (for example, EV charging stations on interstate highways may be such a key application).
- Evaluation of investments should consider their indirect effects. Many EV charging stations, for example, serve a more vital purpose in education (providing visibility of the infrastructure) or alleviating range anxiety (providing complete coverage in rural areas) than they actually do in dispensing electricity to drivers.
- Improve the program over time, tightening the cap if warranted.
- Recognize that carbon emissions are not the same as criteria pollutant emissions; ensure that decarbonization efforts do not exacerbate air quality problems.
At the federal level, the Renewable Fuel Standard (RFS) program can be considered a limited version of a clean fuels policy that only allows the different types of biofuels to be eligible. The RFS program requires that a certain volume of renewable fuel replace or reduce the quantity of petroleum-based transportation fuel, heating oil, or jet fuel. The four renewable fuel categories include biomass-based diesel, cellulosic biofuel, advanced biofuel, and total renewable fuel. The program was initially developed in 2005, with significant changes to the program made in 2007. These changes included boosting the long-term goal to be 36 billion gallons of renewable fuel, extending yearly volume requirements out to 2022, adding explicit definitions for renewable fuels to qualify (e.g., renewable biomass, GHG emissions), and more. Since the future of transportation is electric, the Biden Administration has asked EPA to study whether the program can give renewable fuel credits to EVs charged with renewable electricity.
Unlike state policies, a federal low-carbon fuel standard could regulate carbon emissions from aviation fuel used for interstate travel. Regulation of carbon emissions from fuel used for international flights may require international agreements. Regardless, even domestic aviation fuel consumption is significant, and addressing this source of emissions would result in a more progressive source of revenue generation.
Ideally, the U.S. would enact a comprehensive climate bill that would reduce carbon emissions from all sectors of the economy over time. This could resemble a clean fuels standard, a cap-and-invest program, a cap-and-dividend program, or some other mechanism. Until such a program is enacted, state and regional efforts can make significant gains in reducing carbon emissions, advancing sustainable technologies, and addressing the needs of overburdened communities.
 Credit proceeds totals in today’s CFS programs are directly proportional to EVs on the road in any year.
 It is not feasible or critical to measure electricity from every PHEV and EV at home. CARB estimates these residential credits.
 California has both ultra-low carbon electricity and smart charging credits (recipients of credits can receive one or the other). Utilities, automakers, site hosts, and/or charging station operators could be potential earners of these credits. Rules on credit proceeds could benefit the credit generator if some of the proceeds are shared to help other important state goals.