HD9 - Electric Vehicle Incentive Working Group Feasibility Report (Chapter 973, 2020)

Executive Summary:

In 2020, the Virginia General Assembly passed, and Governor Ralph S. Northam signed into law, Delegate David A. Reid’s House Bill 717. HB717 tasked the Department of Mines, Minerals and Energy, in cooperation with the Departments of Environmental Quality, Motor Vehicles, and Taxation, with convening a working group to determine the feasibility of an electric vehicle (EV) rebate program for the Commonwealth of Virginia. (See Appendix 2: HB 717).

Transportation represents the largest sector of energy consumption in Virginia; and the significant financial, energy security, and environmental costs to the Commonwealth of using imported oil are challenges that many, including legislators and the Governor seek to overcome. In 2018, the Virginia Energy Plan included initiatives to support the adoption of electric vehicles and the advancement of clean and domestic fuel options for transportation among Governor Northam’s energy priorities.

During the summer of 2020, the working group was formed to explore the feasibility of an electric vehicle incentive that would be simple, timely, equitable, and durable. The group gathered input and ‘best practices’ from industry and community stakeholders through a variety of channels, including four webinars, to hear from speakers from other states to share their experiences with rebate programs and to solicit input and comments from the automobile dealers/manufacturers, environmental and social justice advocates, utility representatives, and others. There was universal interest in incentives to support the adoption of electric vehicle technology in Virginia, with sometimes diverging ideas about how these should work.

This report concludes that an electric vehicle rebate program can produce significant economic and environmental benefits to the Commonwealth. Electric vehicles use less expensive, local, homegrown electricity instead of out-of-state oil. This keeps Virginians’ fuel dollars circulating in the state’s economy through the consumption of electricity and other goods and services purchased with the savings from the switch to electricity. Additionally, though the conversion to electric vehicles may result in lower fuels tax revenues, the omnibus transportation bill adopted this year imposes vehicle registration fees on EVs that are nearly equal to the average amount of fuels taxes paid by average drivers.

Jobs creation is another metric to measure economic benefit. Recent economic analyses of transportation electrification show that for each $1 million spent on Port of Baltimore electrification (vehicles and cargo handling equipment), there would be 40 new jobs created (Schenk, 2020). This is twice the number of jobs created by $1 million of spending in the petroleum sector. These differences are associated with fuel funds staying within the local economy instead of being transferred to other states and countries involved in petroleum extraction, refining, and distribution.

In addition to potential economic benefits, EV adoption can result in environmental and health benefits. Producing roughly 48% of Virginia's greenhouse gas emissions (48 million metric tons annually), the highly-polluting transportation sector represents an important area of focus for reducing emissions. In some peer states, metrics from EV adoption programs are used to demonstrate the achievement of emissions goals. Although Virginia does not have a formal transportation emissions reduction goal or a goal to achieve a certain market share for electric vehicles, an incentive program could lead to increased EV adoption and aid in meeting future emissions targets for the Commonwealth. Conversion to cleaner electric vehicles can result in lower health care costs, as air quality improves. Further, as the Commonwealth continues its recovery from the impacts of the global COVID-19 pandemic, strategies to advance EV adoption would be a timely support for clean air along with economic recovery goals.

An EV deployment target of 10-20% of market share by 2027 could result in significant transportation emissions reductions and has been selected for the scenarios presented in this report. The percentage of market share is based on the Transportation Climate Initiative’s (TCI) EV sales forecast model. TCI is a regional collaboration of 13 Northeast and Mid-Atlantic jurisdictions that seeks to develop the clean energy economy, improve transportation, and reduce carbon emissions in the transportation sector. Over the vehicle’s lifetime, the decrease in greenhouse gases in the Commonwealth will range from 4,000,000 tons (10% market share) to 8,850,520 tons (20% market share), representing a 2% reduction in overall transportation emissions. (See Appendix 3: Emissions Reductions).

Based on the Transportation Climate Initiative’s electric vehicle sales forecast numbers for Virginia, the program would require an initial year of funding at $43 million which would fund rebates for an average of 13,150 electric vehicles (total program funding = projected annual EV sales multiplied times the average rebate amount). On average, each of these vehicles has the potential to generate up to $450 of net social benefit annually, achieving a simple payback to the Commonwealth of the initial investment of between five and seven years. Net social benefits are the total benefits to society resulting from economic or environmental activities such as driving EVs, minus the external costs such as reducing gasoline usage.

Currently available electric vehicle technology includes plug-in hybrid electric vehicles (PHEVs), battery electric vehicles (BEVs), and fuel cell electric vehicles (FCEVs). Nearly two percent of the state’s new vehicles sales were EVs in 2019, roughly paralleling the national average. In that same year, Virginia consumers had registered 41 different models of EVs, including some models only available out-of-state. As auto manufacturers are more likely to send vehicles to markets with the most supportive conditions, the number of EV offerings will continue to grow, year-by-year, resulting in more options, functionality, and price points from which customers may choose. Virginia’s support of growth in EV sales through use of an incentive program, along with robust investments in charging infrastructure and introduction of other complementary policies, can critically serve to expand the market and consumer interest in this technology.

Many states have established electric vehicle adoption programs with a range of incentive values and administrative systems. These examples have served as a resource in developing this program, and are summarized in Appendix 4: EV Incentives in Other States.