Abstract:Issue: The State of California has developed a range of programs to accelerate the adoption of zero-emission vehicles (ZEV). California’s ZEV mandate will require 15% of vehicles sold in the state to be ZEV or transitional ZEV (TZEV) by 2025i. To encourage purchases of these vehicles, California established the Clean Vehicle Rebate Project (CVRP), which provides consumer rebates of $5,000 for fuel cell vehicles, $2,500 for battery electric vehicles, and $1,500 for plug-in hybrid electric vehiclesii. The federal government also provides a $7,500 tax credit to purchasers of qualifying electric vehicles. As ZEV sales increase, the amount of funding needed to provide rebates would need to increase as well at a cost to taxpayers under the current incentive structure.  For example, selling one million battery electric vehicles in California will result in a cost of $10 billion to taxpayers  (i.e.,  $10,000  in  combined  federal  and  state  incentives  multiplied  by  one  million). Markets and regulations are also getting out of alignment. Vehicle fuel economy and greenhouse  gases  (GHG)  standards  are  becoming  more  stringent  as  oil  prices  are  staying  low.  If  gasoline  prices  stay  low,  as  seems  likely  (thanks  in  part  to  tightening  vehicle  standards  in  US,  Europe,  and  elsewhere),  then  consumers  will  have  little  incentive to buy a more expensive, fuel-efficient car.  As vehicle fuel and GHG standards get become even more stringent, the misalignment will worsen.