Suggested Citation:
Ramji, Aditya (2024)

Sustainable Incentives and Market Mechanisms for Accelerated Zero Emission Vehicle Transitions

. Institute of Transportation Studies, University of California, Davis, Dissertation UCD-ITS-RR-24-37

Abstract:

Strong policies with sustainable incentives are needed to accelerate the EV transition. With the financial sustainability of EV incentive programs being questioned, a self-financing market mechanism such as feebates could be the ‘need of the hour’ solution. Different policy objectives could be served by feebates influencing its design and effectiveness. While there are key design elements that should be considered, there is no ‘optimal’ feebate design.
Irrespective of the policy goals, a feebate will impact both the supply side, i.e., the automotive industry and the consumer side. Globally, feebates can be used to effect technology leapfrogging while navigating the political economy of clean transportation policy in different country contexts.
In this dissertation, a case study approach is used to evaluate the use of a feebate policy in different geographical contexts, and their role in accelerating the transition to ZEVs.
The first chapter reviews the European context wherein feebates have become a widely used policy tool and draws lessons for policy design. In the second and third chapters, a feebate policy is designed for the United States and India, while accounting for their distinct policy approaches to encouraging ZEV adoption.The United States, under the Biden Administration, has set an ambition of reaching a 50% sales share for zero-emission vehicles by 2030 and is pursuing a combination of aggressive fuel economy standards along with tax credits for EV purchase that supports both battery and plug-in hybrid electric vehicles. Some states in the US, led by California, have adopted ZEV sales mandates as well as additional purchase incentives to encourage increased sales. More importantly, feebates have been attempted in the past, both at the state and federal level in the US through legislation.
In contrast, India’s approach to road transport decarbonization has been an ‘all-possible technologies’ and multi-fuel strategy, allowing for CNG, biofuels, strong hybrids and EVs. This also emerges from a relatively complex governance structure. India has a unique EV incentive program that favors only BEVs, with no support for PHEVs, but at the same time has a CO2 regulation with no penalties for non-compliance and a vehicle taxation mechanism that promotes other alternatives. This has also led to lack of certainty for industry in terms of optimizing investments, which a clear policy and technology pathway would provide. In both the second and third chapters focusing on the US and India respectively, a market-based mechanism, in this case, a feebate policy, that is self-financing and provides more market certainty for both producers and consumers for a long-term transition pathway is evaluated. These two chapters make two important contributions: (i) revenue-neutral incentive systems are possible while supporting increasing sales of light duty EVs along the target path, i.e. towards a 100% EV sales share by 2035 in the US and towards a 30-40% share by 2035 in India; and (ii) revenue-neutrality can be achieved with relatively low average fees on entry level ICE vehicles, at the very least, maintaining economic equity among vehicle buyers. In the case of India, the analysis evaluates the feebate design with a single policy objective of driving ZEV adoption (as opposed to inclusion of PHEVs in the US context), and thus, also focuses on a reform of the vehicle taxation system towards a CO2-based taxation approach.
The analysis brings into context the case of developing countries like India, where poor quality regulations such as fuel economy standards with no penalties for non-compliance or attribute-based relaxations, limit the impact of supply side policies in driving technology shifts. A feebate mechanism, will align the push for fuel economy improvements, vehicle taxation structure and the EV incentive program towards a common goal of a targeted ZEV adoption.
Last but not the least, the analysis in this dissertation shows that even if the feebate mechanism is not implemented by government, it can be used by individual automotive manufacturers to establish their own internal pricing mechanisms across ICE and EV products to determine a profitable business pathway during the EV transition.