Incentives to accelerate the zero emission vehicle market

3 July 2020

The coming decade will be a defining one for the global zero emission vehicle (ZEV) market. Although the potential benefits of ZEVs are enormous, there are substantial upfront costs in the early stages of the transition. To encourage the initial uptake of zero emission vehicles, governments are implementing policies that incentivize individuals to make the switch.

Through the ZEV Community, a peer learning project that brings together all levels of governments to share and learn about zero emission vehicle initiatives, leading ZEV governments including Québec, the City of Sacramento and Costa Rica, alongside research expert the International Council on Clean Transportation (ICCT), have shared lessons learned on their experiences with incentives to stimulate the electric vehicle market.

Here are four key incentives that all governments taking action on ZEVs should consider:

1. Subsidies

Research shows that one-time subsidies in the form of bonus payments at the time of vehicle purchase or leasing can have a strong influence on consumer decisions. Subsidy amounts can be dependent on battery capacity, manufacturer suggested retail price (MSRP) and lease term. As markets evolve over time, subsidies can be adjusted.

Typically, there are different price caps on the vehicles eligible for subsidies depending on the category of the model. These can be used to target specific markets, such as lower income drivers, or specific vehicle models that are less mainstream.

Many countries and local governments already offer subsidies for electric vehicles on car purchase and/or ownership. In Europe, the country with the highest one-time purchase incentives is Romania, with the program Raba Plus offering 45,000 RON (about 9,300 euros) for BEVs (Battery electric vehicles) and 20,000 RON (about 4,100 euros) for PHEVs (Plug-in hybrid electric vehicles) generating less than 50 g CO2/km.

2. Tax benefits

Tax benefits can be in the form of tax exemption or reductions. These are often offered at car purchase, when registering a vehicle for the first time or for car ownership (depending on whether car ownership is taxed within the jurisdiction). Many countries also offer tax benefits for company cars used for private use, which would be taxed by the employer on income tax.

In Europe, Norway offers the greatest ZEV cost-benefits. There is no value added tax (VAT) on the purchase of a BEV, which equates to 25% of the vehicle’s net price, and there is no registration fee.

3. Parking and charging incentives

In order to reduce cost-barriers, offering free or discounted parking and/or charging to electric vehicles and exemption from road tolls are worthy considerations. In addition, offering dedicated ZEV parking spaces or prioritizing permits for ZEVs in areas where restrictions are in place can be great incentives for purchasing an electric vehicle, particularly in very dense and traffic-heavy city centres.

The EV Parking Program in the City of Sacramento, California, waives any charging fees for EVs parked in the selected facilities and offers special monthly parking rates for eligible 100% electric vehicles.

4. Preferential road access

An example of an effective non-fiscal incentive is preferential access to bus and taxi lanes, enabling ZEV drivers to complete their journeys more quickly through bypassing heavy congestion. Another road access measure is the introduction of Low Emission Zones (LEZ) in urban areas. These zones restrict access for higher emitting vehicles.

London’s Ultra Low Emission Zone (ULEZ) has resulted in a significant drop in air pollution as well as 13,500 fewer polluting vehicles being driven into the zone each day.

Final considerations

The examples above highlight that there are a variety of incentives that governments can implement to accelerate the uptake of zero emission vehicles. Whichever combination of these incentives governments choose to implement, they should also provide stable policies to foster steady growth within the electric vehicle market.

Costs in the ZEV transition are transitioning to the private sector, but sustained funding is critical to growing the early ZEV market. Governments should also ensure their policies are aligned across different levels of authority and shape their programs and initiatives to benefit all members of society.

As Sandra Wappelhorst, Senior Researcher at the International Council on Clean Transportation (ICCT), commented:

The transition to zero emission vehicles can only be achieved through a combination of strong and robust measures, stable and regular incentives policy and engagement of various stakeholders at different levels.”

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