Electric vehicle adoption is being fueled by events like Charge Across Town’s upcoming electric vehicle showcase on Saturday, October 12 from 10 a.m. to 4 p.m. at Pier 27 in San Francisco. Photo courtesy Charge Across Town.

When Senate Bill 1 (Beall) passed in 2017, it raised the gasoline excise tax for the first time in 20 years to generate tens of billions of dollars to restore aging transportation infrastructure. It also launched two annual fees to further boost the repair budget in anticipation of a shift to zero-emission vehicles (ZEVs). The proceeds of those payments could help replace and even surpass gas tax revenue as more consumers electrify their ride.

This potential is laid out in a new research report, The Impact of ZEV Adoption on California Transportation Revenue, by the Mineta Transportation Institute (MTI). Study authors Martin Wachs, Hannah King, and Asha Weinstein Agrawal examined the state’s transportation revenue through a lens focused on the speed of ZEV buying activity. They also cracked open perceptions about ZEVs threatening the state’s transportation funding structure — reliant on gas sales tax revenue — since owners don’t buy fuel to operate them.

California has yet to experience the extent of this concern since the ZEV market remains relatively small and gasoline-powered cars constitute the vast majority of new car demand. However, electric enthusiasm is building for reasons like positive environmental impact and less maintenance. This is especially true in the Bay Area, often considered ground zero for ZEV adoption.

So as the market heats up, the question for policymakers is what effect do clean cars have on traditional funding sources like the gas tax?

The answer depends, in part, on the two new fees, according to MTI number-crunching. The first is the Transportation Improvement Fee (TIF). Every car owner started paying it last year, shelling out between $25 and $175, depending on vehicle value. The second payment, a $100 Road Improvement Fee (RIF), switches on next July for owners of electric cars of model year 2020 or later. California is among two dozen U.S. states that have instituted fees on ZEVs to help recoup fuel tax revenue lost at the pump.

Another important part of the equation is the pace of ZEV sales activity. MTI researchers looked at this variable by modeling two future scenarios. Their low-adoption scenario assumed the number of ZEVs in California would continue to grow at its historical rate of net increase, approximately 26,000 a year. Their high-adoption scenario represented a future in which California meets its goal of putting 5 million ZEVs on state roads by 2030, a policy approach aimed at significantly reducing car-produced carbon emissions.

Currently, California is about 4.4 million shy of its ZEV goals. There were 626,824 ZEVs (battery, plug-in hybrid, and hydrogen fuel cell) cruising California as of August, according to cumulative sales data from Veloz, a Sacramento nonprofit focused on accelerating the transition to electric vehicles.

Both of MTI’s scenarios start from when TIF collection began in 2018, with the state bringing in $8 billion in total transportation revenue that year. The scenarios align with each other through 2020, when annual revenue reaches $11 billion; after that, revenues fall under both scenarios and projections begin to splinter. But by 2040, MTI sees revenue back on the upswing, hitting $9 billion in the low-adoption scenario and $11 billion in the high-adoption scenario.

The researchers also think transportation revenue composition will change over time. For example, in the high-adoption scenario, gasoline excise revenue is seen increasing for the next few years only to later decline. By 2040, it will make up less than 45 percent of all revenues, while the share from diesel fuel sales and excise receipts stays flat through 2040.

Bear in mind that MTI’s projections rest on several assumptions, including population growth, future gas prices, inflation, and the cost of ZEVs going forward. For example, MTI analysis showed TIF revenue will account for more under the high-adoption scenario because ZEVs generally have bigger price tags than gas-powered cars. A web search showed that the subcompact 2019 Chevrolet Bolt starts at $36,630, while the comparable Nissan Versa starts at $12,460.

Overall, the TIF and RIF represent promising revenue streams, but MTI’s projections show they can’t go the distance alone. Gas tax revenue, even with projected declines, is an important part of a “packaged” transportation funding approach that’s built on both taxes and the new fees, according to Weinstein Agrawal.

“The gas tax still matters,” she said. “It’s an appropriate, equitable way to charge drivers in exchange for their use of the roads.”
Should ZEV purchase prices fall significantly as more manufacturers bring new models to the market, then TIF revenue, and overall state transportation revenue, could fall considerably below the estimated values in the report, MTI cautioned.

The message to policymakers is to be mindful of the changing role of the gas tax over the next 20 years and consider transitioning to other long-term, sustainable funding sources like a mileage fee. With a mileage fee, the idea is that drivers pay based on the number of miles driven. That would apply to both electric vehicles and gas-powered cars.

In the meantime, anyone in the market for a new car will see showrooms drawing attention to the uniqueness of owning a ZEV. There are approximately 45 electric makes and models now available to consumers, a tally that’s very light on sport-utility vehicles and doesn’t include pick-up trucks.

“We’re expecting dozens of more makes and cars in the market in next five years,” said Josh Boone, Veloz’s founding executive director. “Consumer choice and options are a big factor in growing the market to scale.”

“I personally believe we’re on the cusp of a huge transition to a world that really thinks of electric transportation for our needs now and into the future,” he added.

Battery technology innovations that increase range and the availability of more and faster charging infrastructure are important to shaping buyer attitudes and decisions. So, too, are incentives.

Credits and rebates play a significant role in spurring adoption, especially among cost-conscious buyers who may be inclined to opt for a cheaper, gas-powered car. There are incentives available now at the federal, state, and even local level through PG&E, but whether they increase in amount or number remains to be seen.

“The big unknown is future incentives on the consumer side for adoption,” said King.

Currently, buyers of battery electric vehicles can receive rebates of $2,500 from the Clean Vehicle Rebate Project (CVRP). Since the project began in 2010, the Center for Sustainable Energy, which administers the CVRP in partnership with the state’s Air Resources Board, has issued more than 319,031 rebates totaling $720.4 million.

The state legislature approved $238 million in cap-and-trade auction proceeds for the CVRP as of June 27. But in periods when funding exceeds current budgets, waiting lists can form. That’s one of the reasons Assemblymember Phil Ting of San Francisco introduced Assembly Bill 1046 this summer, proposing to increase the rebate amount to as much as $7,500. His idea was that as market penetration grows, rebates would decline over time.

“There is no real incentive to buy or lease a zero-emission vehicle right now if consumers know the rebate level will be the same year after year — or even worse, run out during the year,” Ting said in a July 8 press release.

The source of financial backing for AB 1046, ultimately killed in August, was unclear. The failed legislation had directed the Air Resources Board to craft a plan for a continuous source.

Besides financial incentives, promotional events have also been a key factor in spurring adoption. More than 300 such events were recently held across the country during September’s National Drive Electric Week. And on October 12, the nonprofit Charge Across Town keeps things rolling with a free exhibition at San Francisco’s Pier 27, where attendees can test-drive electric vehicles on an enclosed loop, as well as learn about rebates, charging, and other details.

Given all the various efforts to advance this clean technology, will California reach its goal of 5 million ZEVs by 2030?

“It’s a stretch, but it can be done,” said Maureen Blanc, Charge Across Town’s executive director.

Cecily O’Connor covers transportation for the Monitor.