This article was originally published in the December issue of Dunsky’s EV Market Update, a monthly newsletter that provides readers with regulatory, policy and industry news affecting Canada’s electric vehicle sector. The newsletter covers information that is not easily found in online publications, such as updates on regulatory hearings by jurisdiction, as well as news on electrification initiatives across the country. Additionally, each issue includes a deep dive on a trending topic written by our in-house EV experts.
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Authors: Lindsay Wiginton, Jeff Turner and Hannah MacDonald
There exists a common assumption that EVs are for the wealthy, but ironically dismisses a critical tool that can make EVs accessible. This article will explore the current ZEV purchase incentive structure in Canada, alternative designs to improve equitable access, and how incentives fit into the larger transportation equity puzzle.
EV ownership is not yet diverse
The concern about providing EV incentives to the wealthy comes from a reasonable line of logic. The majority of EV owners today are relatively wealthy, male, middle-aged, and live in detached houses. This ownership demographic is due in part due to the EV purchase prices. In our stakeholder engagement work, upfront cost is raised as the top concern from coast to coast (alongside EV charging access). Strategically structured incentives are important for tackling affordability and sharing the financial and health benefits of vehicle electrification.
How are incentives structured in Canada and who is receiving them?
Today, the federal incentive covers a portion of a vehicle’s Manufacturer’s Suggested Retail Price (MSRP) with a cap on eligible vehicles. Specifically, 6-seaters with an MSRP of $55,000 or less or 7+ seaters with an MSRP of $60,000 or less are eligible for an incentive. Provincial incentives follow a similar structure.
So far in 2021, the most common vehicles receiving the federal incentives are Tesla Model 3, Hyundai Kona Electric, Toyota Prius Prime, and Toyota RAV4 Prime (together accounting for 60% of incentives this year). Their MSRPs range from $33,500 for the Prius to just under $55,000 for the Tesla depending on options. The average new car price in Canada is $45,000. (Note: the Tesla Model 3 is no longer eligible for federal incentives as of November 23 2021 due to a price increase).
This vehicle price cap structure allows consumers to access more economical vehicles while avoiding subsidizing luxury vehicles. However, it does little to move the needle for low-income customers. Yet, evidence shows that low-income households respond more markedly to purchase incentives, while also benefitting more from operational cost savings, since transportation costs represent a larger share of household spending.
How could rebates evolve in Canada?
EV incentive structures will evolve along with the maturing EV market. These programs can be restructured to better support access to EVs for households who are low-income, racialized, and live in multi-unit buildings. As Dr. Sacoby Wilson poignantly noted at the recent E-Mobility Equity conference, “Folks at the frontline should be at the front of the line.”
One strong option is a transition to means-tested incentives. In this structure, incentives are based on the recipient’s ability to pay, typically defined by income. One leading example is California’s ZEV incentive program which offers an additional $2,500 on top of the standard rebate amount for low- to moderate-income consumers, while incentives are not available for high-income consumers (e.g. earning over $150 to $300K, depending on the household). In addition, it prioritizes the issuances of rebates for those customers, which as best practice is at the point of sale.
California has also been intentional in its vehicle scrappage program to support transportation decarbonization in disadvantaged communities. Income-eligible residents across the state can receive an incentive to scrap a high-polluting car with or without replacement, and even higher incentives for income-eligible populations living in areas designated as disadvantaged due to high levels of air pollution.
Another structure is a feebate system, which encourages EVs through rebates and discourages polluting vehicles through fees. This structure can be appealing because it can balance the overall costs of the incentive program by decreasing the EV incentive over time with an increasing fee. This structure would need to be designed with equity in mind to ensure decarbonization is accelerated without unduly penalizing disadvantaged groups.
An effective structure may be a combination of means-testing and a feebate. Ultimately, it needs to be designed to serve all Canadians. Effective incentive design requires strong information. Stakeholder and community engagement helps to understand the pain points and opportunities at the local level, while large-scale datasets provide important insights. The Canadian Urban Sustainability Practitioners Energy Poverty and Equity tool is a valuable resource to begin exploring Canadian equity issues. However, there are more detailed data sets south of the border, including the EPA’s online Environmental Justice tool, which allows users to screen for environmental (e.g., air quality, traffic proximity) and demographic (e.g., income, people of colour population, linguistic isolation) indicators. Understanding the historical and current barriers to equitable access to clean transportation is the first step to designing equitable incentive programs.
What about used ZEVs?
The majority of Canadians who buy vehicles buy used. Used ZEV incentives are offered in nearly every province with a rebate program, with the exception of British Columbia, as well as in Ontario. Used vehicle incentives were previously offered in BC under the Scrap-It program but were discontinued in 2022. In Ontario, used ZEV rebates are supported through philanthropic dollars by the non-profit organization Plug’N Drive. (In the territories, the Yukon’s program does not include used vehicles, but does provide financial support for used ZEV shipping costs.)
Used ZEV incentives can be complex to manage which may be why they were not included in the federal or the BC programs. Used vehicle incentives are helpful to further reduce EV costs, but incentives for new EVs also benefit used vehicle purchasers indirectly. Incentives for new vehicles put a downward pressure on prices for used vehicles by reducing the competitive price for the vehicle in the market. Given that every used vehicle enters the market as a new vehicle, incentives that accelerate adoption of new EVs will also accelerate the availability of a strong supply of used EVs. Therefore, new and used incentives support used EV affordability, which is the market for most Canadians, including low- and medium-income consumers.
Equitable decarbonization goes far beyond incentives
Equity issues in transportation electrification stretch far beyond purchase incentives. EV charging is a major barrier, particularly for renters and residents in multi-unit buildings. Education programs from and for communities are important to better relay the benefits of EVs and overcome concerns.
Transportation electrification stretches beyond personal vehicles. Electric carshare programs can be focused on low-income communities underserved by public transit, which has been piloted in Portland, OR. Electrification of public transit and micromobility transportation can reach diverse communities, if designed thoughtfully. Air quality issues in disadvantaged neighbourhoods can be addressed by electrifying transit and other medium and heavy-duty vehicles operating nearby, as we are seeing with the Port of Los Angeles and Long Beach.
Transportation electrification programs, including incentives, are vital for meeting climate goals. Understanding and integrating equity into program design is critical to ensure that the transition is not only rapid, but just.