The 2022-23 Budget: Zero-Emission Vehicle Package

2022-23 BUDGET The 2022-23 Budget: Zero-Emission Vehicle Package Summary Governor Proposes $6.1 Billion for Zero-Emission Vehicle (ZEV)-Related Activities. The Governor proposes a total of $6.1 billion from various fund sources over five years for a package of proposals related to ZEVs. Most of the proposed funding would continue and/or expand existing programs, such as heavy-duty and off-road programs, ZEV fueling infrastructure programs, and programs focused on cleaner vehicles and mobility for low-income households and disadvantaged communities (also known as transportation equity programs). Mix of Spending Depends on Legislative Priorities. Ultimately, budget allocations will depend on how the Legislature prioritizes different policy goals: • Near-Term Greenhouse Gas (GHG) Reductions. Truck and bus vouchers are one of the most cost-effective GHG reduction mobile source incentive programs. However, overall, the GHG costs for mobile source incentive programs are relatively high. The Legislature might want to consider relying on other programs if the goal is to achieve the most cost-effective, near-term GHG reductions. • Near-Term Local Air Pollution Reductions. Heavy-duty retirement and replacement programs—such as Carl Moyer, Funding Agricultural Replacement Measures for Emission Reductions (FARMER), and AB 617 incentives—are relatively cost-effective programs for reducing air pollution. • Advancing ZEV Technologies. Programs that focus on advancing ZEV technologies in their early stages of market development—such as heavy-duty pilots, demonstrations, and vouchers—could help achieve long-term GHG and air pollution goals. • Air Quality Benefits in Disadvantaged Communities. To improve air quality in disadvantaged communities, the Legislature could support programs that reduce local air pollution cost-effectively and where the vast majority of the spending benefits low-income and disadvantaged communities, such as AB 617 incentives. Unclear How State Funding Will Be Used to Leverage Federal Funds. The Legislature might want to require the administration to develop a plan for how state funds can be used to complement federal charging infrastructure funds, including a description of how state funding can be used to leverage federal funding or fill in the major gaps in federal funding. Consider Trade-Offs of Multiyear Funding Commitments. On the one hand, multiyear commitments can provide market certainty and make it easier for departments to design and administer programs. On the other hand, they have to potential to reduce future legislative oversight and create General Fund pressures in future years. GABRIEL PETEK | LEGISLATIVE ANALYST FEBRUARY 2022 www.lao.ca.gov 1 2022-23 BUDGET BACKGROUND State Has Ambitious Climate Change and • Heavy-Duty Vehicles. This includes large Air Quality Goals. California has a variety of trucks (such as long-haul trucks), garbage goals related to reducing greenhouse gas (GHG) trucks, some port equipment (such as drayage emissions, as well as regional and local air pollution. trucks), and buses. Currently, most of these For example: vehicles are powered by diesel engines, or in some cases the vehicles use hybrid • GHG Limit. Chapter 249 of 2016 technologies or engines powered by natural gas. (SB 32, Pavley) established a statewide GHG limit of 40 percent below 1990 levels by • Off-Road Equipment. This includes a 2030. (The Governor also has an executive wide range of equipment types, including order establishing a goal of statewide carbon locomotives, ocean-going vessels, commercial neutrality by 2045, but this target is not in harbor craft, portable generators, agricultural state law.) equipment, construction equipment, lawn and garden equipment, forklifts, aircrafts, • Federal Air Quality Standards. California has and recreational boats. Currently, most of this two areas with the most critical air quality equipment is powered by diesel engines. challenges in the nation—the South Coast Air Basin and the San Joaquin Valley. Substantial As shown in Figure 1, mobile sources represent reductions in criteria pollutants from all a substantial share of California’s GHGs and air sources—specifically, nitrous oxides (NOx) and pollution. In particular, these sources represent about fine particulate matter (PM2.5)—are needed to 40 percent of GHGs and over 70 percent of statewide meet increasingly stringent federal air quality NOx emissions. (This does not include “upstream” standards in the coming years. GHG emissions, such as emissions related to • AB 617 Community Emissions Reduction producing or refining crude oil.) Light-duty vehicles Plans. Pursuant to Chapter 136 of 2017 make up the largest share of mobile source GHG (AB 617, C. Garcia), some of the communities emissions, while heavy-duty vehicles and off-road with the worst air quality in California have equipment make up the majority of mobile source adopted plans that identify five- and ten-year NOx. Heavy-duty vehicles and off-road equipment targets to reduce air pollution exposure from are also primary sources of diesel particulate matter, various sources. which the California Air Resources Board (CARB) estimates is the source of 70 percent of total known Mobile Sources Represent a Large Portion of cancer risk related to air toxics in California. Emissions. Emissions that come from vehicles and Air Pollution Differs Between Regions and other types of mobile equipment are also known as Communities. Certain regions—such as the Central “mobile sources.” Mobile sources include several Valley and South Coast—and communities—such as different types of vehicles and equipment, such as: those near ports, highways, and freight corridors— • Light-Duty Vehicles. This includes passenger are disproportionately impacted by air pollution from cars and smaller pick-up trucks. Currently, mobile sources. In addition, as shown in Figure 2, most of these vehicles have gasoline-powered research supported by CARB found that PM2.5 internal combustion engines. exposure from on-road sources is 53 percent • Medium-Duty Vehicles. This includes vehicles higher in disadvantaged communities (as defined that weigh more than 8,500 pounds up to by the California Environmental Protection Agency) 14,000 pounds, such as larger pick-up trucks than the statewide average. The higher exposure and neighborhood delivery vans. Currently, in disadvantaged communities is at least partially these vehicles are primarily fueled by gasoline because of the way disadvantaged communities or diesel. are defined, which is—in part—based on estimated exposure to PM2.5. This research also found 2 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET Figure 1 Mobile Sources Are Major Contributors to Climate Change and Air Pollution 2019 Statewide Share of Emissions by Source Greenhouse Gases Nitrogen Oxides Medium Duty 3% Light Duty 8% Stationary/Other Light Duty 28% 28% Heavy Duty 29% Stationary/Other 60% Medium and Heavy Duty 8% Off Road 33% Off Road 3% that PM2.5 exposure from on-road sources was 10 percent higher for low-income households and Figure 2 18 percent higher for Black and Hispanic populations. California PM2.5 From On-Road Sources Policies that reduce PM2.5 exposure from on-road Disproportionately Affects Certain sources could have disproportionate benefits for Populations and Areas these communities. Population-Weighted Average Exposure Concentration State Has A Variety of Programs to Reduce (Micrograms Per Square Meter) Emissions and Promote ZEVs. The state administers a wide variety of programs intended to 3.0 reduce mobile source emissions, including programs that promote zero-emission vehicles (ZEVs). This 2.5 includes funding for light-duty vehicles, heavy-duty vehicles, off-road equipment, and ZEV fueling 2.0 infrastructure. For example, the 2021-22 budget 1.5 agreement provided $3.9 billion over three years for various programs to reduce emissions and promote 1.0 ZEVs. (For more detail, see our post, The 2021-22 California Spending Plan: Natural Resources and 0.5 Environmental Protection.) In addition, the state has a wide range of regulatory programs that are Statewide Low Incomea Black/Hispanic Disadvantaged meant to encourage ZEVs, including a ZEV mandate Average Communities requiring a certain number of light-duty vehicles sales be ZEVs. (For more information about some of the a Lowest 20 percent of household income distribution. Source: Apte et al. (2019) key state programs intended to reduce transportation PM2.5 = fine particulate matter. GHG emissions, see our 2018 report Assessing California’s Climate Policies—Transportation.) www.lao.ca.gov 3 2022-23 BUDGET PROPOSAL Governor Proposes Additional $6.1 Billion Mostly Expands Existing Programs, but for ZEV-Related Activities. The Governor Creates Some New Programs. Most of the proposes a total of $6.1 billion from various proposed funding would continue and/or expand fund sources (General Fund, Greenhouse Gas existing programs, such as heavy-duty and Reduction Fund [GGRF], and federal funds) over off-road programs, ZEV fueling infrastructure five years for a package of proposals related programs, and programs focused on cleaner to ZEVs. Figure 3 summarizes the Governor’s vehicles and mobility for low-income households proposed ZEV package, as well as the ZEV and disadvantaged communities (also known package adopted as part of last year’s budget. as transportation equity programs). The most In 2022-23, most of the proposed $2.7 billion is for significant new programs and programmatic school buses ($1.5 billion), and heavy-duty vehicle changes proposed by the Governor include: and infrastructure incentives ($700 million). Figure 3 Summary of Approved and Proposed ZEV Packages General Fund, Unless Noted Otherwise (In Millions) 2021-22 Package Proposed 2022-23 Package Program Department Total 2022-23 2023-24 2024-25 2025-26 Total Light-Duty Vehicles Clean Vehicle Rebate Project CARB $525 — — — — — Clean Cars 4 All and Other CARB 400 $171a $50 $35 — $256 Equity Projects Transportation Equity, Mobility, CARB, CalSTA — 65 130 134 $90 419 and SCS Pilots ZEV Fueling Infrastructure CEC 300 100 220 210 70 600 Grants Equitable At-Home Charging CEC — 60 100 90 50 300 Transportation Package ZEVb CalSTA 407 77 77 77 76 383c Heavy-Duty and Off-Road Vehicles Drayage Trucks & Infrastructure CARB, CEC $535 — $200 $170 $105 $475 Transit Buses and Infrastructure CARB, CEC 290 — 200 160 100 460 School Buses and Infrastructure CARB, CEC, CDE 450 $1,500 — — — 1,500 Clean Trucks, Buses, and Off- CARB, CEC 700 700d 200 165 35 1,100 Road Equipment Ports CARB, CEC — — 100 200 100 400 Near-Zero Heavy-Duty Trucks CARB 45 — — — — — Emerging Opportunities CARB, CEC — 20 50 86 44 200 Other ZEV Consumer Awareness GO-Biz $5 — — — — — ZEV Manufacturing Grants CEC 250 — — — — — Totals $3,907 $2,693 $1,327 $1,327 $746 $6,093 a Includes $76 million Greenhouse Gas Reduction Fund. b Includes federal funds. c Includes $76 million in 2026-27. d Includes $600 million Greenhouse Gas Reduction Fund. ZEV = zero-emission vehicle; CARB = California Air Resources Board; SCS = Sustainable Communities Strategies; CalSTA = California State Transportation Agency; CEC = California Energy Commission; CDE = California Department of Education; and GO-Biz = Governor’s Office of Business and Economic Development. 4 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET • School Bus Program ($1.5 Billion • Equitable At-Home Charging ($300 Million Proposition 98 General Fund). General Fund). The proposal includes a This program would provide competitive total of $300 million over four years—with grants to school districts to replace $60 million in 2022-23—for EV charging nonelectric school buses with electric buses infrastructure at multi-unit dwellings and and purchase related infrastructure. low-income, single-family homes. The funds • ZEV Fueling Infrastructure Grants would be used for Level 2 charging stations ($600 Million General Fund). The proposal and electrical panel upgrades. (Level 2 includes a total of $600 million over four charging stations provide about 14-35 miles years—with $100 million in 2022-23—for of driving range per hour of charging.) electric vehicle (EV) charging infrastructure. • Potential Sustainable Communities Unlike last year’s ZEV package, this proposal Strategies (SCS) Pilots. As part of the would prioritize fast chargers. proposed funding for SCS pilots and other • Federal Funding for ZEV Infrastructure equity programs, CARB would consider ($383 Million Federal Funds). The proposal creating a new pilot program that would includes federal funding available to incentivize transportation agencies to California through the federal Infrastructure prioritize projects that reduce vehicle Investment and Jobs Act (IIJA) enacted in miles traveled (VMT), rather than roadway November 2021. Specifically, it includes expansion projects. The proposed budget $383 million for five years from the National does not provide funding explicitly for this Electric Vehicle Infrastructure Formula pilot project, but CARB would consider it as Program, which is intended to support part of its typical Low Carbon Transportation fueling infrastructure along designated Investment Plan process after the budget alternative fuel corridors, such as along the is adopted. Interstate Highway System. www.lao.ca.gov 5 2022-23 BUDGET ASSESSMENT In this section, we provide our assessment of Two-Thirds of New Funding for Heavy-Duty the Governor’s proposed ZEV package, except Vehicle Programs. Over two-thirds of the the $1.5 billion proposal for electric school buses proposed funding would support heavy-duty which we discuss in our recent brief, The 2022-23 vehicle programs, as shown in Figure 5. Budget: Green School Bus Grants. (This includes the $1.5 billion for electric school buses.) A majority of the funding in the 2021-22 Package Funds Different Types of ZEV package was also targeted at such programs. Vehicles and Prioritizes Heavy-Duty Under the Governor’s plan, about 62 percent ZEVs of the combined $10 billion total from both ZEV packages would go to heavy-duty vehicle Funding Expected to Support a Variety programs. Funding for light-duty vehicles would of Vehicle Types and Fueling Infrastructure. be targeted to transportation equity and mobility As shown in Figure 4, the proposed funding programs, as well as fueling infrastructure. No new would support a variety of vehicles, EV charging funding would be allocated to the state’s main ZEV stations, off-road equipment, and other projects. rebate program, the Clean Vehicle Rebate Project The estimated amounts are subject to uncertainty (CVRP), but $100 million would be available to because (1) the final allocations will depend on support higher CVRP rebate amounts for low- and decisions made by departments about how to moderate-income households. We note that the allocate the funding to specific subprograms $525 million allocated to CVRP in the 2021-22 or projects and (2) actual deployment amounts budget was intended to cover three years of funding could also depend on which technologies are for the main CVRP program. actually purchased. For example, the number of vehicles supported through the clean truck and bus vouchers depends on which technologies businesses and governments ultimately choose to purchase with the vouchers. Figure 4 Estimated Number of Vehicles, Chargers, and Projects Supported With Proposed Funding (In Millions) Program Amount Estimated Deployment Light-Duty ZEV Fueling Infrastructure $600 5,000 DC fast chargers Transportation Equity, Mobility, and SCS Pilots 419 100 projectsa Equitable At-Home Charging 300 28,000 Level 2 MUD chargers; 50,000 home chargers Vehicle Rebates for Low-Income Consumers 100 20,400 vehicles Financing Assistance for Low-Income Consumers 80 12,300 vehicles Clean Cars 4 All 76 6,600 vehicles Heavy-Duty and Off-Road Clean Trucks, Buses, and Off-Road Equipment $600 4,100 vehicles and equipment Transit Buses and Infrastructure 320 1,600 buses Ports 250 860 pieces of off-road equipment Drayage Trucks and Infrastructure 225 1,000 trucks Emerging Opportunities 100 10 projectsa a Each project may fund multiple vehicles and equipment. Source: California Air Resources Board and Energy Commission. SCS = Sustainable Communities Strategies; ZEV = zero-emission vehicle; and MUD = multi-unit dwellings. 6 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET Figure 5 Over 60 Percent of Total Funding Would Go to Heavy-Duty Vehicles and Equipment Adopted 2021-22 Package Proposed 2022-23 Package Other 6% Light Duty 32% Light Duty Heavy Duty 42% 52% Heavy Duty 68% Programs Target Different Policy Goals programs are more cost-effective at reducing With Varying Levels of Effectiveness air pollution. Furthermore, some programs do more to promote zero-emission technological Mobile Source Emission Programs Aim to advancements that can help meet long-term Achieve Different Policy Goals… The state has a emissions goals, while others do more to target wide variety of mobile source incentive programs. funding in ways that benefit low-income and These programs aim to achieve one or more disadvantaged communities. We discuss these key different policy goals, including: (1) near-term GHG differences in more detail in the remainder of this reductions; (2) near-term air pollution reductions; section. (For more detail on the methods used to (3) advancements in zero-emission technologies, determine the measurements identified in Figure 6, which could have longer-term GHG and air quality see the box on page 9.) benefits; and/or (4) ensuring program benefits Notably, Figure 6 does not include an evaluation are distributed equitably across different areas of the state’s main vehicle rebate program (CVRP) and populations, often with a focus on reducing or ZEV infrastructure funding. As discussed in the pollution in areas that are disproportionately box on page 10, evaluating the net effects of mobile low-income and/or have poor air quality. All four source programs on GHGs and air pollution can be of these are reasonable policy goals. However, in especially challenging and a more rigorous analysis many cases, the Legislature will have to balance the is likely needed to provide reliable information trade-offs between these goals when determining on program cost-effectiveness compared to how to prioritize funding across different programs. other programs. In addition, some programs might have other policy goals, such as increasing mobility. Mobile Source Emission Reduction Programs Are Relatively Costly Approaches to Near-Term …And Degree of Effectiveness Varies GHG Emission Reductions. Of the programs Between Programs. As shown in Figure 6 on listed earlier in Figure 6, the most cost-effective the next page, the degree to which mobile source program for reducing near-term GHGs is the Clean incentive programs achieve each policy goal varies Truck and Bus Voucher Program with estimated by program. For example, some programs are costs of $350 per ton. The other incentive programs more cost-effective at reducing GHGs, while other have costs close to or exceeding $1,000 per ton. www.lao.ca.gov 7 2022-23 BUDGET Figure 6 Mobile Source Program Effectiveness Varies Between Program and Policy Goal GHG Cost- Air Pollution Cost- Effectiveness Effectiveness Technology Benefiting Priority Program ($/Ton)a ($/Weighted Ton)a Advancementb Populationsc Transportation Equity Low-Income Financing Assistance $830 $538,000 Low-Medium 84% Clean Cars 4 All 920 438,000 Low-Medium 97 Clean Mobility in Schools 2,450 235,000 Low-Medium 100 Clean Mobility Options 11,400 4,122,000 Low-Medium 100 Sustainable Transportation Equity Project 5,050 4,845,000 Low-Medium 100 Heavy-Duty and Off-Road ZEVs Clean Truck and Bus Vouchers (HVIP) $350 $96,200 Medium 63% Off-road Equipment Vouchers (CORE) 1,710 481,000 Medium 73 Demo/Pilots 18,800 110,000 Medium-High 100 Heavy-Duty Retirement and Replacement FARMER $1,679 $8,979 Low 70% Carl Moyer 1,670d 11,700 Low N/A AB 617 Incentives 1,661 12,486 Low-Medium 94 a CARB estimate. b LAO estimate. c Administration’s estimate. d LAO estimate based on average of FARMER and AB 617 incentives. GHG = greenhouse gas; ZEV = zero-emission vehicle; HVIP = Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project; CORE = Clean Off-Road Equipment; FARMER = Funding Agricultural Replacement Measures for Emission Reductions; N/A= not available; CARB = California Air Resources Board; and AB 617 = Chapter 136 of 2017 (AB 617, C. Garcia). By comparison, other state programs are likely hundreds of thousands of dollars to millions of more cost-effective. For example, current dollars per ton for most other programs. These cap-and-trade allowance prices are about $30 per programs largely provide funding to retire older, ton and Low Carbon Fuel Standard credits are high-polluting engines and replace them with about $150 per ton. (In our view, these allowance cleaner fossil fuel engines (such as natural gas), and credit prices are a reasonable proxy for rather than focusing on zero-emission technologies the marginal costs of near-term GHG emission such as battery electric and fuel cells. Each of reductions from these programs.) Also, according to these programs would receive funding under the the administration’s estimates, other GGRF funded Governor’s budget, but they would not receive incentive programs, such as methane reduction additional funding as part of the proposed programs, cost less than $100 per ton. ZEV package. Heavy-Duty Retirement and Replacement The cost-effectiveness estimates for GHGs Programs Are Relatively Cost-Effective and air pollution reductions illustrate some of the Approach for Air Pollution Reductions. The most important trade-offs the Legislature faces when cost-effective programs for reducing near-term determining its budget priorities for programs local criteria pollutants appear to be the Funding intended to reduce emissions. For example, Agricultural Replacement Measures for Emission Figure 7 on page 11 shows the estimated GHG Reductions (FARMER) Program, the Carl Moyer reductions and local air pollution reductions Program, and AB 617 incentives (also known as associated with providing $1 million in funding Community Air Protection incentives). Estimated to each program. Of the programs analyzed in costs to reduce a weighted ton of criteria pollution this report, the Hybrid and Zero-Emission Truck ranges from $8,979 to $12,486 per ton in these and Bus Voucher Incentive Project (HVIP) would programs, compared to costs ranging from the achieve the greatest GHG reductions, but the 8 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET Measuring Impact of Mobile Source Incentive Programs We provide information below on how we determined the different measurements included in Figure 6 regarding the impact of various mobile source incentive programs. Greenhouse Gas Cost-Effectiveness. This is based on estimates from the California Air Resources Board (CARB) on the average program spending per ton of carbon dioxide equivalent reduced over the life of the projects. These estimates include only projects implemented in the last few years. Air Pollution Cost-Effectiveness. This is based on CARB estimates of average program spending per ton of weighted criteria pollutant reductions over the life of the projects. Weighted criteria pollutant reductions are calculated by adding tons of nitrogen oxide emissions, reactive organic gases, and particulate matter. For heavy-duty vehicles and equipment, particulate matter reductions are multiplied by 20 to account for the toxic health hazards associated with diesel particulate matter. (This is consistent with weighting that has historically been used in the Carl Moyer Program.) These estimates include only projects implemented in the last few years. Technology Advancement. This is based on our assessment of the degree to which each program could help promote zero-emission technologies. Programs that primarily focus on promoting cleaner fossil fuel engines (such as natural gas) and/or widely available zero-emission vehicle (ZEV) technologies (such as light-duty ZEVs) generally score low. Programs that focus on promoting ZEV technologies that are in the early stages of commercial availability (such as truck and bus vouchers) generally score medium. Programs that focus on pilots and demonstrations for new technologies generally score high. These assessments are based on our best judgement, but state departments and other researchers might have different, yet reasonable, assessments. Benefiting Priority Populations. We use the administration’s estimates of the portion of Greenhouse Gas Reduction Funds that have been allocated to projects that benefit disadvantaged communities and/or low-income households and communities (also known as “priority populations”), as reported in the administration’s 2021 Annual Report to the Legislature on California Climate Investments. heavy-duty retirement and replacement programs Unfortunately, it is difficult to assess these would achieve the greatest air pollution reductions. technology benefits quantitatively. In general, Notably, in the near term, none of the programs heavy-duty and off-road technologies are farther would cost-effectively reduce both GHGs and behind in technological and market development air pollution. than light-duty ZEVs, so there is greater potential Programs Promoting Technological Advances for technological advancement. In our view, pilot Could Help Achieve Long-Term Emission and demonstration projects generally have the most Reductions. Some programs aim to help advance potential technological benefits because they are ZEV technologies, which could help achieve supporting early stage technologies and projects long-run GHG and air pollution reduction goals. that very likely would not otherwise be funded by Also, in our view, policies that attempt to promote the private sector. research, development, and demonstration of new Role of Transportation Equity Programs in technologies is a reasonable role for government. Achieving Policy Goals Is Unclear. Compared to This is because, without such support, the private other mobile source programs, it is unclear whether sector would tend to underinvest in these activities the transportation equity programs achieve any and cleaner technologies might not reach the of the Legislature’s policy goals effectively. First, commercial market in a timely manner (or at all). transportation equity programs appear to be a www.lao.ca.gov 9 2022-23 BUDGET Light-Duty Vehicle Rebate and Infrastructure Programs Difficult to Evaluate Evaluating cost-effectiveness can be challenging for many mobile source programs, but especially certain light-duty, zero-emission vehicle (ZEV) programs. Below, we describe some of the key challenges for two main programs: the Clean Vehicle Rebate Project (CVRP) and light-duty ZEV public fueling infrastructure. CVRP. The CVRP program interacts with other programs in ways that make it difficult to determine how much of ZEV adoption is related to CVRP versus other ZEV programs. For example, one recent analysis found that light-duty vehicle subsidies have relatively little effect on ZEV adoption in California after accounting for the state’s ZEV mandate that requires car manufacturers to sell a certain percentage of ZEVs. The CVRP largely shifts who pays the costs for the ZEVs, not how many ZEVs are ultimately purchased. Current CVRP estimates provided by the California Air Resources Board (CARB) do not take either of these interactions into account when estimating cost-effectiveness. As a result, we do not include these estimates in our cost-effectiveness analysis. It is worth noting that similar methodological issues have been identified in previous reports by our office and the California State Auditor. In response to the auditor’s report, CARB has entered into a contract with researchers to improve its data collection and help develop evaluation strategies to disentangle the effects of overlapping programs. Light-Duty ZEV Public Fueling Infrastructure. So far, much of the funding provided to the California Energy Commission to support ZEV fueling infrastructure has been used for fueling and charging infrastructure in public and shared locations, such as parking lots, workplaces, and multi-unit dwellings. As we have noted in previous reports, we think there is a reasonable rationale for government support of public fueling infrastructure as a strategy to promote ZEVs. However, it is difficult to measure the degree to which additional public infrastructure influenced a household’s decision to purchase a ZEV, compared to other programs and factors. As a result, we do not include estimates of fueling infrastructure cost-effectiveness in our analysis. relatively costly way to reduce both local pollution New Programs Raise Several Key and GHGs. Second, most of these programs focus Implementation Questions on light-duty vehicle and mobility programs which, Some of the funding proposed by the Governor in our view, only have modest potential to drive would go to new programs where key program technological advancements—likely less than some design and implementation details are unclear. of the heavy-duty ZEV programs. Finally, although Below, we identify several questions about the vast majority of funding from these programs the implementation of two new programs—the goes to projects that benefit low-income and Equitable At-Home Charging program and the disadvantaged communities, the percentage is not potential SCS pilots. significantly more than some of the other programs. Equitable At-Home Charging Program. At the For example, the AB 617 incentive program time of this brief, the administration has not provided allocates 94 percent of funds to projects that information on some of the key design features for this benefit priority populations and achieves criteria program. This includes: pollutant reductions much more cost-effectively than the transportation equity programs. • How is this program different from other efforts to fund EV charging infrastructure for low- and moderate-income households? Currently, the state, local air districts, and utilities administer programs that offer financial incentives for 10 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET charging infrastructure, including infrastructure for multifamily dwellings and single-family households. For example, the Clean Cars 4 All program in the South Coast offers low- and moderate-income households financial support for home EV charging infrastructure. • What is the program outreach strategy? For example, will incentives for charging infrastructure be provided at the car dealership upon purchase of the ZEV, or will households access this program in some other way? • How will this program target renters? Low-income households are more likely to rent their homes. As a result, an effective infrastructure program targeted at low-income households will likely need to focus on rental properties. Potential SCS Pilots. The administration might use some National Electric Vehicle Infrastructure Formula of the funding for transportation Program—is already part of the Governor’s proposed equity programs to pilot SCS intended to reduce budget. According to recently released federal VMT. We find that piloting potential strategies to guidance, the state must submit a plan to the federal reduce VMT could have merit, especially given the government describing how funding will be used. lack of progress the state has made in this policy At the time this brief was written, the administration area over the past several years. However, there has not provided detail on how the $383 million are very few details about how these pilots would will be used. The other two charging and fueling be structured and how they would be different infrastructure grant programs are competitive from other state programs targeted at reducing programs and detailed federal guidance is not yet VMT, such as the Active Transportation Program available. For all programs, the federal government will administered by the California Department of only pay for a portion of the costs, with the remainder Transportation (Caltrans) and the Clean Mobility coming from other private or public sources. Options program administered by CARB. Given the limited detail, it is unclear how the Plan for Complementing Federal ZEV proposed state funding for ZEV infrastructure— Infrastructure Funding Unclear ZEV infrastructure grants and Equitable At-Home Charging—will be used to best complement As shown in Figure 8 on the next page, federal funding. For example, will any state funding the federal IIJA established three main ZEV be needed to leverage federal funding? How do infrastructure programs. Funding for one of the these state funding proposals help fill key gaps in programs—$383 million to Caltrans through the federal funding? www.lao.ca.gov 11 snoitcudeR noitulloP riA dethgieW Figure 7 Air Pollution and GHG Benefits Per Dollar Spent Estimated Tons Reduced Per $1 Million of Funding 120 FARMER 100 Carl Moyer 80 AB 617 Incentives 60 40 Heavy-Duty Demos and Pilots 20 Other Transportation Equity Off-Road Equipment CC4A HVIP 500 1000 1500 2000 2500 3000 GHG Reductions GHGs = greenhouse gases; FARMER = Funding Agricultural Replacement Measures for Emission Reductions; CC4A = Clean Cars 4 All; and HVIP = California's Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project. 2022-23 BUDGET Multiyear Funding and outcomes prior to committing additional Approach Presents Trade-Offs funding. One potential solution to this would be to require the administration to report annually Multiyear Funding Can Be Helpful for on the progress of how funding has been spent, Market Certainty and Program Administration. key outcomes, key challenges, and plans for The Governor’s proposal includes $3.4 billion spending in future years. Second, multiyear funding in new out-year funding commitments—mostly commitments can create out-year General Fund from the General Fund. Multiyear funding pressure, which could limit the Legislature’s ability commitments can have programmatic benefits. to fund other priorities in future years. First, for programs that aim to advance newer technologies, a long-term funding commitment can Some Proposed Spending Is Excluded help provide a market signal to businesses making From State Spending Limit long-term investment decisions. For example, a The California Constitution imposes a limit on the long-term state funding commitment to heavy-duty amount of revenue the state can appropriate each ZEV programs could provide greater certainty year. The state can exclude certain spending— to businesses or government that are deciding such as on capital outlay projects—from the whether to shift their vehicle fleet to ZEVs. Second, state appropriations limit (SAL) calculation. long-term funding can help state and local agencies The Department of Finance estimates that design programs. For example, it could help CARB $260 million of the proposed 2022-23 spending make program design decisions (such as rebate in the Governor’s ZEV package is for activities levels and eligible technologies) that help avoid the that are excludable from the SAL. In constructing need to implement waitlists. its final ZEV package, the Legislature will want to …But Reduces Legislative Oversight and be mindful of SAL considerations. For example, if Creates Future General Fund Pressures. the Legislature were to approve a lower amount Multiyear funding comes with some potential of spending on the proposed activities that downsides too. First, since funding would be built the administration excludes from SAL, it would into the “base” budget, the administration would generally need to repurpose the associated funding not submit budget change proposals for this for other SAL-related purposes, such as tax spending in future years. This could reduce future reductions or an alternative excluded expenditure. legislative oversight by eliminating a process that is often used to assess program implementation Figure 8 Major ZEV Infrastructure Funding in IIJA (In Millions) Total Funding Award Total California Federal Program Description 2022-26 Type Funding National Electric Vehicle Install EV charging infrastructure along designated $5,000 Formula $383 Infrastructure Formula alternative fuel corridors, such as highways. Program Charging and Fueling Install public EV charging and alternative fuel 1,250 Competitive N/A Infrastructure Grants on public roads, schools, parks, and publicly (Community Charging) accessible parking facilities. Priority given to rural and low- and moderate-income neighborhoods, and communities with more multi-unit dwellings. Charging and Fueling Install EV charging and alternative fueling 1,250 Competitive N/A Infrastructure Grants infrastructure along designated alternative fuel (Corridor Charging) corridors and in communities. ZEV = zero-emission vehicle; IIJA = Infrastructure Investment and Jobs Act; EV = electric vehicle;N/A = Not available 12 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET RECOMMENDATIONS Consider Whether Different Mix of Spending Direct Administration to Provide More Better Achieves Legislative Priorities. Detail on New Programs. We recommend the Ultimately, budget allocations for mobile source Legislature direct the administration to report programs will depend on how the Legislature at budget hearings on the details of the new prioritizes different policy goals. In determining its programs that are being proposed, including the priorities, we recommend the Legislature consider Equitable At-Home Charging program and potential such factors as: SCS pilots. For example, how will the Equitable At-Home Charging program target renters? How • Near-Term GHG Reductions. To the extent will the potential SCS pilots be different from other near-term GHG reductions are a priority, programs aimed at reducing VMT? Additional detail HVIP is one of the most cost-effective mobile could help the Legislature better evaluate the merits source incentive programs. However, overall, of the proposed programs. the GHG reduction costs for mobile source incentive programs are relatively high, and the Consider Delaying Funding for Infrastructure Legislature might want to consider relying on Until Administration Develops Plan to Best other programs for the most cost-effective Leverage Federal Funds. We recommend the GHG reductions, including regulatory Legislature direct the administration to report this programs (such as cap-and-trade) or other spring on its plan for ensuring state funding for spending programs that have lower costs EV charging infrastructure will complement new (such as methane reduction programs). federal funding. This includes a description of how, if at all, state funding can be used to leverage • Near-Term Local Air Pollution Reductions. federal funding for EV charging infrastructure or fill To the extent total near-term reductions in the major gaps in federal funding. So far, there is in local air pollution are a priority, then limited detail available from the federal government heavy-duty retirement and replacement about how some of the new programs will be programs such as Carl Moyer and FARMER implemented. If there is still insufficient detail at are most cost-effective. the time the Legislature needs to adopt a budget • Technology Advancement. To the extent to meet its constitutional requirement to pass a long-term GHG and air pollution reductions budget, the Legislature could delay additional are a priority, then the Legislature could target state funding for light-duty ZEV infrastructure until funding to programs that focus on advancing more details are available and the administration ZEV technologies in their early stages of develops a clear strategy. market development. For example, it could Direct Administration to Report on Program prioritize funding for heavy-duty pilots and Evaluation Strategies. To ensure the Legislature demonstration projects and vouchers for has good information about the net effects of heavy-duty vehicles and off-road equipment. its mobile source programs, we recommend the • Air Quality Benefits in Disadvantaged Legislature direct the administration to report at Communities. If a priority is ensuring air budget hearings about current efforts to improve quality improvements mostly accrue to its program evaluation efforts. This report should disadvantaged and low-income communities, include an update on efforts to more accurately then the Legislature could target funds to assess the effects of individual programs in programs that reduce criteria pollutants light of the interactions and overlap between cost-effectively and where the vast majority regulatory and incentive programs. To the extent of the spending benefits low-income and the Legislature authorizes funding to create disadvantaged communities, such as the new programs or expand existing programs, AB 617 incentive program. we recommend requiring the administration to www.lao.ca.gov 13 2022-23 BUDGET develop a plan for program evaluation prior to and make it easier for departments to design and implementing the program and awarding the funds. administer programs. On the other hand, they We recognize that this would likely delay project have the potential to reduce future legislative implementation slightly, but would greatly improve oversight and create General Fund pressures in the quality of information available to the Legislature future years. It is also worth noting that the 2021-22 in future years to help inform future budget and budget package already included 2023-24 funding policy decisions. commitments for many of these same ZEV-related Consider Trade-Offs of Multiyear Funding programs. To the extent the Legislature provides Commitments. We recommend the Legislature additional multiyear funding, we recommend consider the trade-offs associated with over it prioritize out-year funding for programs that $3 billion in multiyear General Fund commitments can help provide market signals to businesses proposed by the Governor. On the one hand, making long-term investment decisions, such as these commitments can provide market certainty heavy-duty and off-road voucher incentives. 14 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET www.lao.ca.gov 15 2022-23 BUDGET LAO PUBLICATIONS This report was prepared by Ross Brown and reviewed by Anthony Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 16 LEGISLATIVE ANALYST’S OFFICE