Last month, the California Air Resources Board (CARB) voted to ban the sale of new gasoline-powered cars, trucks, and SUVs by 2035. Like many other industries, California’s vehicle market is the largest in the nation, so it’s no surprise that this change in policy will have major impacts for automakers and drivers in other states, whether they adopt their own versions of the rules or not.
“California now has a groundbreaking, world-leading plan to achieve 100% zero-emission vehicle sales by 2035,” said California Gov. Gavin Newsom. “It’s ambitious, it’s innovative, it’s the action we must take if we’re serious about leaving the planet better off for future generations.”
Not to be outdone by our neighbor to the south, Oregon is looking to adopt similar rules. The Oregon Department of Environmental Quality (DEQ) plans to move forward with its own regulations later this month. A public comment period will open in the fall when Oregonians will have the opportunity to share with regulators how the new rules will impact their lives, their household budgets, and their businesses. The rules could be up for a vote by the Oregon Environmental Quality Commission by the end of the year.
According to an official DEQ statement, “Oregon is moving forward with a proposed rule similar to California’s Advanced Clean Cars II regulation, which is vital to helping achieve statewide greenhouse gas emission reduction goals and generate improved air quality and public health outcomes. The regulation will boost the production of high-quality electric vehicles and ensure lasting emissions benefits. It will also support the development of a robust zero-emission used vehicle market, helping to promote equitable access to clean mobility solutions and related emissions reductions in low-income and frontline communities.”
Environmental arguments aside, will this “ambitious” and “innovative” approach actually result in more high-quality electric vehicles and a robust zero-emission used vehicle market? Have public officials (or their communications teams) tried to buy a vehicle recently?
Due to various economic factors, such as high inflation, labor shortages, and supply chain issues, new car dealerships have had very low inventory for the past two years. Computer chips alone have caused the shortage of new vehicles. Electric vehicles (EVs) and plug-in hybrids (PHEVs) use components that can be even harder to obtain. The shortage of new cars has also affected the used car market, where prices remain near historic highs. A great option for sellers. Not so great for buyers.
State and federal lawmakers have already created financial incentives to motivate car buyers to go electric, primarily through tax credits and rebate programs. Oregon offers a standard rebate of $2,500 for any new EV or PHEV under $50,000 and a stackable rebate for certain Oregon residents (based on verified income and household size) of up to $5,000, for a total of $7,500.
A federal tax credit of up to $7,500 per new EV or PHEV has been in place since 2008. It underwent significant changes in the recently passed Inflation Reduction Act (and for the first time allows a credit of up to $4,000 for certain used EVs). Most notably, the list of qualifying vehicles has drastically decreased due to new requirements that stipulate final assembly of the vehicle must occur in North America and battery components must be made in a country that has a U.S. free-trade agreement.
The media often emphasizes that these state and federal incentives work together, resulting in a combined tax credit/refund savings of up to $15,000 per qualifying vehicle. What they fail to mention is that few Oregonians would qualify for the full $15,000. The federal tax credit is nonrefundable, meaning a taxpayer must have a federal tax liability to offset to receive the full credit; this likely represents at least a six-figure income for a family of four.
To receive Oregon’s full refund, that same family of four must earn less than $111,000 a year, so the wiggle room for taxpayers is in the sweet spot to maximize both: between $7,500 and $10,000 is a more realistic figure for Oregonians of all income levels.
Bottom line: Electric and plug-in hybrid vehicles (EVs) remain expensive, even with the incentives currently available to consumers. In most cases, buyers will have to wait several months or until next year’s tax season to receive reimbursement for their initial expenses. This can be difficult for households and businesses already experiencing budget pressures.
EV mandates may be attractive and earn political points in some circles, but until economic conditions improve and the larger market issues are resolved, elected officials in Oregon and California are likely setting themselves up for failure—or worse, for a very angry electorate. Voters are unlikely to sympathize with leaders who limit the availability of historically reliable modes of transportation and then discourage people from charging their vehicles due to an unreliable and overloaded power grid.
