California Weighs New EV Incentives Backed by Fee on Gas Cars and Trucks

Congressional Republicans and President Trump have killed the U.S. electric vehicle rebate program, with most payments ending after September — to the dismay of climate-conscious car buyers. Now California regulators are evaluating an economically elegant but politically unproven idea to replace it: “feebates.”

The policy is a hybrid — part fee, part consumer rebate. Tacking an extra charge on the sale of gas-powered cars or trucks could raise the billions of dollars needed to subsidize the rapid adoption of zero-emission transportation, encouraging many buyers to make the switch.

A handful of other countries already use variations of the concept, with most fines and rewards based on the amount of carbon dioxide produced at the tailpipe. This could, for instance, redistribute hundreds to a few thousand dollars from the purchasers of inefficient luxury SUVs to those choosing from the nearly 150 electric models now sold in the state.

Daniel Sperling, founding director of the Institute of Transportation Studies at the University of California, Davis, and until two years ago a member of the California Air Resources Board, has studied the economics of feebates for two decades. He said they can be an equitable way to promote sustainable consumer choices, while avoiding the perennial threat of state budget cuts and federal climate policy reversals.

“The time was ripe years and years ago, but I think now it’s absolutely essential,” Sperling said. “There’s no other policy mechanism we have access to in California that’s nearly as potent and effective, and just plain good policy, as the feebate concept.”

Last month Gov. Gavin Newsom instructed state agencies to deliver by Aug. 11 a list of options for boosting EV adoption.

The Air Resources Board is leading the review, exploring a wide range of regulatory tools and inventorying possible sources of rebate money. The state could tap the state’s general fund, its already oversubscribed carbon-trading auction account, fees on fuel producers or another revenue stream. The board is hosting a series of public “dialogue sessions” to gather ideas and hear concerns, with the third in-person meeting scheduled for July 31 in Long Beach.

Many environmental advocates say that to move millions of drivers away from fossil fuels quickly, market-based solutions should be up for consideration, and Sperling said he expected some types of feebate to be on the list of options presented to the governor and Legislature. Agency officials continue to meet with proponents to determine the economic and political feasibility of feebates.

Despite the simplicity, however, this type of funding mechanism will surely face objections from the petrochemical and auto industries, which have a vested interest in selling more internal combustion engines. And it could upset drivers not yet convinced electric cars are practical.

Another obstacle: California law requires a two-thirds vote in each house of the Legislature to pass new taxes and many fees, meaning organized opponents could easily sink such a plan. And skeptics question whether incentives are still needed now that EVs account for nearly one-quarter of new cars sold in California, more than anywhere in the nation.

But conversion to zero-emission models has been much slower for heavy-duty vehicles and tractor-trailers, which spew diesel pollution particularly harmful to neighbors of highways and commercial zones. So, for 2025, proponents are targeting feebates in the trucking industry, where even modest electrification could yield substantial gains, and the politics of commercial users might be easier to navigate.

‘State of panic’

Since 2022, California has worked to eliminate greenhouse gas emissions from transportation, in part by phasing out gasoline vehicles and banning their sale by 2035. But Trump and congressional allies have repeatedly erected roadblocks. In a June 12 executive order, Trump claimed the right to revoke waivers under which California could enforce its own air quality standards for vehicles.

That same day, Newsom sued to reassert California’s legal authority and issued his own executive order giving state agencies 60 days to propose fresh ideas that are immune to federal meddling.

The sweeping budget bill Trump signed on July 4 gutted many of former President Joe Biden’s signature environmental achievements, including electric car rebates of up to $7,500. With the state’s main rebate program having expired in late 2023, and without a clear way to pay for the millions of new credits needed to move the market, policymakers in Sacramento are casting their net broadly for innovative approaches.

Chris Grundler, deputy executive officer of the Air Resources Board, said recent federal actions had severely undermined the state’s efforts to reduce greenhouse gases, noxious fumes and smog plaguing many cities.

“I’m hopeful that these foolish, illegal and unconstitutional acts by the Congress and the president will be a galvanizing moment for all of California,” Grundler said. “Just appreciate this irony. The Environmental Protection Agency expects us to meet these health-based ambient air quality standards that they set. And at the same time, they’re taking away our most important tools to do so.” He added, “Our air districts are in a state of panic about how they’re going to do this.”

Grundler met two weeks ago with Sperling to discuss feebate concepts, with a focus on economic effectiveness. Grundler said he had not yet seen solid research on the market demand such incentive structures would stimulate. Sperling acknowledged that because feebates are relatively untested, and EVs have only recently gone mass market, it is hard to estimate how price influences the average car buyer’s decision to stick with gas or jump to a new technology. Other questions linger, Grundler said: “Are your ideas fast? And are they easy to explain to elected representatives?”

At a workshop in Sacramento last Wednesday, officers from an array of state agencies heard public comment on zero-emission policy pathways. Josh Miller, a program director at the International Council on Clean Transportation, echoed the call for feebates. “This is a unique opportunity to implement a really robust, innovative fiscal incentive that incorporates polluter-pays principles,” he said.

Rocky Fernandez, senior policy director for the San Diego-based Center for Sustainable Energy, told officials his research indicated that regardless of funding source, huge incentives would be needed to move markets — perhaps $15,000 per car just to get EVs up to 75% of new car sales, and $30,000 to reach 95%. “Sounds like a lot of money,” he said, but with the cap-and-trade program under re-evaluation, “the sky’s the limit for us, and we encourage you to do that as the No. 1 action.”

Liane Randolph, chair of the Air Resources Board, responded with a smile: “I appreciate your optimism.”

The affordability puzzle

Some economists say well-funded feebates could nudge most buyers toward zero-emission vehicles within a decade by making them competitive with or even cheaper than gas-powered ones. They are already moving in that direction: Technology is rapidly improving, battery prices continue to fall and the number of models on showroom floors has grown to 147, according to the Air Resources Board’s last count in May. 

Because electricity costs much less per mile than gas, EVs are cheaper to own over their lifetimes. But the up-front sticker price can be a barrier, especially for low-income shoppers. The lagging roll-out of public charging stations makes life harder for apartment dwellers lacking off-street parking.

While EVs in California reached 23% of new vehicles this year, the adoption rate is too low to reach the 100% target within 10 years, Sperling said.

In a series of policy papers, Sperling and colleagues have argued that feebates can be revenue neutral, self-sustaining and legally resilient. One early version of their model for California would charge buyers of “gas guzzlers” — the car models that ranked in the top 15% by carbon emissions — up to $2,500. It would use those funds to reward buyers of the 15% of models with the lowest emissions, including EVs and potentially hybrids. Trucks also would fall under the feebate scheme, but evaluated more leniently because they are harder to make fuel efficient.

He said the program overall would not burden the working class. Low-income drivers tend to buy used cars, which would be exempt, while it is mostly the wealthy who buy the least efficient new gas-powered cars and SUVs, which would come with the highest surcharge.

Sperling said he now thinks the scheme could be further simplified by, for instance, placing a fee on all gasoline cars and rewarding just EVs, a change that would avoid complicated public messaging about fuel-efficiency calculations.

His group also extended the concept beyond California, saying adopting feebates nationwide could help reach the Biden administration’s goal of 50% EV market share by 2030. But even before this month’s repeal, federal tax credits were projected to cover only a small fraction of the vehicles needed. In contrast, UC Davis researchers found that a well-designed national feebate system could raise $60 billion to $135 billion over the next decade — enough to sustain mass EV adoption without new taxpayer spending.

Now, with opponents of climate regulation controlling the White House and Capitol Hill, no one expects federal rebates to resume before 2029. So the focus has shifted to California, and the 17 other states and Washington, D.C., that have followed its lead on some or all clean-car policies. Such a patchwork approach to rebates could send a market signal to carmakers to ramp up EV production.

Cleaning up freight

The UC Davis institute’s policy director, Roland Hwang, said his team briefed California legislative staff in February on a proposal to pilot feebates for trucks.

The state has a few incentive and loan programs to help businesses, including small firms that operate delivery trucks and large fleets of long-haul semis carrying produce or packages. But even after various credits for battery-electric or hydrogen fuel-cell trucks, the up-front purchase price for diesel versions remains tens of thousands of dollars lower.

According to a slide presentation shared with the San Francisco Public Press, the proposed $337 million-per-year program — funded either by taxing sales of new trucks or by imposing annual fees on existing ones — would last from 2026 to 2035 and cover 80% of the additional cost to buy electric. In the long run, trucking firms would recoup the difference in cost by swapping diesel fuel for cheaper electrons.

“The fleet market is so hyper-rational on the total cost of ownership, that’s how they look at things,” Hwang said. “How much does it cost? If it’s cheaper to own and operate an electric vehicle, they’ll buy that.”

Hwang said the goal is to give electric trucks a competitive advantage. “The value proposition of the zero-emission truck is just going to be a better product, which will save fleets money. Save consumers money as well, because we’ll be reducing the cost of goods movement.”

Another possible leverage point under California air quality law is the so-called indirect source rule, which allows regional air districts to require owners or operators of industrial facilities to reduce pollution from truck traffic and other emissions sources they attract. These include warehouses, seaports, airports and other public and private complexes. Electrification is one of the fastest approaches. The federal government generally does not preempt this authority.

“Our heavy-duty trucks have been almost entirely running on diesel and, in fact, are the single biggest source of toxic air pollution in California,” said Bill Magavern, policy director for the Sacramento-based Coalition for Clean Air.

Last Monday in Fresno, agency officials heard from farmers, truckers, commercial bus operators and public health advocates. They pointed to problems that must be solved before heavy-duty vehicles could go mostly electric.

Farmers said they worried that the extra cost of electric trucks would get passed on to food consumers. Truckers warned that out-of-state companies driving cheaper diesel rigs could undercut their business. Some business owners said the technology was not advanced enough for certain applications, like long-distance buses, where battery range may cover less than a quarter of the daily route.

In rural areas, it can take half an hour or more for residents to reach an electric charging station, said Wonuola Olagunju, a community organizer with the Central California Asthma Collaborative. While her constituents are interested in EVs, they will not buy them if they add expense and hassle.

“For a lot of Americans,” she said, “they’re going to be counting on every single dollar that they have to make it, whether it’s food, groceries, basic necessities. Literally at this point, I feel like a lot of people, if they lose their transportation, that’s basically it for them.”

States’ repeated attempts

A handful of countries have used feebates for years to persuade drivers of passenger cars to opt for more fuel-efficient models. France, Germany, Italy, Sweden and the United Kingdom have had policies to reduce the carbon intensity of tailpipe emissions, with varying results. While none focuses on electric drivetrains in particular, EV sales spiked after the policies were introduced.

While many U.S. states offer modest EV rebates, feebate-like proposals have repeatedly died in committee or on the floors of legislatures in Maryland, Connecticut, Vermont, New York, Maine, Massachusetts, Rhode Island, North Carolina and Washington, D.C.

In California, a feebate proposal fizzled before serious consideration, out of concern that it would be challenged in court by opponents on the grounds that it was a tax requiring a two-thirds vote. 

In 2021 Kevin McCarty, a member of the Assembly who later became mayor of Sacramento, proposed a zero-emission vehicle rebate funded by a civil penalty on automakers for selling polluting vehicles but payable by consumers as a fee. A coalition including car manufacturers, fuel producers and the California Chamber of Commerce said the law would constrict consumer choice and give an out-of-control bureaucracy “a blank check.”

California’s Clean Vehicle Rebate Project, which expired in late 2023 after the federal incentives kicked in, was funded through the state’s Greenhouse Gas Reduction Fund, generated by cap-and-trade revenue. But as more drivers embraced EVs, demand ballooned, and funds regularly ran out, frustrating car buyers and dealers with long waiting lists.

Two rebate-like programs remain, but they are limited to low-income Californians and frequently run dry between funding cycles. Magavern at the Coalition for Clean Air said future incentives should stay focused on equity. “We don’t need a broad-based rebate anymore for well-off folks,” he said. “For them, it’s already a good deal to buy an EV.”

Some cities have partnered with industry to promote urban EV ownership by installing more high-speed charging facilities. On July 9, San Francisco Mayor Daniel Lurie celebrated the opening of six 350-kilowatt fast chargers, built by EVgo with technical assistance from local agencies, in the Bayview Plaza on Third Street. Lurie said the electric vehicle push was part of the city’s broader effort to reduce its carbon footprint, primarily by upgrading cars and buildings. 

Federal interference

California has pledged to make its economy carbon neutral by 2045, by replacing all electricity generation with renewable sources and slashing emissions from transportation, industry and agriculture. Transportation accounts for about half of the state’s greenhouse gases. 

But for the last six months, the Trump administration has been shredding long-standing environmental, climate and transportation policies based on debunked claims about climate science. On July 18, the U.S. Environmental Protection Agency announced it would eliminate its scientific research division and lay off hundreds of scientists who study chemistry, biology, toxicology and other specialties in support of regulations to protect public health and safety. This development follows the firing of hundreds of scientists working on the National Climate Assessment, the periodic report informing policies to combat global warming. The federal budget bill itself fulfilled Trump’s pledge to systematically defund clean-energy generation, close climate science laboratories and grant tax breaks for the production and use of coal, oil and gas.

As California scrambles to design new EV supports, its regulatory authority remains in limbo. The rescission of California’s federal air quality regulation waivers sets up what is expected to be a prolonged court battle.

David Reichmuth, a clean-transportation researcher at the Union of Concerned Scientists, said the fight to expand the EV market is not over. “It’s a well-funded opposition mostly from the oil and gas industry in California,” he said, citing high-profile social media ads that question electric mobility. “They can’t stop the transition away from petroleum, but they certainly can try to delay it as long as possible.”

It’s not just other states looking to California. Grundler — who retired after a 42-year career at the federal EPA, only to rejoin the workforce so he could help the state plan a new strategy in the face of nationwide cuts — said he recently returned from Europe, where his counterparts were eager to hear about new policy concepts emerging from the West Coast.

“I can tell you, all the people I spoke to were all wondering, ‘What is the state of California going to do? We’re counting on your innovation and your ideas,’” he said. “The eyes of the world are on us.”