Economic Results of California Banning Gas Vehicles

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As a result of California Governor Gavin Newsom’s executive order, gas-powered vehicles will be banned by 2035. This refers to new vehicles and existing gas-powered cars and trucks that will be allowed on California roads for the moment.

Other states are following California. But with electric vehicles (EVs) comes an investment. What are the economic ramifications of banning gas-powered vehicles? Can California afford it? Can America afford it?

California Bans New Gas-Powered Vehicles 2035

Gov. Newsom’s executive order was announced in 2020 and was followed by the California Air Resources Board’s approval in August 2022. Automakers and car dealers will be restricted to selling only cars, SUVs, and pickup trucks that generate zero tailpipe emissions by 2035.

To prepare for this, California’s Advanced Clean Cars II rule requires 35 percent of new cars and light trucks to have zero emissions by 2026. Sixty-eight percent must reach that goal by 2030.

Power Grids and Demand

There are ramifications to the gas-powered ban. One of these is the need to upgrade the power grid.

In the past, California residents have been plagued with planned rolling blackouts. Some of these were designed to cut the risk of wildfires. In high-risk areas, electric utilities are often preemptively shut off during windstorms, but many blackouts resulted from the strain on the power grid. Residents were asked to conserve energy.

California has experienced more outages in the last five years than any other state except Texas. On average, a California blackout lasted roughly 10 hours, with the longest lasting two and a half days.

Electric vehicles are dependent on the grid. If the power goes out, so does the car.

Cost of Upgrading California Power Grid

Preventative fire measures aside, California’s power grid will need to be upgraded to handle the increase in EV usage.

In 2021, analytics firm Kevala conducted a study for the California Public Advocates Office. Kevala found that without load management of other mitigation measures, system-level peak load would increase as much as 56 percent between 2025 and 2035.

This increase would mainly be due to EVs. Kevala estimated that upgrading the grid would cost $50 billion.

However, the California Public Advocates Office created a different number using a different model. They estimated the usage based on the addresses of all vehicles in California to predict where EV increased usage would likely occur. They then modeled the expected charging load.

The Public Advocates Office estimated the figure was $15–20 billion. But as a caveat, they said, “No single study or pair of studies, particularly this early in the electrification process, can definitively answer such a complex question as what the costs of distribution grid upgrades will be.”

The bottom line is that billions of dollars will need to be invested to upgrade the power grid to handle the additional strain of EVs.

Lack of Charging Stations

In 2022, at 14.3 million, California had more registered automobiles than any state nationwide. The overall number of registered motor vehicles was nearly 31.4 million. California also has the most new car sales. In 2022, new car sales amounted to $1,667,831 worth of vehicles.

With those million-plus potential EV sales, the need for charging stations will soar. Currently, there are approximately 51,000 public charging stations across the nation. As of March 2023, California has the most, with 14,040.

A report by the California Energy Commission shows that California needs 1.2 million electric vehicle chargers by 2030. This doesn’t take into the account the additional 157,000 chargers needed by 2030 for medium, heavy-duty and electric buses.

There are three types of chargers, and their cost ranges from $1,500 to $20,000. But that’s just for the equipment. There’s also the installation cost.

Regardless of which type of equipment is chosen, the installation can cost $100,000 to $200,000. These high-voltage items must have specialized electricians and laborers to install them.

Splitting the difference with $150,000 per charger, it would take roughly $180 billion to build the 1.2 million chargers needed to accommodate the 2035 mandate.

Banning Gas-Powered Vehicles Tax Revenue

With electric vehicles comes a decrease in gas consumption. Fuel taxes are a significant contributor to state transportation funds. It contributes 40 percent of funding. The majority of funding could disappear in the coming decades.

To replace lost revenue, many states have added fees to EV owners. California charges $100 annually for a zero-emissions vehicle. As of January 2021, this fee was indexed to the Consumer Price Index.

Economic Hardship on Middle and Lower Classes

The average EV costs $66,000. The Inflation Reduction Act EV tax credit of $7,500 can be written off when filing income taxes, but the consumer must still make the initial downpayment and finance. This could give them a hefty car payment, which not many may be able to afford.

In California, low-income individuals could be eligible for $9,500 in grants or rebates. If you take both discounts, it comes to a $49,000 vehicle. That’s still a big-ticket item for most middle to low-income Californians.

The high cost is because batteries are more expensive than internal combustion engines—a lithium battery for an EV costs between $5,000 and $20,000. And batteries are easy to damage and difficult to repair.

States Banning Gas Vehicles

But California isn’t the only state with this on its agenda. Nine states have also announced a restriction on new gas-powered vehicle sales. These states are:

• Connecticut
• Massachusetts
• Maryland
• New Jersey
• New York
• Oregon
• Rhode Island
• Washington

These states eight states are following the Advance Clean Cars II.

In 2022, the ninth state, Vermont, lawmakers required zero-emissions by 2030.

California and EV Economics

California is currently facing a $68 billion dollar deficit. Its debt for 2022 was $145.03 billion. That compares to the 2000 debt of $57.17.

Chris Hoene, head of the California Budget and Policy Center, blamed climate change for the state’s shortfall. This was because the state’s fires interfered with cash.

The goal with California is to reduce emissions to help prevent these climate issues.

However, the cost of converting the most populated state to EVs may not be feasible. Billions of dollars must be invested to upgrade the power grid and build chargers.

Manufacturers will need to drastically reduce prices to make it possible for middle America to afford EVs.

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