California Electric Transportation Return on Investment Assessment

Transcription

1 California Electric Transportation Return on Investment Assessment FINAL REPORT Submitted to Submitted by Point of Contact: Michael F. Lawrence, JFA President 4550 Montgomery Avenue Suite 300N Bethesda, Maryland Phone: (301) Fax: (301) June 2015

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3 Table of Contents Executive Summary Introduction Background on EV Incentives for California Purchasers Objectives of the Analysis Previous ETC Research by U.C. Berkeley Organization of the Report New Vehicle Elasticity Estimates The Concept of Elasticity of Demand Price Elasticity of Demand for New Automobiles Research on the Effects of Vehicle and Fuel Incentives The Incremental Vehicle Cost (IVC) Model Structure and Components of the IVC IVC Inputs and Assumptions IVC Updates The Market Share and Elasticity Spreadsheet Model Vehicle Sales by Nameplate and Technology Vehicle Rebates and Sales Taxes by Nameplate Lost Sales and Incentives without State Rebates Forecasts for 2015 to The IMPLAN Model and Model Runs Overview and Benefits of the IMPLAN Model General IMPLAN Modeling Considerations Stimulation of the IMPLAN Model IMPLAN Model Results Results and Conclusions... 38

4 Executive Summary California s Clean Vehicle Rebate Project (CVRP) encourages technologies and innovations that provide immediate reductions of air pollution emission and that stimulate development and deployment of sustainable transportation. They also stimulate economic activity that leads to more plug-in electric vehicle (PEV) sales and more federal incentives flowing into the California economy. Over the next 5 years ( ), ending the CVRP will save the state approximately $800 million, but will: Reduce EV sales by almost 95,000 Cost Californian s $600 million in federal tax credits Cost California governments $87 million in tax revenue Eliminate over 8,000 job years Reduce output by $2 billion and value added by $720 million In the absence of the CVRP rebate, the Federal tax credit continues to support PHEV and BEV sales that produce California jobs and GSP. However, losing the CVRP rebate has a substantial impact on the positive impacts of larger EV sales on the economy as well as resulting in additional gasoline consumption and GHG emissions. 1

5 1. Introduction California s Clean Vehicle Rebate Project (CVRP) encourages technologies and innovations that provide immediate reductions of air pollution emissions and that stimulate development and deployment of sustainable transportation. The CVRP also stimulates economic activity that leads to more plug-in electric vehicle (PEV) sales and more federal incentives flowing into the California economy. In addition to the state incentive for PEV purchase, the Federal Government provides for eligible Plug-in hybrid-electric vehicles (PHEVs) purchased in or after 2010 a federal income tax credit of up to $7,500. The credit amount will vary based on the capacity of the battery used to fuel the vehicle. This is money flowing into the California economy producing increased economic activity and employment in the state as well as increases in the state s general fund. The benefits of electric vehicle purchases in California to the California economy are substantial. This study seeks to contribute to the ever-growing measurement and documentation of these benefits of PEV sales that California would not realize without the federal and state new vehicle purchase and lease incentives. For example, a University of California study estimated that for 15 and 45 percent PEV sales penetration scenarios, the resulting stimulus would add about 50,000 and 100,000 (net) new jobs by 2030, respectively Background on EV Incentives for California Purchasers With the passage of AB32 and SB375, California embarked on the most ambitious program in the country to reduce GHG emissions. The state has set GHG emissions goals that will require major changes in how the state powers its industry, heats and cools it homes, and travels. In the transportation sector, policy analysts often talk about the three avenues for GHG emissions reductions: increased vehicle efficiency, reduced carbon intensity of fuels, and reduced petroleum powered vehicle use. California is employing all available policies to meet the aggressive GHG emissions reduction goals. Encouraging the purchase or lease of a PEV is part of the solution. Federal and state policies, such as purchase incentives for PEVs, are an important GHG policy, but they are also smart economic policies as the switch away from petroleum transportation will save households and businesses money and allow them to purchase other goods and services that will create more jobs and provide economic growth for the California economy. This increased employment and economic growth will in turn increase tax receipts to the state funds. 1 Plug-in Electric Vehicle Deployment in California: An Economic Assessment, David Roland-Holst, University of California Berkeley, September

6 California Electric Vehicle Sales Incentives HOV Lane Exemption: Qualified alternative fuel vehicles including hydrogen, hybrid, and electric vehicles may use designated HOV lanes regardless of the number of occupants in the vehicle. Qualified vehicles are also exempt from toll fees in High Occupancy Toll (HOT) lanes. Alternative Fuel Vehicle Rebate Program: The Clean Vehicle Rebate Project (CVRP) offers rebates for the purchase or lease of qualified vehicles. The rebates offer up to $2,500 for light-duty zero emission and plug-in hybrid vehicles that the California Air Resources Board (ARB) has approved or certified. Sales Tax Exclusion for Manufacturers: California s Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) provides a sales tax exclusion for advanced manufacturers and manufacturers of alternative source and advanced transportation products, components or systems. Alternative Fuel Vehicle Rebate Program: The San Joaquin Valley Air Pollution Control District administers thedrive Clean! Rebate Program, which provides rebates of up to $3,000 for the purchase or lease of eligible new vehicles, including qualified natural gas and plug-in electric vehicles. Alternative Fuel & Vehicle Incentives: Through the Alternative and Renewable Fuel Vehicle Technology Program, the California Energy Commission provide financial incentives for businesses, vehicle and technology manufacturers, workforce training partners, fleet owners, consumers and academic institutions with the goal of developing and deploying alternative and renewable fuels and advanced transportation technologies. Insurance Discount: Farmer s Insurance offers a discount of up to 10 percent on certain insurance coverage for HEV and AFV owners. PEV Charging Rate Reductions: The Sacramento Municipal Utility District (SMUD), Southern California Edison (SCE), Pacific Gas & Electric (PG&E), Los Angeles Department of Water and Power (LADWP), and San Diego Gas & Electric (SDG&E) provide cost-of-service rate plans to commercial residential customers for electricity used to charge qualified electric vehicles. Electric Vehicle Supply Equipment Rebate: The Los Angeles Department of Water and Power (LADWP) Charge Up L.A.! program provides rebates to residential and commercial customers who install Level 2 (240 Volt) chargers. Rebates are offered to the first 2,000 customers who apply. Glendale Water and Power (GWP) also offers a $200 rebate to residential customers owning an electric vehicle and installing a Level 2 charging station. Certain restrictions apply. Free Parking: Sacramento offers free parking to individuals or small businesses certified by the city's Office of Small Business Development that own or lease EVs with an EV parking pass in designated downtown parking garages and surface lots. Vehicles must be 100 percent electric to qualify. Free Parking: Free metered parking in San Jose, Hermosa Beach, and Santa Monica for electric vehicles displaying a Clean Air decal. Alternative Fuel Vehicle Parking: The California Department of General Services (DGS) and California Department of Transportation (DOT) must provide 50 or more parking spaces and park-and-ride lots owned and operated by DOT to incentivize the use of alternative fuel vehicles. Adapted from National Conference of State Legislatures, State Efforts Promote Hybrid And Electric Vehicles Federal Incentives Electric vehicles (EVs) that buyers purchased, in or after 2010, may be eligible for a federal income tax credit of up to $7,500. The credit amount will vary based on the capacity of the battery used to fuel the vehicle. This credit replaces an earlier credit for EVs purchased in Some of the requirements for eligibility include: 2 The vehicle must be made by a manufacturer (i.e., it doesn't include conventional vehicles converted to electric drive) 2 Adapted from: the official U.S. government source for fuel economy information 3

7 The vehicle must be treated as a motor vehicle for purposes of title II of the Clean Air Act The vehicle must have a gross vehicle weight rating (GVWR) of not more than 14,000 lbs The vehicle must be propelled to a significant extent by an electric motor which draws electricity from a battery which has a capacity of not less than four kilowatt hours and is capable of being recharged from an external source of electricity The vehicle commences with the taxpayer (it must be a new vehicle) and the vehicle is acquired for use or lease by the taxpayer, and not for resale The credit is only available to the original purchaser of a new PEV The incentive declines as individual manufactures reach annual PEV sales sufficient to produce scale economies of production that should allow them to offer PEV at competitive market prices. The credit begins to phase out for vehicles at the beginning of the second calendar quarter after the manufacturer produces 200,000 eligible plug-in electric vehicles (i.e., plug-in hybrids and EVs) as counted from January 1, IRS will announce when a manufacturer exceeds this production figure and will announce the subsequent phase out schedule. California State Incentives The Clean Vehicle Rebate Project (CVRP) encourages technologies and innovations that provide for immediate reductions in air pollution emissions and stimulate development and deployment of sustainable transportation. The CVRP, funded by the California Environmental Protection Agency's Air Resources Board (ARB) and administered statewide by Center for Sustainable Energy (CCSE), provides rebates of up to $2,500 for the purchase or lease of zero-emission and plug-in hybrid light-duty vehicles. Rebates are available for individuals, nonprofits, government entities and business owners. In march 2014, following another record-breaking month of rebates for the cleanest cars in California, the Air Resources Board (ARB) voted on April 25, 2014 to immediately expand the funding and current waiting list for incentive funds that help consumers buy zero-emission and plug-in hybrid vehicles. The ARB s action expanded the current $5 million waiting list, established in March, by an additional $25 million to accommodate expected market growth into the summer. The move is in response to the growing demand for zero-emission and plug-in hybrid electric vehicles over the past two years. California is currently processing about 3,500 rebates each month totaling between $6 million and $7 million. Exhibit 1-1 provide the month by month history of rebates processed thru October March marked another record-setting month with 4,800 rebates totaling $9.8 million, according to CCSE transportation staff who administer the statewide Clean Vehicle Rebate Project (CVRP). However they have been close to but have not reached this level since that peak. The CVRP has exceeded all expectations. ARB has issued about $100 million for about 50,000 rebates since the program began in March 2010 and plans to continue supporting the project in the coming years. 4

8 Exhibit 1-1: Electric Vehicle Rebates Processes by Month Objectives of the Analysis The objective of this study was to quantify some of the economic and financial benefits of the CVRP in terms of capturing Federal tax incentives and increasing California s general fund revenues. The following subsections describe these analytical goals in more detail. Federal Tax Incentives Captured by California The federal incentives for PEV purchase are new funds flowing into the California economy. For every PEV purchased, the state economy is enriched by the federal incentive. The first study objective was to calculate, using traditional economic tools, the dollar value of these federal 3 Center for Sustainable Energy (2014). California Air Resources Board Clean Vehicle Rebate Project, Rebate Statistics. Data last updated October Retrieved 10/30/2014 from 5

9 incentives and their impact on the California economy from the direct investment to the indirect and induced (multiplier effects) economic impacts. California government is a leader in the encouragement of cleaner and greener vehicles including investment, technology, production and consumption. One of the benefits of this leadership is the ability to attract investment, including Federal incentive dollars. These incentive dollars, which taxpayers from all states pay for, flow disproportionally into California. For example, California drivers accounted for just under one-third of all electric vehicles purchased in the United States, 4 representing roughly two and a half times California s share of population. One reason for this leadership role is the state s aggressive rebate program. Recent data show that during 2013, Californians registered 42,198 plug-in and electric vehicles. 5 The purchasers of these vehicles were eligible for over $270 million in Federal tax credits. This is an estimate for 2013, but these numbers are currently on the rise. This research presents the latest consensus data on plug-in and electric vehicle sales estimates and penetration scenarios for California. This includes the PEV15 and PEV45 scenarios the UC Berkeley study used as well as other available scenarios and assumptions. The research team estimated sales by type of vehicle (plug-in, all electric) and year to estimate the total value of federal incentives brought to California. These direct flows of vehicle purchase rebates and incentives to California consumers, however, are not the end of the story. These monetary flows will circulate through the California economy creating further indirect and induced impacts. The research team modeled these impacts using IMPLAN, the most widely employed economic impact tool by economists across the country. These estimates are arrayed by type of vehicle (plug-in, all electric), year, and by type of impact (direct, indirect, induced). Additional General Fund Revenue Government budgets have been under unusual strain over the last five years and legislators across the country are examining any and every means to raise revenue, reduce spending and cut deficits. However, spending cuts should not be indiscriminate, as some spending cuts could actually reduce revenue in the longer run and have other negative consequences as well. The Clean Vehicle Rebate Program (CVRP) and the California Hybrid and Zero Emission Truck and Bus Voucher Incentive Project (HVIP) are potentially programs of this type. While these programs cost the State of California money in the form of direct rebates, they also encourage PEV purchases, which provide a variety of benefits not only to the state economy but also to the state general fund. The CVRP is a positive investment increasing federal funds to the state and stimulating other economic activity. 4 Electric Cars: California Leads Nation In Green Vehicle Consumption, Aaron Sankin, Huffingto Post, November 11, California Auto Outlook, CNCDA, Vol. 10, No 1, February

10 The research team conducted a thorough literature review of vehicle incentive programs. This review included prior studies on the costs, cost effectiveness and benefit-cost of California vehicle incentives programs. Literature for all types of alternate fueled vehicles was included, not just citations for plug-in or all electric vehicles. The research team considered the findings from the literature review in developing the study methodology and in estimating the benefits of these investments to the state s economy and general fund. As is often the case, simply assessing the dollar value of an incentive is insufficient to fully grasp the general fund impacts, as the economic stimulus will also increase revenue to the state. As such, research team used the Social Accounting Matrix (SAM) of the IMPLAN model to estimate the general fund revenue impacts of the incentives and its direct, indirect and induced effects. The estimates are arrayed by type of vehicle (plug-in, all electric), year, and by type of impact (direct, indirect, induced). The presence of the CVRP may provide the marginal incentive that convinces buyers to purchase a PEV or EV as opposed to a conventionally fueled vehicle. Therefore, the research team used results of the literature review to estimate EV price elasticity and to calculate the effect of the presence or removal of the CVRP/HVIP incentives on EV sales, state economic activity and state general revenues. The research team designed the analysis to support the hypothesis that the incentive programs are vital contributors to the growth and acceleration of the PEV market and will ultimately lead to increases in general fund revenues while providing jobs, air quality, competitiveness, environmental justice and GHG reduction. 1.3 Previous Research by U.C. Berkeley The major previous assessment of the macroeconomic effects of electric vehicles on the California economy was the U.C. Berkeley report by David Roland-Holst. This report was part of a series of research studies into alternative energy and resource pathways for the global economy. In addition to disseminating original research findings, the U.C. Berkeley authors intended this series of studies to contribute to policy dialog and public awareness about environment-economy linkages and sustainable growth. To appraise the economic impacts of PEV deployment on the California economy, the authors used a state-of-the-art forecasting tool, the Berkeley Energy and Resources (BEAR) model. After calibrating it to detailed data on the state economy, vehicle fleet, and related information, the authors evaluated a set of three policy scenarios: 1. Baseline: Assume California implements current commitments to state and post-1990 federal fuel economy standards, but continues growth at levels forecast by the Department of Finance 2. PEV15: Including the Baseline scenarios, but assume 15.4 percent PEV deployment in the new light-duty vehicle fleet by This level of penetration would be consistent with fulfillment of ZEV regulations by PEVs. Tax credits for PEV vehicles are phased out by 2020, and LCFS credits are awarded for pollution reduction 7

11 3. PEV45: Same as PEV15, except PEV deployment is accelerated to 45 percent of the new light-duty vehicle fleet by 2030 Exhibits 1-2 and 1-3 present the long-term aggregate economic effects of the three vehicle deployment alternatives. According to the authors, these projections indicate that new vehicle technologies, particularly those that reduce reliance on fossil fuels, stimulate economic growth and job creation. The most robust finding of this study is that statewide economic growth and employment rise with the degree and scope of PEV adoption. According to the authors, What matters is that PEV technologies have positive net value to those who adopt them. When vehicle owners realize these savings, be they households or enterprises, they will reappear as demand for goods and services outside the petroleum fuel supply chain, and the result will be higher state economic growth and employment. Exhibit 1-2: PEV Employment Impacts Exhibit 1-3: Statewide Macroeconomic Impacts PEV15 PEV45 Real GSP Net Job Growth 48,816 97,761 Source: Authors estimates Notes: Real Gross State Product (GSP, dollar billions) and Employment (FTE) are expressed as changes from Baseline values in Organization of the Report The organization of the remainder of this report includes four chapters. Chapter 2, Elasticity Estimates, provides an overview of the elasticity literature and the sources and estimates this study uses to calculate the effect of removing rebates on EV sales. Chapter 3, the IVC Model, informs the reader as to the basic functioning and structure of the Incremental Vehicle Cost (IVC) model, as well as the major assumptions that its developers employed. 8

12 Chapter 4, the Market Share and Elasticity Spreadsheet Model, documents the spreadsheet that this study uses to develop estimates of 2013 California EV sales, rebates and incentives, with and without rebates in both units and dollars. Chapter 5, the IMPLAN Model and Model Runs, provides an overview of the IMPLAN model, describes how it was stimulated for this study, and describes the model calibration and results. Chapter 6 provides study results and conclusions. 9

13 2. New Vehicle Elasticity Estimates This chapter provides an overview of the elasticity literature and the sources and estimates this study uses to calculate the effect of removing rebates on EV sales. The first section provides an overview of the concept of elasticity of demand. The second section discusses applicable research on the price elasticity of demand for automobiles. The third section reviews prior studies on the costs, cost effectiveness and benefit-cost of vehicle and fuel incentive programs. 2.1 The Concept of Elasticity of Demand The Federal and California electric vehicle incentive programs increase the number of electric vehicles sold. The increase in electric vehicle sales may increase total vehicle sales or it may shift sales from gasoline-powered vehicles to electric powered vehicles. The two incentive programs lower the cost of electric vehicle purchase by providing cash rebates in the California case and tax credits in the federal case. Neither are point-of-sale rebates as the California program requires application and approval that may delay delivery of the rebate for several months and the federal program provides a tax credit, which is available when the buyer files his tax return for that year which could be a year or more after vehicle sale. This analysis considers the impact on the California economy of a suspension of the California electric vehicle rebate program. A suspension of the California rebate program will increase the effective price of electric vehicles and thus reduce the expected sales. Economics refers to the sensitivity of the sales of a product or service to a change in price as the price elasticity of demand (PED). Specifically, the PED is the ratio of the percent change in demand to the percent change in price. So, for example, if the demand for a product falls by five percent as a result of a two percent increase in price, the price elasticity of demand for this product would be two and one half (-5 percent/2 percent = -2.5). PED are usually negative, that is that as price rises, sales fall, although presentations of PED often drop the sign. Economics describes the demand for a good as inelastic when the PED is less than one (in absolute value). In this case changes in price have a relatively small effect on the quantity of the good demanded. Economics describes demand for a good as elastic when its PED is greater than one (in absolute value). In this case, changes in price have a relatively large effect on the quantity of a good demanded. Many factors influence consumer demand for new vehicles. These include the manufacturer suggested retail price, manufacturer and dealer incentives, government incentives, taxes and fees, technological advances, the state of the economy, and other factors. The demand for electric vehicles may also be impacted by risk aversion to new technology (e.g. battery life/warranty) and doing your part for the environment. Consumers can postpone purchases into the future by holding on to their current vehicles longer, waiting to purchase a second household vehicle or choosing an alternative mode of transportation. In economic parlance, this makes the demand for new automobiles elastic. Higher prices can retard sales where price reductions can encourage sales that consumers might otherwise postpone. Automobile manufacturers and dealers choose vehicle prices and incentives to increase sales. 10

14 Once a household has decided to make a new vehicle purchase and has identified the class of vehicles that best meets its needs and financial resources, selection of a particular vehicle within a class is very sensitive to price. Research by academics, institutions and firms has shown that small changes in the price of like products, including automobiles, can result in substantial shifts among in-class sales. Consumers of smaller vehicle classes such as compacts and subcompacts exhibit pronounced sensitivity to vehicle prices. The more alike products become in their attributes such as interior volume, efficiency, power, reliability, etc., the more sensitive sales are to the price of like or even similar vehicles. 2.2 Price Elasticity of Demand for New Automobiles The purchase of a new automobile is generally the second largest household purchase after a home. The automobile industry is one of the largest manufacturing sectors in the US economy and has a substantial influence on many other sectors of the economy. Thus understanding PED is very important for both the public and private sector planning. Electric vehicles can provide a very similar service to that provided by internal combustion engine powered vehicles, but there are many significant differences, which complicates estimating the PED for electric vehicles. In addition, since the technology is evolving rapidly due to public and private investments, the PED will be changing over time as the technology and the public s understanding of it evolves. The goal of this study is to estimate the macroeconomic impacts (statewide employment, household income, value added/state product) of a change in sales brought about by an elimination of the state incentive program. Forecasting the total sales or sales by nameplate is very challenging as there are many influences on future sales and these influences themselves are hard to predict. In this study, the goal was a much simpler task, predicting the change in a subset of sales given a change in a single variable, all others held constant. The analysis only needed to create a straw man future sales level and test that level for a change, given a change in the incentive program. The amount of uncertainty in the change is much smaller than the amount of uncertainty in the total sales. This analysis incorporates the assumption that the suspension of the California EV rebate program will reduce expected EV sales. Estimating PED for vehicles requires an extensive database of vehicle sales, attributes, prices and other factors such as licensed drivers, household income, and economic growth. These data are not yet available for a significant volume of electric vehicle sales. As a result, this research sought a typical estimate of price elasticity of demand for vehicles. General Motors Research Staff conducted one of the most extensive studies of vehicle elasticity in the early 1990s and has periodically updated this study, with the most recent update as recently as In these studies, Dr. Robert Brodley had access to an extensive database of over 40,000 new vehicle sales transactions. Dr. Brodley estimated a number of statistical models to estimate elasticity for individual classes including their own and cross price elasticity. For this analysis, the research team chose the estimated average own price elasticity of demand from Dr. Brodley s study of -3.6 percent. Dr. Brodley also estimated elasticity by vehicle class (including economy, compact, small, midsize, large, luxury and sport), with estimates ranging from -2.4 to The detailed elasticity estimates by class are less statistically reliable and were not used in this analysis. 11

15 Additional researchers have developed estimates of elasticity, which are generally consistent with Dr. Brodley s findings. Examples include a recent study 6 by the Congressional Budget Office to evaluate the impact of the federal incentive program on electric vehicle sales. While the CBO did not publish a specific EV elasticity estimate, the implied elasticity in their price impacts and sales forecasts are in the range of -1.6 to Research on the Effects of Vehicle and Fuel Incentives Financial incentives to encourage the development and purchase of more fuel-efficient vehicles have been a part of the public policy approach to reducing transportation fuel consumption and GHG emissions for some time. Governments have directed some of the incentives at manufactures and others at consumers. Incentives to manufactures encourage the development of more fuel-efficient vehicle and engine design while consumer incentives target shifting consumer preferences to more fuel efficient vehicles. 6 Congress of The United States, Congressional Budget Office (CBO), Effects of Federal Tax Credits for the Purchase of Electric Vehicles, September

16 3. The Incremental Vehicle Cost (IVC) Model The previous U.C. Berkeley economic assessment of California electric vehicle deployment relied on the BEAR model. BEAR models the overall economy, but it does not detail vehicle costs and benefits at the individual level, especially with respect to emerging technologies and vehicle diversity. To calibrate this component of the estimation procedure, the researchers at U.C. Berkeley created a detailed Incremental Vehicle Cost (IVC) spreadsheet model. This entailed collection and synthesis of the most up-to-date information on available present and future vehicle technologies, a wide range of analysis and assumptions regarding ownership and use behavior, and assumptions about forward market conditions. The analysis of the macroeconomic impacts this study presents uses the outputs of the IVC model, modified to reflect the latest data. This chapter presents a variety of salient information to inform the reader as to the basic functioning and structure of the IVC, as well as the major assumptions that its developers employed. Section 3.1 details the major components (worksheets) in the model. Section 3.2 describes the IVC s major inputs and assumptions. Section 3.2 describes changes that the authors of this report made to the IVC. 3.1 Structure and Components of the IVC The IVC Spreadsheet Model constructs inventories of electric and conventional vehicles for three scenarios, by year, vehicle type and vehicle age. These scenarios are combined with data on vehicle miles of travel (VMT) by age of vehicle, fuel efficiency by vehicle type and vintage, price forecasts by fuel type, vehicle purchase prices, rebate and tax credit assumptions, and other variables to produce a data set that the U.C. Berkeley researchers used to stimulate the BEAR model. The IVC Spreadsheet Model is comprised of 19 worksheets. The IVC labels three of these worksheets as old and one additional worksheet has a redundant purpose and no longer appears linked to the other worksheets. The following list summaries the other 15 worksheets including their names and basic functions. 1. Inputs & Results (financed): This worksheet compiles and summarizes data from the other worksheets for use in summary graphics. 2. BEV-PHEV_Adoption: This worksheet interpolates sales for electric vehicles between 2015 and 2030 using a logistic function. Sales for 2015 are from CARB estimates and sales for 2030 are target sales by scenario. 3. FC_15%: This worksheet calculates fuel use by fuel type using estimates of VMT, MPG, Survival rates and percentages of vehicles by type for the 15 percent PEV deployment scenario. 13

17 4. FC_45%: This worksheet calculates fuel use by fuel type using estimates of VMT, MPG, Survival rates and percentages of vehicles by type for the 45 percent PEV deployment scenario. 5. IVCDat: This worksheet collects each of the data series that the BEAR model used as inputs. 6. Costs: This worksheet calculates incremental costs by year and scenario using data on EV stocks, flows, and unit costs. 7. Incentives: This worksheet calculates average California and Federal incentives per year and applies them to sales from worksheet 2 to calculate total incentives for each year and scenario. 8. CO2: This worksheet calculates CO2 emissions factors for California gasoline and electricity. 9. CA_GasForecast: This worksheet estimates California specific gasoline and diesel price forecasts. 10. CA_ElecForecast: This worksheet estimates California specific retail price forecasts for electricity. 11. baseline_epa: This worksheet tabulates EPA data on national fleet averages, EV energy use characteristics, EV incremental prices, and direct manufacturing costs for batteries. 12. FE_MIT: This worksheet tabulates MIT data to forecast fuel consumption and mpg relative to current vehicles for eight technologies for passenger cars and light trucks. 13. GasolineElecPrice: This worksheet tabulates US Department of Energy data on electricity and gasoline prices from the Annual Energy Outlook. 14. CA-GasPremium: This worksheet tabulates data on California versus US gasoline prices to examine the percentage California markup. 15. VMT: This worksheet uses estimate of VMT per vehicle by age and number of vehicles by age in each year to estimate total VMT by year and age of vehicle. 3.2 IVC Inputs and Assumptions This section provides an overview of some of the key inputs and assumptions that the IVC uses in calculating the various inputs that the U.C. Berkeley researchers used in assessing the economic impacts of California electric vehicle deployment. 14

18 Vehicle Technologies Purchasers of automobiles and light trucks have an expanded array of model choices, both in Internal Combustion Engine (ICE) and PEV technologies. It is impractical for the IVC to track all these alternatives. However, vehicle choice is a primary determinant of the outcomes considered, and therefore the IVC specifies enough vehicle diversity to capture this. To that end, IVC considers representative ICE categories for cars and light trucks, reflecting average performance characteristics over the period considered ( ). The IVC models a significant improvement in fuel economy over time. The IVC assumes that new ICE passenger cars will achieve close to 45 miles per gallon (real world) by model year The IVC assumes that new ICE light trucks will achieve 32 miles per gallon by model year This is consistent with the joint rulemaking between the U.S. Environmental Protection Agency and the U.S. National Highway Traffic Safety Administration. The IVC assumes this representative vehicle type consumes a blend of gasoline and diesel reflecting the shares of both fuel types in the light vehicle market. In addition to this, for both cars and light trucks, the IVC considers three PEV categories, PHEV20, PHEV40, and BEV100. While there are increasing sub varieties of electric vehicles appearing on the market, these three varieties capture current offerings and capture the essential heterogeneity of the PEV fleet. Adoption and Use Behavior - Demand Growth The IVC does not model vehicle demand or adoption at the individual owner level. Instead, the model estimates the impacts of policy scenarios that assume a given pattern of adoption, specified in terms of target sales or market shares in the terminal year In addition to this, the IVC calibrates baseline PEV demand shares to match CARB estimates for Between 2015 and the 2030 target, the IVC interpolates demand using a logistic function, the standard profile for technology adoption studies. The IVC estimates three adoption patterns including accelerated (Early), as with fashionable consumer goods, or more gradual (Late), where significant learning might be required for adoption, and a median case (Normal) that is typical of most successful automotive technology. The U.C. Berkeley researchers used the median case (Normal) for the version of the IVC used in assessing the economic impacts of California electric vehicle deployment. Adoption and Use Behavior PEV Fleet Composition The IVC considers six generic PEV vehicle types, cars and light trucks in three electric power categories. Having little reliable empirical evidence on the forward composition of this market, the U.C. Berkeley researchers chose generic shares to capture diversity of the fleet. Exhibit 3-1 lists the vehicle and technology categories and the market shares attributed to each. 15

19 Exhibit 3.1: Assumed Shares of New PEV Sales Vehicle Type Passenger Cars Technology Type Share of Vehicle Type PHEV20 33% PHEV40 33% BEV100 33% Light Trucks PHEV20 50% PHEV40 30% BEV100 20% The U.C. Berkeley researchers noted that depending on the price of fuel as well as innovation trends, more efficient vehicles could be expected to gain larger market share. In the one to two years, since the U.C. Berkeley researchers conducted the ETC study, the electric vehicle market in California has expanded significantly and BEV s have captured a larger share of sales. Chapter 4 of this report presents this more recent data and changes to the IVC assumptions that the present study has adopted. Adoption and Use Behavior - Vehicle Miles Traveled Costs of vehicle operation, particularly fuel costs and savings from PEVs, depend significantly on vehicle use levels, of which vehicle miles traveled (VMT) is the primary indicator. Actual VMT vary with a myriad of vehicle and user characteristics. For practical purposes, the IVC relies on averages from CARB, implemented for each model year and over the life of all vehicles sold in each model year. VMT will also vary with model of car or light truck, but again the IVC relies on averages for the current estimates. Some evidence suggested that the early PEV owners were driving fewer VMT than owners of ICE models. Accordingly, the IVC assumes that owners of battery only electric vehicles (BEVs) travel fewer VMT, but that this will change as battery technology improves. The IVC assumes that BEV owners drive 58 percent as many miles as ICE owners in 2015, climbing to 90 percent in 2020 and then remaining at that level. Adoption and Use Behavior - Survival Vehicle life expectancy varies with technology and driving conditions. The IVC uses a single survival rate function for all vehicles. For this component of fleet turnover, the IVC uses survival rates for each model year following trends published by the National Highway Traffic Safety Administration. Exhibit 3-2 graphically portrays the NHTSA vehicle survival rates. 16

20 1.20 Exhibit 3-2 NHTSA Vehicle Survival Rates Financing The overwhelming majority of new light vehicle sales include financing (90 percent according to the National Automobile Dealers Association). In the context of PEV adoption, these options are quite important because it gives buyers the option to pay for their vehicle in significant part with fuel savings enjoyed after purchase. To capture this, the U.C. Berkeley researchers assumed a relatively simple finance model, allowing buyers of PEVs to pay the full cost of their vehicles in equal installments over five years, inclusive of a 5 percent APR premium. This interest rate is relatively conservative by the standards of recent years. Energy Costs The two primary energy sources relevant to the IVC analysis are liquid transportation fuels and electric power. In the transport category, the primary fuels are gasoline and diesel. The U.C. Berkeley researchers assumed global energy markets are independent of the policy scenarios, and that they drive national fuel prices according to trends set forth in the EIA s Annual Energy Outlook (early release, 2012). The U.C. Berkeley researchers also assumed that California fuel prices would follow their historical pattern of being higher than national average prices. For electric power price trends over the period considered, the U.C. Berkeley researchers relied on a combination of EIA data forecasting Pacific region and California electricity prices. Vehicle Costs The IVC assumptions regarding vehicles explicitly recognize innovation processes and changing vehicle standards over the time-period considered. To this end, the U.C. Berkeley researchers assumed that ICE vehicles attain higher average mpg in accordance with EPA and NHTSA s National Program harmonizing greenhouse gas and fuel economy standards, and that conformity with these confers incremental costs for ICE vehicles. The IVC utilizes EPA and NHTSA s incremental cost estimates of $2,811 for MY2025 passenger cars and $3,052 for MY

21 passenger trucks versus today s new vehicles. For PEV vehicles, the U.C. Berkeley researchers built the IVC estimates from the bottom up, using the most up-to-date electric vehicle technology data available, as the following paragraphs describe. Batteries are a primary cost component in all PEVs, and the IVC assumes steady but moderate progress or learning in this technology. The IVC uses projections by McKinsey and Company to estimate battery costs. The analysis adjusted the usable state of charge window from a fixed value of 70% to values of 60% for the PHEV10, 70% for the PHEV40, and 90% for the BEV100 to reflect the different usage characteristics of each vehicle type. The analysis scaled battery costs by 1.5 for the PHEV10 and 1.3 for the PHEV40 to reflect the increased costs to meet power requirements with smaller batteries using EPRI estimates. The IVC used an indirect cost multiplier (ICM) of 1.5 to mark-up the direct costs to retail. ICMs generally account for indirect costs such as research and development, overhead, dealer markup, warranty, and dealer profit as documented by EPA, NAS, and CARB. The IVC based component costs for PEVs on the U.S. Environmental Protection Agency and National Transportation Highway Safety Association regulatory impact analysis. The U.C. Berkeley researchers believe the ICMs and component mark ups utilized in the IVC are conservative. The result is a cost/efficiency improvement of about 80 percent over the next two decades. After a review of the vehicle engineering literature and consultation with experts in this field, the U.C. Berkeley researchers estimated incremental vehicle cost for PEVs using these battery cost profiles and a 30 percent mark-up on other power and drive train components. Incentives The U.C. Berkeley researchers incorporated current incentive schemes on a uniform average basis into the IVC model. The model assumes that the state and federal government does not renew these incentives beyond In the BEAR model, the cost of fiscal incentives, in terms of foregone income/expenditure elsewhere in the economy, is fully accounted. The macroeconomic impact results of the U.C. Berkeley study are thus net of these transfer effects. LCFS Credits PEV owners are contributing to global greenhouse mitigation by reducing carbon fuel consumption. Under California s Low Carbon Fuel Standard (LCFS) regulations, providers of electricity as a fuel are required to return value derived from the sale of LCFS credits to PEV drivers. The IVC incorporates these credits into the net IVC calculations using CARB formulas for vehicle efficiency and emissions factors. CARB estimates that LCFS credit value to be between $15 and $50 per metric tonne of CO2 displaced. Therefore, the IVC uses the average ($32.50) to calculate the value of the credit. Aggregate Trends Including all the market, technology, and behavioral information above, the IVC model calculates net economic returns to PEV deployment in both the PEV15 and PEV45 scenarios. 18

22 The overall aggregate trends for IVC components show a strong positive dividend for those who adopt these vehicles, as well as support for the industries developing, selling, and maintaining them. By 2030, PEV vehicles are saving California households over $1.5 billion per year, with cumulative savings since 2012 of over $6 billion. Under the 45 percent deployment scenario (PEV45), annual savings by 2030 are over $3.5 billion and cumulative household savings exceed $13 billion. With positive net savings (green trend) in nearly every year considered, electric vehicles represent a long-term stimulus package for the state economy. These figures represent aggregate private costs and benefits of PEV vehicles. For individual buyers, financing defers costs over five years, while their incentive payments accrue upon purchase. LCFS credits accrue over the useful life of their vehicles. From an aggregate perspective, positive private net benefits are strongly supported in later years by legacy adoption (fuel savings), but individual owners will face net costs upon purchase and have to overcome these in later years of ownership. 3.3 IVC Updates For this study, the research team accepted the majority of the data and assumptions that the U.C. Berkeley researchers used in constructing the IVC. Those researchers recently constructed the IVC and only slight or insignificant changes were likely in the majority of the assumptions and data. The major area of change was the new information on California EV sales and EV technology trends. In particular, sales of PEVs in California have accelerated more rapidly than many would have predicted, climbing from only 397 and 6,984 in 2010 and 2011, respectively to 20,898 in 2012 and to an astounding 42,198 in By contrast, the IVC and the U.C. Berkeley reports, completed in 2012, assumed 2013 PEV sales of 22,339, only 52.9 percent of actual sales. Actual sales are in fact in line with the IVC s more aggressive 45 percent penetration scenario. Another phenomenon that the IVC did not foresee was the penetration of battery only (BEV vehicles). While, the IVC assumes sales that are evenly distributed among PHEV20, PHEV40, and BEV100 vehicles, the BEV100 vehicles have actually accounted for 52.0 percent of sales. The following chapter analyzes data on sales and prices of California EVs. Where appropriate, the research team adjusted data and assumptions in the IVC to reflect newly available information. 19

23 4. The Market Share and Elasticity Spreadsheet Model In order to update the IVC and calculate several other data items for inclusion in the analysis, the research team developed a spreadsheet model to supplement the IVC. This spreadsheet develops estimates of 2013 California electric vehicle sales by model in both units and dollars, calculates California and Federal rebates and incentives, estimates impacts of eliminating the state s electric vehicle incentives, and then forecasts key variables for the years 2015 to The model includes four main components. They include portions that estimate: 2013 California electric vehicle sales by model and technology 2013 California electric vehicle rebates and sales taxes by model 2013 California electric vehicle lost sales and rebates without state electric vehicle incentives forecasts The following four sections discuss each of these components. 4.1 Vehicle Sales by Nameplate and Technology Complete data on the sales of EVs in California by technology type, in both units and dollars, are not available from a single source. These data, however, are required as incentives vary by type of EV, sales prices vary by model, and the location of EV production/assembly varies by manufacturer. The most complete and reliable estimates of EV sales in California is the data published by the California New Car Dealers Association (CNCDA). Exhibit 4-1 provides the data the CNCDA publishes in the quarterly California Auto Outlook. R.L. Polk provides the majority of this data although CNCDA estimate registrations for the Ford CX-Max Energi and the Ford Fusion Energi. The California Auto Outlook also provides data on Tesla Model S registrations in their top selling models table, as it is one of the top five models in its segment. In 2013, Tesla Mosel S registrations were 8,347. Research team staff contacted the CNCDA and inquired whether additional unpublished data were available, but CNCDA staff indicated that they had no additional details. Exhibit 4-1: 2013 California Electric Vehicle Registrations Category Plug in Hybrid ,682 14,701 20,235 Registrations Electric Registrations ,302 6,197 21,963 Total ,984 20,898 42,198 California Auto Outlook, CNCDA, Vol. 10, No 1, February To supplement the CNCDA data, the research team tabulated data available from Inside EVs, the largest Internet property exclusively covering plug-in vehicles. This data source includes a 20

24 list of all of the EVs sold, their range, national sales, and Manufacturer s Suggested Retail Price (MSRP). The research team used these data to disaggregate and extend the CNCDA data. Exhibit 4-2 provides the portion of the study spreadsheet that estimates California electric vehicle unit and dollar sales by model and technology. The first three columns of the exhibit list each vehicle model and provide its electric battery range and technology type. The forth column lists national PHEV unit sales by model from Inside EVs. The fifth column develops an estimate of California PHEV sales for each model, by distributing the CNCDA California PHEV registration estimate of 20,235 among models based on national sales by model. This final calculation includes the observation from the Annual Incentive Program report that nine percent of sales are for leases of less than 36 months which do not qualify for the incentive. 7 The sixth and seventh columns separately sum up the estimates for California sales of PHEV-20s and PHEV-40s. Column 8 lists national BEV sales by model from Inside EVs. The ninth column develops an estimate of California BEV sales for each model, by distributing the CNCDA California BEV registration estimate of 21,963 among models based on national sales by model with the exception of Tesla sales, which were not directly available from CNCDA, as described above. Column 10 provides the final estimates of California EV sales by model. Column 11 lists the MSRP for each model from Inside EVs. The MSRP for the Tesla is a weighted average of the MSRP for the two available battery sizes with the larger battery receiving a two-thirds weight. 8 Column 12 provides dollar sales, which are the product of the previous two columns. Exhibit 4-2: 2013 California Electric Vehicle Sales by Model and Technology 7 Clean Vehicle Rebate Project, Fiscal Year Final Report, December 2, 2013, Prepared by the Center for Sustainable Energy under Grant G12-AQIP-01 for the California Air Resources Board, p17. 8 The research team based this weighting on rebate data by Tesla model from Exhibit 1 of the Clean Vehicle Rebate Project, FY Final Report, Prepared by the Center for Sustainable Energy California for the California Air Resources Board, December 2,

25 The bottom row of Exhibit 4-2, labeled Share, provides some crucial data for the overall analysis. As discussed in Chapter 3, the IVC assumed that PHEV-20s, PHEV-40s and BEVs each had a third of the EV market shares. However, Exhibit 4-2 shows that the market shares in 2013 actual tilt toward EVs with higher electric shares. PHEV-20s captured only 22.6 percent of the EV market, PHEV-40s captured only 25.4 percent of the EV market, and BEVs captured 52.0 percent of the EV market. The research team used these percentages to update the assumptions in the IVC. The share cell in the last column reveals that Tesla accounted for just over a third of the dollar sales of EVs in California. This is important as there are economic impacts on the California economy of vehicle production and assembly to California. In addition, California is well positioned to be a key supplier of the EV production industry nationwide. 4.2 Vehicle Rebates and Sales Taxes by Nameplate Exhibit 4-3 provides the portion of the study spreadsheet that estimates 2013 California electric vehicle rebates and sales taxes by model. The first three columns of the exhibit list each vehicle and provide its electric battery range and technology type. Column 4 provides the final estimates of California EV sales by nameplate, taken from Column 10 of Exhibit 4-2. Column 5 provides the 2013 price after Federal tax credit, from Inside EVs, The price after Federal tax credit for the Tesla is the weighted average of the MSRP for the two available battery sizes and the research team estimated the prices for the Porsche and the Cadillac. Column 6 provides the amount of the Federal tax credit per vehicle, which the spreadsheet calculates by subtracting Column 5 from Column 11 of Exhibit 4-2, which provided MSRPs. Column 7 provides the dollar value of Federal tax credits, which the spreadsheet calculates by multiplying Column 5 by Column 6. Column 8 provides the amount of the California rebate per vehicle, which was available directly from the Sustainable Energy California website. Column 9 provides the dollar value of California Rebates, which the spreadsheet calculates by taking the product of Column 7, Column 8 and a factor of The factor represents the percentage of drivers of eligible vehicles that obtained a rebate. 9 Column 10 provides state sales tax income from the sales of the vehicles, which the spreadsheet calculates by multiplying Column 12 of Exhibit 4-2 by the state sales tax rate of 7.5 percent. Column 11 provides local sales tax income from the sales of the vehicles, which the spreadsheet calculates by multiplying Column 12 of Exhibit 4-2 by an estimate of the average local sales tax rate of 1.25 percent. The research team estimated the average local sales tax rate of 1.25 percent using data from the California State Board of Equalization. 9 The Clean Vehicle Rebate Project, FY Final Report, Prepared by the Center for Sustainable Energy California for the California Air Resources Board, December 2, 2013, notes that By comparing rebate data with DMV registration data, it was found that 76% of drivers of eligible vehicles (14,736 out of 18,438) in the study period obtained a rebate. 22

26 Exhibit 4-3: 2013 California Electric Vehicle Rebates and Sales Taxes by Model Price Federal California California After Incentive Rebate Local Sales Vehicle Model EV Range Vehicle PHEV/BEV Type Unit Sales Federal Credit Per Vehicle Federal Incentive Per Vehicle California Rebate State Sales Chevy Volt 38 PHEV-40 9,529 27,495 7,500 71,463, ,862,510 25,008,786 4,168,131 Nissan Leaf 75 BEV ,562 21,300 7,500 79,211, ,066,889 22,812,884 3,802,147 Tesla Model S BEV-100 8,347 61,567 7,500 62,602, ,859,300 43,237,460 7,206,243 Toyota PiP 11 PHEV-20 4,987 27,490 2,500 12,468, ,685,720 11,218,076 1,869,679 Ford CX-Max Energi 21 PHEV-20 2,952 29,200 3,750 11,068, ,364,960 7,294,437 1,215,740 Ford Fusion Energi 21 PHEV-20 2,512 34,950 3,750 9,421, ,864,026 7,291,962 1,215,327 Ford Focus Electric 76 PHEV ,700 7,500 6,088, ,542,515 2,143, ,214 Toyota RAV4 EV 103 BEV ,300 7,500 3,839, ,725 1,912, ,695 Mitsubishi I-MiEV 62 PHEV ,625 7,500 3,604, ,261 1,049, ,992 Smart ED 87 BEV ,500 7,500 3,233, , , ,734 Fiat 500e 87 BEV ,000 7,500 2,259, , , ,399 Honda Fit EV 82 BEV ,915 7,500 1,993, , , ,307 Chevrolet Spark EV 82 BEV ,185 7,500 1,888, , ,899 83,983 Honda Accord PHV 13 PHEV ,030 3, , , , ,916 Porshe PanameraS-E N.A PHEV ,250 3, , , ,464 43,911 Cadillac ELR N.A PHEV ,245 3,750 9, ,822 14,110 2,352 Total 42,198 33,312 6, ,101,349 1, ,797, ,686,619 20,947, Lost Sales and Incentives without State Rebates Exhibit 4-4 provides the portion of the study spreadsheet that estimates 2013 California electric vehicle lost sales and federal incentives without state electric vehicle rebates. The first three columns of the exhibit list each vehicle and provide its electric battery range and technology type. Column 4 provides the final estimates of California EV sales by nameplate, taken from Column 10 of Exhibit 4-2. Column 5 provides the elasticity estimate, which the research team developed and this report discusses in Chapter 2. Column 6 provides the number of units of lost sales and federal incentives without state electric vehicle rebates, which the spreadsheet calculates by multiplying Column 4 by Column 5. Column 7 provides the lost Federal tax credits without state electric vehicle rebates, which the spreadsheet calculates by multiplying Column 5 by Column 6 of Exhibit

27 Exhibit 4-4: 2013 Lost Sales and Rebates without State Electric Vehicle Incentives Vehicle Model EV Range 2013 California Vehicle PHEV/BEV Type Unit Sales Elasticity Estimate Lost Unit Sales Without State Rebate Lost Federal Incentives Without State Rebate Chevy Volt 38 PHEV-40 9, ,338 10,034,963 Nissan Leaf 75 BEV , ,003 22,525,743 Tesla Model S BEV-100 8, ,423,472 Toyota PiP 11 PHEV-20 4, ,043,052 Ford CX-Max Energi 21 PHEV-20 2, ,650,768 Ford Fusion Energi 21 PHEV-20 2, ,196,266 Ford Focus Electric 76 PHEV ,416,701 Toyota RAV4 EV 103 BEV ,469 Mitsubishi I-MiEV 62 PHEV ,013,726 Smart ED 87 BEV ,059,334 Fiat 500e 87 BEV ,439 Honda Fit EV 82 BEV ,353 Chevrolet Spark EV 82 BEV ,552 Honda Accord PHV 13 PHEV ,534 Porshe PanameraS-E N.A PHEV ,605 Cadillac ELR N.A PHEV Total 42,198 7,697 50,688,576 24

28 4.4 Forecasts for 2015 to 2019 This study was able to consider the actual registrations of EVs in California though 2013 (See Exhibit 4-1). In contrast, the developers of the IVC started with a rough estimate of 2011 sales, a CEC forecast for 2015, and a 2030 penetration consistent with ZEV regulations. Exhibit 4-5 provides the sales estimates from the IVC for the PEV15 scenario (blue line), the PEV45 scenario (redline), and actual sales with trend line (green line). As shown realized sales through 2013 have far exceeded the sales that the IVC predicted. However, the IVC estimates for the PEV45 scenario closely match the trend line for realized sales for the period 2015 through As a result, this study used the realized sales and trend line for the period through 2014 and the IVC s PEV45 scenario for the period 2015 through , ,000 Exhibit 4-5: California Electric Vehicle Sales and Forecasts 140, , ,000 80, Thru Jun = 28, thru Jun = 14,427 60,000 40,000 20, Scenario A Scenario B Actual/Trendline Exhibit 4-6 provides the portion of the study spreadsheet that forecasts the value of several key variables for the 5-year period 2015 through The spreadsheet estimates the values of each of these variables in each of the forecast years by scaling in proportion to the increase in unit sales Exhibit 4-6: Forecasts of Key Variables for California PHEV/BEV Unit Sales 2013 California PHEV/BEV Sales 2013 $ Lost Unit Sales Without State Rebate Lost Federal Incentives Without State Rebate 2013 Price Federal State Sales Local Sales Year (MSRP) Incentive California Rebate ,200 39,713 2,509,880, ,531,145 97,047, ,241,014 31,373,502 11,528 75,916, ,103 39,713 3,260,595, ,527, ,074, ,544,627 40,757,438 14,976 98,623, ,180 39,713 3,819,607, ,627, ,689, ,470,549 47,745,092 17, ,531, ,938 39,713 4,763,142, ,701, ,172, ,235,693 59,539,282 21, ,070, ,577 39,713 6,297,601,816 1,015,018, ,504, ,320,136 78,720,023 28, ,483, Total 519,998 39,713 20,650,826,922 3,328,406, ,488,355 1,548,812, ,135,337 94, ,625, Average 104,000 39,713 4,130,165, ,681, ,697, ,762,404 51,627,067 18, ,925,113 25

29 o 5. The IMPLAN Model and Model Runs Economic impact studies track the movement of money through an economy and measure the cumulative effects of that spending. Because the financial and employment impacts of proposals and projects are used in making decisions on policies, investments, grants and other assistance programs, these studies have wide spread use and appeal. The IMPLAN System is a general input-output modeling software and data system that tracks every unique industry group in every level of the regional data, and almost all of the data elements are available for customization. Sources for creation of the background IMPLAN data include BLS, BEA, and Census. IMPLAN traces local impacts by looking back through the supply chain. These backward linkages provide IMPLAN with the information to model the iterations of local Indirect and Induced impacts until the initial spending completely escapes from the study area by leakage. While IMPLAN's ability to examine economic impacts is virtually without limits, the software cannot predict the future or estimate impacts that do not have direct fiscal, production or employment elements. The research team used IMPLAN to model the economic and fiscal impacts of California electric vehicle purchases as well as the lost sales and rebates without state electric vehicle incentives. Section 5.1 provides an overview of the IMPLAN model and the benefits of using the IMPLAN model for this analysis. Section 5.2 describes general considerations in the stimulation of events in the INPLAN model such as sector selection, local purchase percentages, and margins. Section 5.3 describes how the IMPLAN model was stimulated for this study using the out puts of the IVC and the Market and Elasticity Spreadsheet. Section 5.4 describes the model results and calibration of those results to the earlier studies by U. C. Berkeley that used the BEAR model. 5.1 Overview and Benefits of the IMPLAN Model The US Department of Agriculture developed the original IMPLAN software and data in The model has migrated to the University of Minnesota and to the Minnesota IMPLAN Group, a private-sector company. The model developers have continuously updated the model with the current model based on 2012 data. The model has a combined 35 years of experience and thousands of national and regional economic studies have used IMPLAN. IMPLAN is an acronym for IMpact analysis for PLANning. The IMPLAN System is a general input output model that is comprised of software and regional data sets. IMPLAN allows users of varying skill levels and backgrounds in economics to create cost effective, accurate economic reports. The software's ability to perform sophisticated economic calculations in a matter of minutes both streamlines, and standardizes the process that formerly took expert economists weeks to accomplish. 26

30 One of the most powerful aspects of IMPLAN is that it can create input-output models for specific regional economies. Rather than extrapolating regional data from national averages, IMPLAN measures economic impacts from data representing actual local economies. IMFLAN data sets are available from the ZIP Code level to the national level, and regional files can be combined to create precise geographic definitions when ca1culaling impacts. This study uses the California state-level package. The analysis results provide the IMPLAN user or client with a report that demonstrates the detailed effects of local changes on supporting industries and households. Reports can provide both detailed and summary information related to job creation, income, production, and taxes. IMPLAN Version 3.0 can even track the impacts of a local change on surrounding economies. IMPLAN data tracks all the available industry groups in every level of the regional data. This permits detailed impact breakdowns and helps ensure accuracy of inter-industry relationships. If a study involves the introduction of an industry group that does not already exist in the local area, IMPLAN provides tools to create a new industry. The IMPLAN user can apply this new industry as a proxy to estimate the likely impacts of the new industry's production to the local economy. If an industry exists in IMPLAN, but does not exactly match the sales and employment information for the industry the user is modeling, the user may update IMPLAN industry relationships to match the known values, while still maintaining the local regional sales and employment averages for examining the Indirect and Induced impacts. Exhibit 5-1 provides a timeline highlighting some of the key dates and accomplishments of the IMPLAN model. For example, more than 260 colleges and universities to estimate their economic impacts on local communities have used IMPLAN. 10 The first California state government department begins using IMPLAN in IMPLAN website, Clients. 27

31 Exhibit 5-1: IMPLAN Timeline 1976 The USDA Forest Service develops an economic impact modeling system 1977 USDA named the system IMPLAN (IMpact analysis for PLANning) 1984 USDA partners with the University of Minnesota to expand and update IMPLAN data 1988 IMPLAN is first used outside the federal government 1991 The first California state government department begins using IMPLAN 1993 MIG (Minnesota IMPLAN Group) becomes a private-sector company 1993 St. Paul, Minnesota becomes the first city to buy IMPLAN 1993 The Federal Emergency Management Agency (FEMA) starts using IMPLAN 1993 CH2M Hill buys IMPLAN for the first time 1994 UNC Charlotte buys IMPLAN for the first time 1994 Duke Power starts using IMPLAN 1995 The Bureau of Reclamation becomes an IMPLAN user Held the first semiannual national IMPLAN conference 1996 The Bureau of Economic Analysis (BEA) becomes an IMPLAN customer Released version 2.0 of the IMPLAN software, expanding Social Accounting Matrices 1999 The Bureau of Land Management (BLM) becomes an IMPLAN customer 1999 Ernst & Young starts using IMPLAN 2000 The Federal Reserve Bank starts using IMPLAN 2001 Booz Allen Hamilton becomes an IMPLAN customer 2001 The Environmental Protection Agency (EPA) starts using IMPLAN 2009 IMPLAN designated as acceptable way to track new job growth for ARRA program The research team has used IMPLAN and other input-output models independently as well as in combination for numerous projects. The research team is very familiar with input-output models such as IMPLAN RIMS and REMI. The research team has completed more than 250 economic impact studies using these models for businesses, nonprofit organizations, and federal, state, and local government agencies. While there are a number of different options of input-output models, the research team selected IMPLAN as the best option for this economic impact study, given the software s wide acceptance, versatile functionality, and the ease of interpretation of its results. Exhibit 5-2 provides a comparison of IMPLAN and other commonly used input-output models, such as the U.S. Department of Commerce RIMS II model (RIMS II) and REMI. 28

32 Exhibit 5-2: Comparison of IMPLAN and Other Input-Output Models IMPLAN has advantages over the more simplistic RIMS II input-output model, which applies a small set of multipliers, relative to the number of multipliers available in IMPLAN, to the various economic activities. Another advantage IMPLAN has over the RIMS II is that IMPLAN automatically divides impacts into the traditional economic impact analysis subcategories: direct, indirect, and induced effects. RIMS II is a spreadsheet-based model where the user is responsible for setting up the multiplier worksheet. Each time the user adds a new variable the user must alter the worksheet, increasing the chance of user-induced error. RIMS II also adds additional ordering and processing time to the analysis, which can extend the duration of a study. IMPLAN has advantages over the REMI model because IMPLAN has a simpler data entry interface. The REMI model is approximately 20 times more expensive and a REMI model analysis can be several times more expensive than an IMPLAN model analysis, depending on the complexity of the modeling effort. In summary, IMPLAN is a more sophisticated and less user-error prone tool than RIMS II, and a significantly more user-friendly and economical tool than REMI. One specific advantage of the IMPLAN model for this analysis is the Social Accounting Matrices (SAM). The IMPLAN model uses SAM to trace the effects of economic transactions undertaken by an institution, business, or agency in a given year. The model generates detailed results that can be sorted by impact type (employment, output, labor income, and value added), and a tax impact report that estimates changes to federal, state, and local government tax revenues. MIG Inc. constructs IMPLAN data sets annually. MIG derives the regional data from many different sources, primarily federal agencies responsible for data collection. The primary sources for data derivation include: The U.S. Bureau of Labor Statistics (BLS) Covered Employment and Wages (CEW) program The U.S. Bureau of Economic Analysis (BEA) Regional Economic Information System (REA) program The U.S. Bureau of Economic Analysis Benchmark I-O Accounts of the US The BEA output estimates The BLS Consumer Expenditure Survey The U.S. Census Bureau County Business Patterns (CBP) program The U.S. Census Bureau Decennial Census and Population Surveys The U.S. Census Bureau Economic Censuses and Surveys The U.S. Department of Agriculture Census 29