March 2024 Research Review

Reducing the risk of investing in electric vehicles for low-income consumers

By Rebecca RaschAspen Global Change Institute
Closeup of man's hand charging electric vehicle

While electric vehicles (EVs) are not a panacea for reducing emissions from the transportation sector, widespread adoption can be a significant step toward meeting CO2 reduction targets. In a recent study of EV adoption in China, the authors estimate that even a one percent increase in a city’s EV sales can reduce local net CO2 emissions in both the city itself and a nearby city. 

These benefits are especially salient in environmental justice (EJ) communities, where people are disproportionately burdened by environmental hazards such as smog from car exhaust, leading to higher rates of childhood and adult asthma and cardiovascular problems.

Overcoming cost barriers

While lack of charging infrastructure is a key barrier to making the EV transition across the socioeconomic divide, low-income consumers in particular are grappling with two additional barriers: vehicle purchase cost and the risk of high maintenance and repair costs. The good news is that in the U.S., policy interventions and subsidies are poised to address upfront vehicle costs. Clean vehicle tax credits, as part of the Inflation Reduction Act, provide purchasers of used models with a maximum tax credit of up to $4,000 or 30 percent off the cost of the preowned vehicle.

The potential for high repair costs, however, is more difficult to tackle. A 2023 Consumer Reports poll found that EVs are less reliable overall, compared to combustion engine vehicles. In a recent article in Business Insider, the authors note that Hertz is scaling back its EV rental fleet due to high repair costs. If an EV battery is damaged in a collision, it could cost between $5,000 and $15,000 to replace –- which is especially problematic for low-income consumers. In a recent article published in the Journal of Planning Education and Research, study authors Klein, Basu, and Smart found that high repair and maintenance costs are the main reason that low-income households transition into and out of car ownership. They tend to buy used cars and, when their cars break down, they are unable to pay for repairs. Among those surveyed who lost access to their car (1,103 of 3,358 total respondents), 32 percent experienced job loss as a result, and 58 percent reported that job opportunities decreased.

Impacts on health and well-being

Low-income households surveyed who had lost access to a car noted, too, that it impacted health care and caregiving responsibilities because they no longer had a car to access medical care or to bring children to school.

In addition, 52 percent of those surveyed reported a negative effect on their quality of life. Interestingly, for a minority, the loss of a car improved their quality of life, as they were relieved to be free of the financial burden. However, as Klein and colleagues found, 78 percent of survey respondents agreed that the vehicle purchase was “worth it.”

Figure 1. Klein et al.’s (2023) findings of the impacts of car loss and car gain on low-income households. Source: Klein et al., 2023.

Advancing equitable policy solutions

So what are equitable policy solutions that will set society on a trajectory to reduce both transportation sector emissions and asthma in EJ communities, without overburdening the most vulnerable with the risk of losing their cars because of high repair costs? 

While EV subsidies are a good way to encourage low-income households to enter the EV market, policy makers must also consider the full lifecycle costs of vehicle ownership and the risk of the most vulnerable households having to transition out of car ownership if costly maintenance and repairs are required. Strategic investments in EV adoption by institutions that can afford to incur that risk is one pathway to improving the overall affordability of EVs in the long term.  

Investments in EV government fleets and public transportation are a win-win for low-income communities

At the community level, investing in EV heavy-duty fleets (school buses, delivery vehicles) makes sense right now. The overall costs of EVs, including operation, service, and maintenance over the life of the vehicles, is estimated to be on par with or lower than combustion engine vehicles, especially when the high cost of diesel fuel is factored in. Subsidies and policies that facilitate the transition to cleaner heavy-duty vehicles are especially beneficial to EJ communities, as the link between diesel emissions and higher asthma rates for Black and Latino children in communities overburdened by pollution is well-established (AAFA 2005; Weir 2002).

One great example of a subsidy targeted at the community level is Clean School Bus Rebates (CSB), an Environmental Protection Agency program funded through the Bipartisan Infrastructure Law. It provides subsidies to school bus fleet owners to replace existing fleets with clean and zero-emission vehicles, as well as subsidies for EV charging infrastructure. For the 2023 application, the EPA estimates allocating $500 million in total funding.

EVs improve environmental quality

In an article in Heliyon documenting the impact of EVs on the environment and carbon emissions, Xiaolei Zhao and colleagues found that when internal combustion engine vehicles are replaced by EVs, there are significant reductions in emissions, even when 50 percent of the electricity is generated by fossil fuels. T The authors demonstrate that the net emissions impact of EV adoption is likely negative, as CO2 reductions from a transition to EVs would outstrip the increase in emissions due to increased consumption of electricity. Emissions reductions are expected to come from both the direct substitution of internal combustion engines with EVs, and EV manufacturer-led increases in technological innovation in the transportation sector, which are expected to reduce traffic congestion and associated emissions. 

A common criticism of electric vehicles is the associated rise in emissions for the electricity generation required to charge the vehicles.

One important caveat is the moderating effect of the energy structure. Expanded EV adoption could spur increases in the carbon emissions of cities that are wholly reliant on fossil fuel energy generation, though this increase is likely temporary as grids shift to include more renewable energy sources. From an environmental quality perspective, it still makes sense for environmental justice communities to invest in EV fleets, which will provide direct air quality benefits today, deliver potential carbon reduction benefits in the near future, and advance equity in access to EV charging.

Thanks to hefty government subsidies and consumer demand, trends suggest that in the next few years, EV vehicle and battery prices will drop exponentially, reliability will improve, and charging networks will scale up and become more equally distributed across low-income neighborhoods.  They are also well on their way to becoming a smart choice for low-income consumers in the coming decade as vehicle affordability improves.

Featured Research:

Klein, Nicholas J., Rounaq Basu, and Michael J. Smart. 2023. “Transitions into and out of Car Ownership among Low-Income Households in the United States.” Journal of Planning Education and Research 0739456X2311637. doi: 10.1177/0739456X231163755.

Zhao, Xiaolei, Hui Hu, Hongjie Yuan, and Xin Chu. 2023. “How Does Adoption of Electric Vehicles Reduce Carbon Emissions? Evidence from China.” Heliyon 9(9):e20296. doi: 10.1016/j.heliyon.2023.e20296.