How to get electric school bus incentives just right

Editor's note: This post was updated significantly, as the wrong version was published in error.

The Biden administration just devoted $1 billion to turbocharging school districts’ efforts to electrify their bus fleets.

On Wednesday, the administration rolled out a new federal program to fund clean school buses in what could be an inflection point for their adoption. The first wave of grants, administered by the Environmental Protection Agency, will buy roughly 2,500 buses nationwide. Successfully electrifying the country’s remaining half-million school buses will require carefully designed incentives that give the industry a boost until it can stand on its own.

Last November’s bipartisan infrastructure law created a $5 billion pot of money to help schools buy clean school buses over the next five years. The grants will cover the full cost of new electric buses, which range between $300,000 and $400,000. (For comparison, a new diesel school bus is in the neighborhood of $200,000.) School districts can decide whether to purchase electric buses from traditional makers like Blue Bird or newer electric-only companies like Lion Electric.

While the federal program and similar smaller-scale state programs are already accelerating demand, Duncan McIntyre, CEO of the electric school bus fleet operator Highland Electric Fleets, said he hopes the per-bus incentives shrink over time. He said that would stretch the next $1 billion in grants and “force the industry to stand on its own two feet.”

“In five years, our goal should be that the industry reaches a point where all new vehicles acquired are electric without grants,” McIntyre added, referencing the infrastructure law’s timeline. “What we don’t want is a program where everyone gets accustomed to free buses, and at the end of five years goes back to buying diesel again.”

It’s a delicate dance, though, given how small the market is right now. According to a World Resources Institute analysis in June, the U.S. has just 767 electric school buses delivered or in operation, though that number was already expected to swell before the infrastructure law funds were disbursed. As of June, school districts had committed to a total of 12,720, or around 3% of the country’s total fleet. A December 2021 contract between bus dealer Midwest Transit Equipment and commercial EV company SEA Electric accounts for 10,000 of those.

Greater demand is clearly there, though; the EPA initially offered $500 million in grants in May, but increased the amount to $965 million due to the overwhelming number of applications.

States are increasingly funding the clean school bus transition as well. Sue Gander, director of WRI’s Electric School Bus Initiative, said states have budgeted roughly $2 billion to help districts clean up their fleets. She said that in the short term, the combined incentives should support school districts’ huge demand and encourage manufacturers to get their supply chains and facilities up to speed to meet it.

In fact, she said there’s room for further federal incentives, especially ones for charging infrastructure specifically for school bus fleets. Doing so wouldn’t just keep buses on the roads; it could help fortify the grid. A bill introduced last month by Sen. Angus King would create a program to equip electric school buses with bidirectional vehicle-to-grid charging capabilities. That would allow buses to serve as backup power for the grid, and potentially even offset their upfront cost for school districts (assuming local utilities are amenable, that is).

However, in the longer term, she echoed McIntyre’s concerns that the market needs to eventually scale on its own.

“As the market matures, as we get closer to this total cost of ownership parity [with diesel buses], we’re going to need fewer and fewer incentives,” Gander said. WRI’s analysis found that parity is expected by roughly the end of this decade, even without factoring in incentives, due to drops in battery prices.

Beyond incentives, tighter diesel bus regulations could further spread electric school bus adoption. The EPA is weighing new tailpipe emissions standards for medium- and heavy-duty vehicles, which would include buses. California is also implementing a rule that would restrict the sale of diesel-powered buses and trucks, and other states are following suit. Gander said it’s a “key example” of the role regulations can play in fostering more widespread clean bus tech adoption. Getting it right could help cut more than 5 million tons of carbon pollution that school buses pump into the atmosphere each year.

Another crucial element is structuring incentives so the buses go to the communities that need them most. The White House said that school districts with low-income, rural, or tribal students represented 99% of the grant winners in this latest round, though it is not clear how future rounds of funding will be structured. At this point, the program makes good on the administration’s Justice40 initiative to ensure at least 40% of the benefits of federal climate, environment, and energy investments accrue in marginalized communities that have historically borne the brunt of pollution.

Taking diesel buses off the road is crucial to reducing transportation carbon emissions. But going electric will also cut down on air pollution that disproportionately impacts low-income communities and communities of color. Children in low-income communities tend to have higher than average rates of asthma, and both Black and Hispanic children are at higher risk of developing it than white children, regardless of their family’s income level. Exposure to diesel exhaust — such as via twice-daily school bus rides — exacerbates asthma and other respiratory problems.

“We want to approach this transition in an equitable way,” said Gander. “How are the incentives prioritized for disadvantaged communities? Those are the ones who have the hardest time trying to make the investments, and yet they're the ones whose kids depend on the buses more and also are exposed to the worst of the air quality and the worst of the climate impacts.”