Driving Change: A Front-Loaded, Aggressive Strategy for Federal Procurement of Electric Vehicles

Dorothy Robyn December 7, 2020
December 7, 2020

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Presidential candidate Joe Biden regularly cited electrification of the federal government’s giant vehicle fleet as a concrete action he would take to move the country toward a clean energy economy. Biden’s strategy makes sense. On-road vehicles account for 24 percent of carbon emissions in the United States, and electrification of all but the heaviest trucks is inevitable, given the advantages of electric propulsion. However, Americans have been slow to embrace electric vehicles (EVs) due to their higher sticker price and limited range, thus delaying climate benefits and holding back development of the nascent U.S. EV industry. As the operator of 420,000 fleet vehicles (not counting the U.S. Postal Service fleet), the federal government can accelerate the shift to EVs in several ways. However, an Obama-style executive order directing federal agencies to acquire EVs at some future date is not sufficient. The Biden administration needs a much more front-loaded, comprehensive and aggressive strategy.

Opportunities

The federal government buys about 50,000 new vehicles a year, most of which are domestically manufactured in the United States and Canada. (Although federal procurement of vehicles is subject to the Buy American Act, under the Trade Agreements Act of 1979, GSA can purchase eligible vehicles from countries that have signed a trade agreement with the United States or that meet certain other criteria.) While this is a small fraction of the overall U.S. vehicle market—17 million new cars and light trucks were sold in 2019—it would be a significant fraction of EV sales, which totaled only 329,000 last year, down from 358,000 in 2018. Federal demand would boost competition in a market dominated by one manufacturer and one vehicle (Tesla’s Model 3), support new and planned U.S. EV production, and encourage foreign manufacturers to produce EVs in the United States. Moreover, as energy policy strategist Julian Bentley has argued, because the federal fleet skews large—light- and medium-duty trucks account for 30 percent of the (non-postal) fleet and SUVs another 19 percent—government orders can support and sustain a critical segment of the EV market that manufacturers are just now beginning to serve.

By supporting the multi-year scale up of EV production, large federal orders also would give stakeholders throughout the supply chain the long-term stability needed to invest in labor and equipment, as a 2016 task force on federal energy management recognized. The task force emphasized as well the benefits of federal demand for technological advancement and cost reduction in components such as batteries and electric motors. Energy storage ranks high on Biden’s R&D priority list, and EVs will be the major driver of advances in battery technology and production. Thus federal procurement of EVs can be a meaningful source of market pull.

In addition to its direct effect on the market, conversion of the federal fleet to EVs will send an important signal to other U.S. fleet operators, the largest of which are beginning to go electric. (For example, Amazon recently ordered 100,000 custom-designed electric delivery vans from startup Rivian, and UPS has teamed with UK-based startup Arrival to develop a set of purpose-built EVs.) Electrification of the federal fleet will send a particularly strong signal to U.S. state and local governments, whose fleet vehicles number in the millions.

Finally, the federal government will need to acquire a large number of chargers to support its EVs. While many of these chargers will be sited “inside the fence,” those at customer-facing facilities (e.g., Social Security and Internal Revenue Service offices and Veterans Administration clinics) might be made publicly accessible, helping build out the national charging infrastructure needed to overcome consumers’ “range anxiety.”

Barriers

Despite its promise, electrification of the federal fleet is a daunting challenge. The limited availability of electric truck and SUV models was a threshold impediment to federal adoption of EVs until recently. For that reason, President Obama’s 2015 executive order, the first one to direct federal agencies to electrify their fleets, was limited to sedans and station wagons.

The higher upfront cost of EVs has been a second barrier to federal adoption. EVs are far less expensive to operate and maintain than internal-combustion-engine (ICE) vehicles, and EVs are beginning to reach parity with ICE vehicles on total cost of ownership, as the price of batteries continues to fall. However, budget-strapped federal agencies often give more weight to the first cost than the total cost of ownership (also known as life-cycle cost).

Adding to the first-cost problem is a rule applied by the U.S. General Services Administration (GSA), which buys vehicles in bulk at large discounts and then sells or leases them to individual agencies. GSA requires agencies that lease an EV to pay upfront the “incremental cost” of the EV—the difference in the GSA-negotiated price of an EV and its lowest-price ICE counterpart. GSA justifies this upfront charge as a way to maintain the liquidity of its self-financing procurement operation. But given the magnitude of the charge, which ranges from $8,000 to $18,000 for sedans and light-duty trucks, it serves as a serious deterrent to EV acquisition. (The incremental cost of EVs as calculated by GSA overstates the difference in the sticker price of EVs and comparable ICE vehicles, presumably because GSA can negotiate steeper discounts on the latter compared with the former. To reduce the burden of acquiring an EV, GSA spreads the incremental cost of the EV across the charge to the agency for all of the vehicles it acquires in the same year.)

A third barrier to federal adoption of EVs, the cost of charging infrastructure, will become the biggest challenge agencies face as EVs reach cost parity with ICE vehicles. A military base may have hundreds of vehicles, and the cost of the needed chargers will be non-trivial. Additionally, and more significantly, the electrical infrastructure at many bases and federal facilities is old and under-maintained, and it will need to be upgraded to support the added electricity load.

Solutions

Recognizing the challenges posed by these barriers, President Obama’s 2015 executive order, which the Trump administration revoked in 2017, provided a lengthy transition period: the order required agencies to make EVs 20 percent of their passenger vehicle acquisitions in 2020 and 50 percent in 2025. President Biden will need to issue an EV directive to federal agencies as well, but the 2015 Obama executive order should not be the model. To electrify the federal fleet, the Biden administration needs to pursue a strategy, coordinated from the White House, which is much more front-loaded, aggressive and comprehensive. Five elements are key.

  1. GSA should commit to buy tens of thousands of EVs in each of the next five years from those manufacturers with the most competitive bids. (Although GSA has the authority to do multi-year contracts, for budgetary reasons, it would likely craft the commitments as one-year contracts with four option years, to avoid having to obligate the full cost in year one.) While annual bulk procurement of ICE vehicles is standard GSA practice, advance purchases are not: large, multi-year commitments will give EV manufacturers the confidence to expand their production lines and invest in next-generation technology. GSA should prioritize those market segments where federal demand can do the most to enhance competition and exert market pull on technology innovation.

  2. GSA should absorb the “incremental cost” of EVs by drawing money from its Acquisition Services Fund (ASF), a revolving fund used to finance GSA’s procurement operation. (In addition to vehicles, GSA supplies agencies with equipment, supplies, electronics, IT and professional services.)  In FY19, the ASF generated $14.7 billion in revenue (up $2.2 billion from FY18), and the fund typically ends the year with a sizable surplus after covering its costs. Investment in GSA’s flagship fleet program is a function of the ASF, and GSA has waived the incremental cost of EVs in past promotion pilots. Although GSA may resist doing this on a larger scale, the Office of Management and Budget (OMB) is positioned to ensure it happens. 

  3. The Department of Energy (DOE) should work with agencies to develop aggressive EV procurement plans. In addition, DOE should get local utilities and their federal customers working together to fast-track the needed infrastructure upgrades. GSA’s Areawide Contracts (AWCs), the standing 10-year agreements GSA negotiates with regulated utilities so that federal customers can buy electricity and natural gas at pre-approved rates, provide a way to do this. Under an AWC, the local utility can fund the upfront cost of the charging infrastructure with the assurance the federal customer will repay the cost over 10 years as part of its utility bill. Many agencies may not be aware of this mechanism; DOE will need to educate them.

  4. DOE and the Department of Defense (DOD) should accelerate their work with utilities on both “managed” charging—to avoid having federal EVs add to peak power demand—and “bidirectional” charging—to allow a federal facility to draw power from EVs during a grid outage or sell power back to the grid during high-demand periods. The Air Force conducted a challenging demonstration of vehicle-to-grid (V2G) technology at Los Angeles Air Force Base, and the results are informing efforts by the State of California to promote V2G. Federal agencies should do more demonstrations to facilitate their own EV adoption process and that of the nation. Military bases are particularly good test beds, given DOD’s culture of demonstration and testing.

  5. The Council on Environmental Quality and OMB’s Office of Federal Procurement Policy should develop a plan to get federal agencies to account for the full life-cycle cost of vehicles, including the social cost of carbon, in making purchase decisions. The suboptimal focus on first cost is not limited to vehicles. Nevertheless, development of a vehicle-specific plan could lay the groundwork for addressing the problem more broadly.

Electrification of the federal fleet is an important but ambitious initiative. Although federal agencies are highly motivated to carry out their missions, for most agencies, clean energy is not one of them. Moreover, agencies are already juggling a host of congressional requirements related to the energy performance of their facilities, vehicles and equipment, most of which are “unfunded mandates.” In addition to the necessary funding, a successful fleet-electrification initiative will require White House coordination, leadership from DOE and GSA, and OMB enforcement. Issuance of an executive order directing agencies to buy electric vehicles by a date certain—the “standard” approach—may be a necessary action but it is far from sufficient.