Analysis Shows a Minnesota Clean Transportation Standard Would Support Electrification

Minnesota is one of a few Midwestern states considering clean transportation standard (CTS) legislation to reduce the carbon intensity of fuels used in the transportation sector. Similar bills are also under consideration in Michigan and Illinois. If passed, a CTS would build upon Minnesota’s recent commitment to 100 percent clean electricity and secure the state’s position as a regional and national clean energy leader. Recent analysis shows how such a policy could drive investment in and adoption of clean fuels in Minnesota, including by supporting the deployment of more electric vehicles.

Here are four key takeaways on how the proposed Minnesota policy supports electrification of transportation in the state:

• Clean transportation standards reward all suppliers of low-carbon transportation fuels, including electricity used in electric vehicles.
• Through a clean transportation standard, electric vehicle charging station owners, electric vehicle fleet operators, and electric utilities can earn credit revenue for investing in electrification.
• Based on data from ICF, a proposed clean transportation standard in Minnesota could generate between $3.5 billion and $7 billion for transportation electrification between now and 2040.
• Policy makers can choose to direct revenue from residential electric vehicle charging to specific initiatives such as those that benefit disadvantaged, low-income, and rural communities.

State policy is critical to meeting climate goals

In recent years, as the federal government has invested billions of dollars into clean energy and climate programs through the Inflation Reduction Act, Bipartisan Infrastructure Law, and other legislation, states have also been making headlines for advancing major climate policies. In Minnesota, the 2023 legislature passed a law that will continue the progress the state is already making to lower electric sector emissions.

Minnesota’s new 100 percent clean electricity law requires electric utilities to achieve net-zero greenhouse gas emissions by 2040. By passing this law, the state has joined at least 11 others that have committed to phasing out emissions from electricity generation.

States are making slow but steady progress toward decarbonizing the electric sector—with total sectoral emissions having decreased by 15 percent in the United States since 1990—and these policies will help to ensure that progress continues. However, other key sectors are not seeing similar progress. The transportation sector is now the top contributor of direct greenhouse gas emissions in the United States, and total emissions from that sector have increased by 19 percent since 1990.

Looking beyond the electric sector to achieve climate goals

Achieving progress in the electric sector alone will be insufficient to achieve decarbonization goals and reduce emissions to the levels needed to avoid the worst impacts of climate change. As such, states are looking for innovative policy solutions to capitalize on increasingly clean electric power generation by spurring electrification in other sectors like transportation and buildings.

One way to secure long-term funding for transportation sector electrification is to pass clean transportation standard policies.

How clean transportation standards work

A clean transportation standard—also known as a clean fuel standard or a low-carbon fuel standard—is a market-based policy that requires fuel producers to reduce the average carbon intensity of transportation fuels by a set percentage over a set time period.

Under a CTS, all fuels are assigned a unique carbon intensity (CI) score to allow for an “apples to apples” comparison of transportation fuels across the policy’s jurisdiction. Each fuel’s CI score—expressed in grams of carbon dioxide equivalent per megajoule of energy provided—accounts for the greenhouse gas emissions associated with producing, distributing, and using the fuel. This is referred to as a “well-to-wheels” lifecycle analysis.

For example, ethanol’s CI score includes emissions from growing and transporting corn, refining and transporting ethanol, and ultimately burning the fuel in a vehicle. For electricity, the CI score includes emissions from electricity generation and transmission and accounts for the higher efficiency of electric vehicles compared to gas cars.

A CTS policy like the one under consideration in Minnesota would reduce the use of high-carbon transportation fuels like gasoline and drive investment in a variety of cleaner fuels, including low-carbon biofuels, hydrogen, and electricity. It would create a market system through which lower-carbon fuel producers earn credits and higher-carbon fuel producers earn deficits.

Credits are measured in tons of carbon dioxide equivalent and are assigned based on both the volume of fuel produced and the carbon intensity of the fuel. Low-carbon fuel producers can sell the credits they generate to higher emitters with a deficit.

Under a CTS, credit revenue flows to providers of lower-carbon fuels. In the case of electricity used as a transportation fuel in electric vehicles, this could include a few different entities:

• Owners of public or private charging stations
• Operators of electric vehicle fleets
• Electric utilities that supply electricity for charging stations or residential charging

In the case of residential electric vehicle charging that is not tracked, CTS programs allow electric utilities to generate credits on their customers’ behalf. Those utilities are then required to reinvest that credit revenue into electrification programs to benefit their customers. For example, under California’s CTS—called the Low Carbon Fuel Standard—credit revenue from residential electric vehicles funds an electric vehicle purchase incentive intended to further spur electric vehicle adoption. To learn more about how clean transportation standard credit markets work and how electric vehicles fit in, view our webinar on the topic.

Because electric vehicle charging generates credit revenue through a CTS, the policy provides a financial incentive for increased electric vehicle use statewide. This includes not just electric passenger cars and trucks, but also electric school and transit buses, electric forklifts, and electric delivery trucks.

Because the fuels with the lowest CI score are rewarded the most under a CTS, the policy also encourages the use of clean energy to charge electric vehicles.

For more details about how CTS policies work to drive down emissions from all types of vehicles, read our Midwestern Clean Transportation standard 101.

Analysis demonstrates a Minnesota CTS would benefit electrification

In 2023, at the direction of the Minnesota Legislature, the Minnesota Commissioners of Agriculture, Commerce, Transportation, and the Pollution Control Agency convened a Clean Transportation Standard Work Group to study opportunities related to implementing a CTS in Minnesota. ICF Consulting conducted an analysis for that working group to demonstrate the carbon intensity reduction that could be achieved through a Minnesota CTS under different scenarios.

According to that analysis, the CTS would spur the transition from gas-powered vehicles to electric vehicles in the state. By increasing the use of electricity and other clean fuels, it would reduce demand for gasoline and diesel by between 64 and 86 percent by 2050 while providing ongoing funding through credit revenue for electric vehicles of all types in Minnesota.

While CTS policies lead to investment in a variety of clean fuels, this type of program is particularly effective at encouraging investment in electric vehicles and electric vehicle charging infrastructure. In fact, California’s  Low-Carbon Fuel Standard has been identified as a key driver of electrification in that state. According to ICF’s analysis, similar results could be expected under a Minnesota CTS.

ICF’s modeling examined what credit generation could look like under a “Moderate Case” scenario in which the state achieves a carbon intensity reduction of 65 to 75 percent by 2050, compared to a business-as-usual scenario achieving a 30 percent reduction.

Based on the Moderate Case and assuming credit prices from $100 to $200 per ton, Minnesota’s CTS could provide between $134 million and $268 million for transportation electrification annually by 2030 and between $3.5 billion and $7 billion cumulatively between now and 2040.

This credit revenue would provide secure, ongoing financial support for electrification that would not need to be appropriated annually.

This revenue would reward investment in all types of electric vehicles, not just passenger cars. For example, a 2021 GPI analysis found that a CTS would dramatically improve the economics of all electric vehicle use cases. According to the analysis, a theoretical clean transportation standard with credit prices between $100 and $200 per ton would generate the following:

• $2,700 to $7,200 annually for electric school buses
• $800 to $2,400 annually for electric forklifts
• $3,700 to $9,800 annually for electric delivery trucks
• $7,600 to $20,300 annually for electric transit buses

Directing CTS credit revenue to disadvantaged, low-income, and rural communities

Increasingly, policy makers interested in CTS policies recognize the potential to direct revenue from certain electric vehicle credit generation to specific initiatives or incentives. For example, Minnesota’s CTS bill would require all credit revenue from residential electric vehicle charging to be used to promote the adoption of electric vehicles, with 60 percent of those investments going to disadvantaged, low-income, or rural communities.

According to ICF’s analysis, this could provide between $988 million and $2 billion cumulatively to those communities by 2040.

Next steps for Minnesota’s CTS policy

Although the Senate Transportation Committee heard testimony on Minnesota’s clean transportation standard bill at a March 4, 2024 hearing, the legislature did not take a vote on the bill before it adjourned on May 20 for the 2024 session. For now, legislators have returned to their home districts—and many of them to the jobs they perform when the legislature is not in session—until they reconvene in early 2025.

In the meantime, policy makers are considering how to build upon progress made during the 2023-2024 biennium and what’s next for climate policy in Minnesota. Several advocates, including those in the Great Plains Institute-facilitated Future Fuels Coalition, will continue advocating for Minnesota to adopt a technology-neutral clean transportation standard to provide a framework to transition the state to cleaner transportation fuels, including more electric vehicles.