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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 purchase about 2,500 buses nationwide. Successfully electrifying the country’s remaining half-million school buses will require carefully designed incentives that will nudge the industry until it can be self-sufficient.

The bipartisan Infrastructure Act last November created a $5 billion pot to help schools buy clean school buses over the next five years. The grants will cover the full cost of the new electric buses, which ranges between $300,000 and $400,000. (For comparison, a new diesel school bus costs about $200,000.) School districts can choose to buy electric buses from traditional manufacturers like Blue Bird or new electric-only companies like Lion Electric.

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

“Five years from now, our goal should be for the industry to reach a point where all new vehicles acquired will be electric without subsidies,” McIntyre added, referring to the Infrastructure Act timeline. “What we don’t want is a program where everyone gets used to free buses and after five years goes back to buying diesel.”

It’s a tricky dance, however, given how small the market is right now. According to a World Resources Institute analysis as of June, the United States has just 767 electric school buses delivered or in service, although that number was already expected to increase before the Infrastructure Act funds were disbursed. As of June, school districts had committed to a total of 12,720, or about 3% of the nation’s total fleet. A December 2021 deal between bus dealership Midwest Transit Equipment and electric vehicle trading company SEA Electric accounts for 10,000.

Greater demand is clearly there, however; 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 also increasingly funding the transition to clean school buses. Sue Gander, director of WRI’s Electric School Bus Initiative, said states have earmarked about $2 billion to help districts clean up their fleets. She said in the short term, the combined incentives should support the huge demand from school districts and encourage manufacturers to upgrade their supply chains and facilities to meet it.

In fact, she said there was room for other federal incentives, especially ones to reload infrastructure specifically for school bus fleets. It wouldn’t just keep the buses on the roads; this could help fortify the grid. A bill introduced last month by Senator Angus King would create a program to equip electric school buses with two-way vehicle-to-grid charging capabilities. This would allow the buses to serve as backup power for the grid, and potentially even offset their initial cost to school districts (assuming local utilities are ready, that is).

However, in the longer term, she echoed McIntyre’s concerns that the market must eventually move on its own.

“As the market matures, as we get closer to that total cost of ownership parity [with diesel buses], we will need fewer and fewer incentives,” Gander said. WRI analysis found that parity is expected towards the end of this decade, even without accounting for incentives, due to falling battery prices.

Beyond incentives, tighter regulation of diesel buses could further expand the adoption of electric school buses. The APE is weighing new exhaust emission standards for medium and heavy vehicles, which includes 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 was a “key example” of the role regulations can play in driving more widespread adoption of clean bus technologies. Getting it right could help reduce more than 5 million tons carbon pollution that school buses release into the atmosphere every year.

Another crucial element is structuring incentives so that buses go to the communities that need them most. The White House said school districts with low-income, rural or tribal students made up 99% of grant recipients in this latest round, though it’s unclear how future rounds of funding will be structured. At this point, the program meets the requirements of the administration Justice40 Initiative ensure that at least 40% of the benefits of federal climate, environment and energy investments flow to marginalized communities that have historically borne the brunt of pollution.

Removing diesel buses from circulation is key to reducing carbon emissions from transport. But going electric also means reduce air pollution which disproportionately impacts low-income communities and communities of color. Children from low-income communities tend to have higher than average asthma rates, and black and Hispanic children are at greater risk of developing it than white children, regardless of family income level. Exposure to diesel exhaust – for example via twice-daily school bus journeys – exacerbates asthma and other respiratory problems.

“We want to approach this transition fairly,” Gander said. “How are incentives prioritized for disadvantaged communities? They are the ones who have the hardest time trying to make the investments, and yet they are the ones whose children depend the most on buses and who are also exposed to the worst air quality and the worst climate impacts.