The Case for Leasing and Price Controls
Exploring Innovative Solutions to Overcome High Upfront Costs and Promote Widespread Adoption
Published March 12, 2025
Electrifying school bus fleets in Canada is a costly challenge, primarily due to the higher upfront costs of electric school buses (ESBs), but with the right political will, solutions are within reach.
On average, an ESB can cost between 1.5 to 2.5 times more than a comparable diesel bus before subsidies. For instance, the typical price of a Type-C ESB is approximately $400,750, while the upfront cost of a Type-C diesel school bus averages $150,000. In Quebec, after provincial subsidies school bus operators are still left to cover a significant $250,000, which is around $100,000 more than the cost of an ICE school bus. For example, Autobus Chambly reports that after subsidies, ESBs are $68,000 more expensive than diesel buses, with maintenance costs often matching those of diesel buses in this early adoption phase.
This is especially concerning given last year’s $375 million budget cut to the Zero-Emission Transit Fund (ZETF), which supports school bus electrification. The fund is oversubscribed, with most resources already allocated. The high cost of ESBs is pushing smaller transportation operators to sell their fleets to larger competitors, leading to market consolidation. This reduces competition and could result in less flexible services and higher costs for school districts.
Our latest report provides a comprehensive overview of recommendations to alleviate the financial burden of this transition. In this post, we will explore two additional solutions not covered in that report: leasing and price caps.
Leasing Electric School Buses: A Viable Solution for Affordability and Transition
Leasing ESBs is a potential solution to increasing affordability, as it reduces their higher upfront costs. Indeed, leasing would allow school bus operators to manage cash flow, spread out payments over time, and take advantage of savings from lower fuel and maintenance costs, while still transitioning to electric fleets without requiring large capital outlays.
This has been an approach used by transit agencies to fund electric transit buses. For example, Saint John (New Brunswick) has been leasing six electric buses for its on-demand flex transit service. Typically used by agencies that plan to operate the buses for at least 12 years, this leasing option allows transit agencies to lease the buses with the intention of ownership over time.
In Québec, in addition to providing subsidies for the ESB transition, the PETS (Programme d’électrification du transport scolaire) could propose introducing a simple leasing option within its program structure, with terms of 8 to 10 years and an option to purchase at the end. PETS’ financial aid should cover both purchase and leasing options for new ESBs, ensuring that transportation operators can choose the most suitable option for their needs.
Capping ESB Prices: A More Radical Approach?
Radical, in the sense of “addressing the issue at its root,” involves confronting the core challenge of financial affordability for ESBs. Despite expectations that ESB costs would decrease over time, they remain significantly more expensive than diesel buses. This disparity is driven by several factors: limited economies of scale due to low sales volumes, manufacturers passing on the fixed costs of new technology to consumers, and reduced bargaining power for school districts facing public pressure to electrify. Another significant factor is the excessive price markups on ESBs by manufacturers, far exceeding the implicit battery cost, likely driven by the monopolistic market where five manufacturers dominate over 85 percent of total sales. Markups range from ten to nearly fifteen times the battery cost, depending on assumptions about the battery cost per kilowatt-hour and the type of school bus. For instance, the battery cost for a Type-C ESB is approximately $30,000, while the markup price is around $275,000.
To address the high markup prices imposed by manufacturers, a price cap on ESBs could be introduced to prevent government subsidies from inadvertently covering the inflated markup costs. This would not set a historical precedent, as price control measures have been widely used in North America and Europe, including during World War II, and in regulated markets such as rent control and utilities. This price cap, in the context of ESBs, could address market inefficiencies, such as monopolistic markups and price inelasticity, by creating a fairer pricing structure and encouraging widespread adoption, especially in underserved communities.
Price caps could be developed in collaboration with relevant actors including manufacturers, school boards, and governments, ensuring that it remains financially viable for manufacturers while enhancing affordability for public entities. Also, they could be transitional, designed to adapt over time as production scales and competition increases, drawing on the historical example of World War II where price controls were used to stimulate manufacturing without stifling innovation.
Addressing the high upfront costs of ESBs is essential to accelerating their adoption across Canada. Leasing options offer a practical way for operators to transition without massive capital investments, while price caps tackle the deeper issue of excessive manufacturer markups. Implementing these strategies in tandem with existing subsidy programs could provide a more equitable and financially sustainable path forward for school bus electrification.
More policy recommendations can be explored in our 2025 report, Powering Up: The Path to Electric School Bus Adoption in Canada.
Henri Chevalier
Sustainable Mobility Advisor
Équiterre
