Public funding for bus system decarbonization accounting for technological uncertainty and depot infrastructure upgrades

Existing public funding programs have been crucial in accelerating bus fleet decarbonization, yet their effectiveness and efficiency remain central policy questions. This study assesses the evolving cost effectiveness of battery electric buses (BEBs) through a Total Cost of Ownership (TCO) model that explicitly incorporates infrastructure investments based on initial depot characteristics. Bus operators’ adoption decisions are modeled using a Real Options (RO) framework, capturing technological and market uncertainty through stochastic simulations. The model is applied to a U.S. representative urban bus service to assess the performance of current funding schemes and determine the optimal timing of BEB adoption. Results indicate that, in the absence of public support, BEB adoption remains slow and uncertain. Existing U.S. funding schemes, covering up to 85% of vehicle and infrastructure costs, drastically reduce initial expenditures and make immediate adoption the dominant choice. However, equivalent decarbonization speeds could be achieved with smaller funding. The optimal configuration corresponds to a ∼65% funding on vehicle purchases and an infrastructure funding dependent on the initial depot conditions (from 4% for the best case, to 78% for the worst case), maintained for about 10 years. This structure ensures the fastest transition at minimal fiscal cost.