IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v120y2023ics0140988323001391.html
   My bibliography  Save this article

Electric vehicle subsidies: Time to accelerate or pump the brakes?

Author

Listed:
  • Sheldon, Tamara L.
  • Dua, Rubal
  • Alharbi, Omar Abdullah

Abstract

Promoting plug-in electric vehicle (PEV) adoption through subsidies represents a commonly used policy lever for decarbonizing the light-duty vehicle sector. However, it is unclear how the subsidy cost-effectiveness has evolved over time and whether further subsidization is needed to induce adoption beyond wealthy consumers. We explore these questions by assessing the federal PEV subsidy program in the United States. To do so, we extend Sheldon and Dua's (2019a, 2019b) work by using the same approach on large-scale U.S. new vehicle buyer survey data. While results averaged over fuel-types suggest that PEV subsidies are becoming less impactful and costlier over time, detailed model-level exploration reveals that it is due to an increasing share of higher-priced BEVs such as Teslas. The model-level subsidy impact has not changed much over time. Moreover, if the subsidies had been discontinued in 2017, half of the below median income (90 K USD) new vehicle buyers would not have adopted a PEV, highlighting the need to continue the subsidies. The findings hold significance for policymakers worldwide on how to design effective PEV subsidy programs.

Suggested Citation

  • Sheldon, Tamara L. & Dua, Rubal & Alharbi, Omar Abdullah, 2023. "Electric vehicle subsidies: Time to accelerate or pump the brakes?," Energy Economics, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:eneeco:v:120:y:2023:i:c:s0140988323001391
    DOI: 10.1016/j.eneco.2023.106641
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988323001391
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2023.106641?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Haaf, C. Grace & Morrow, W. Ross & Azevedo, Inês M.L. & Feit, Elea McDonnell & Michalek, Jeremy J., 2016. "Forecasting light-duty vehicle demand using alternative-specific constants for endogeneity correction versus calibration," Transportation Research Part B: Methodological, Elsevier, vol. 84(C), pages 182-210.
    2. Xing, Jianwei & Leard, Benjamin & Li, Shanjun, 2021. "What does an electric vehicle replace?," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
    3. Shanjun Li & Lang Tong & Jianwei Xing & Yiyi Zhou, 2017. "The Market for Electric Vehicles: Indirect Network Effects and Policy Design," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(1), pages 89-133.
    4. Sheldon, Tamara L. & Dua, Rubal, 2018. "Gasoline savings from clean vehicle adoption," Energy Policy, Elsevier, vol. 120(C), pages 418-424.
    5. Ashley Langer & Derek Lemoine, 2022. "Designing Dynamic Subsidies to Spur Adoption of New Technologies," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(6), pages 1197-1234.
    6. Santos, Georgina & Rembalski, Sebastian, 2021. "Do electric vehicles need subsidies in the UK?," Energy Policy, Elsevier, vol. 149(C).
    7. Azarafshar, Roshanak & Vermeulen, Wessel N., 2020. "Electric vehicle incentive policies in Canadian provinces," Energy Economics, Elsevier, vol. 91(C).
    8. Mueller, Michel G. & de Haan, Peter, 2009. "How much do incentives affect car purchase? Agent-based microsimulation of consumer choice of new cars--Part I: Model structure, simulation of bounded rationality, and model validation," Energy Policy, Elsevier, vol. 37(3), pages 1072-1082, March.
    9. Tamara L. Sheldon & J. R. DeShazo & Richard T. Carson, 2017. "Electric And Plug-In Hybrid Vehicle Demand: Lessons For An Emerging Market," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 695-713, April.
    10. Chugh, Randy & Cropper, Maureen, 2017. "The welfare effects of fuel conservation policies in a dual-fuel car market: Evidence from India," Journal of Environmental Economics and Management, Elsevier, vol. 86(C), pages 244-261.
    11. Greene, David L. & Patterson, Philip D. & Singh, Margaret & Li, Jia, 2005. "Feebates, rebates and gas-guzzler taxes: a study of incentives for increased fuel economy," Energy Policy, Elsevier, vol. 33(6), pages 757-775, April.
    12. Greene, David L. & Patterson, Philip D. & Singh, Margaret & Li, Jia, 2005. "Corrigendum to "Feebates, rebates and gas-guzzler taxes: a study of incentives for increased fuel economy" [Energy Policy 33 (2005) 757-775]," Energy Policy, Elsevier, vol. 33(14), pages 1901-1902, September.
    13. Lucas W. Davis, 2019. "How much are electric vehicles driven?," Applied Economics Letters, Taylor & Francis Journals, vol. 26(18), pages 1497-1502, October.
    14. Sheldon, Tamara L. & Dua, Rubal, 2019. "Measuring the cost-effectiveness of electric vehicle subsidies," Energy Economics, Elsevier, vol. 84(C).
    15. Guo, Zhaomiao & Zhou, Yan, 2019. "Residual value analysis of plug-in vehicles in the United States," Energy Policy, Elsevier, vol. 125(C), pages 445-455.
    16. Jenn, Alan & Lee, Jae Hyun & Hardman, Scott & Tal, Gil, 2020. "An in-depth examination of electric vehicle incentives: Consumer heterogeneity and changing response over time," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 97-109.
    17. Harvey, L.D. Danny, 2020. "Rethinking electric vehicle subsidies, rediscovering energy efficiency," Energy Policy, Elsevier, vol. 146(C).
    18. Kenneth Gillingham & James H. Stock, 2018. "The Cost of Reducing Greenhouse Gas Emissions," Journal of Economic Perspectives, American Economic Association, vol. 32(4), pages 53-72, Fall.
    19. Jenn, Alan & Springel, Katalin & Gopal, Anand R., 2018. "Effectiveness of electric vehicle incentives in the United States," Energy Policy, Elsevier, vol. 119(C), pages 349-356.
    20. Li,Shanjun & Zhu,Xianglei & Ma,Yiding & Zhang,Fan & Zhou,Hui, 2020. "The Role of Government in the Market for Electric Vehicles : Evidence from China," Policy Research Working Paper Series 9359, The World Bank.
    21. DeShazo, J.R. & Sheldon, Tamara L. & Carson, Richard T., 2017. "Designing policy incentives for cleaner technologies: Lessons from California's plug-in electric vehicle rebate program," Journal of Environmental Economics and Management, Elsevier, vol. 84(C), pages 18-43.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. David Zilberman & Justus Wesseler, 2023. "Building the Bioeconomy through Innovation, Monitoring and Science‐based Policies," EuroChoices, The Agricultural Economics Society, vol. 22(3), pages 21-25, December.
    2. Alberini, Anna & Vance, Colin, 2023. "Competing forces in the German new car market: How do they affect diesel, PHEV, and BEV sales?," Ruhr Economic Papers 1047, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Burra, Lavan T. & Sommer, Stephan & Vance, Colin, 2023. "Free-Ridership in Subsidies for Company- and Private Electric Vehicles," Ruhr Economic Papers 1015, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Sheldon, Tamara L. & Dua, Rubal, 2020. "Effectiveness of China's plug-in electric vehicle subsidy," Energy Economics, Elsevier, vol. 88(C).
    3. Sheldon, Tamara L. & Dua, Rubal, 2021. "How responsive is Saudi new vehicle fleet fuel economy to fuel-and vehicle-price policy levers?," Energy Economics, Elsevier, vol. 97(C).
    4. Fournel, Jean-François, 2023. "Electric Vehicle Subsidies: Cost-Effectiveness and Emission Reductions," TSE Working Papers 23-1465, Toulouse School of Economics (TSE).
    5. Azarafshar, Roshanak & Vermeulen, Wessel N., 2020. "Electric vehicle incentive policies in Canadian provinces," Energy Economics, Elsevier, vol. 91(C).
    6. Sheldon, Tamara L. & Dua, Rubal, 2019. "Measuring the cost-effectiveness of electric vehicle subsidies," Energy Economics, Elsevier, vol. 84(C).
    7. Peter Haan & Adrián Santonja & Aleksandar Zaklan, 2023. "Effectiveness and Heterogeneous Effects of Purchase Grants for Electric Vehicles," Discussion Papers of DIW Berlin 2032, DIW Berlin, German Institute for Economic Research.
    8. Alali, Layla & Niesten, Eva & Gagliardi, Dimitri, 2022. "The impact of UK financial incentives on the adoption of electric fleets: The moderation effect of GDP change," Transportation Research Part A: Policy and Practice, Elsevier, vol. 161(C), pages 200-220.
    9. Jia, Wenjian & Chen, T. Donna, 2023. "Investigating heterogeneous preferences for plug-in electric vehicles: Policy implications from different choice models," Transportation Research Part A: Policy and Practice, Elsevier, vol. 173(C).
    10. Münzel, Christiane & Plötz, Patrick & Sprei, Frances & Gnann, Till, 2019. "How large is the effect of financial incentives on electric vehicle sales? – A global review and European analysis," Energy Economics, Elsevier, vol. 84(C).
    11. Adekunle Mofolasayo, 2023. "Assessing and Managing the Direct and Indirect Emissions from Electric and Fossil-Powered Vehicles," Sustainability, MDPI, vol. 15(2), pages 1-33, January.
    12. Martin, Elliot & Shaheen, Susan & Lipman, Timothy & Camel, Madonna, 2014. "Evaluating the public perception of a feebate policy in California through the estimation and cross-validation of an ordinal regression model," Transport Policy, Elsevier, vol. 33(C), pages 144-153.
    13. Hayashida, Sherilyn & La Croix, Sumner & Coffman, Makena, 2021. "Understanding changes in electric vehicle policies in the U.S. states, 2010–2018," Transport Policy, Elsevier, vol. 103(C), pages 211-223.
    14. Schwab, Julia & Sölch, Christian & Zöttl, Gregor, 2022. "Electric Vehicle Cost in 2035: The impact of market penetration and charging strategies," Energy Economics, Elsevier, vol. 114(C).
    15. Peng, Yuan & Bai, Xuemei, 2023. "What EV users say about policy efficacy: Evidence from Shanghai," Transport Policy, Elsevier, vol. 132(C), pages 16-26.
    16. Xing, Jianwei & Leard, Benjamin & Li, Shanjun, 2021. "What does an electric vehicle replace?," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
    17. Lucas W. Davis, 2023. "The Economic Determinants of Heat Pump Adoption," NBER Chapters, in: Environmental and Energy Policy and the Economy, volume 5, pages 162-199, National Bureau of Economic Research, Inc.
    18. van den Bijgaart, Inge, 2016. "Essays in environmental economics and policy," Other publications TiSEM 298bee2a-cb08-4173-9fe1-8, Tilburg University, School of Economics and Management.
    19. Li, Ping & Zhang, ZhongXiang, 2023. "The effects of new energy vehicle subsidies on air quality: Evidence from China," Energy Economics, Elsevier, vol. 120(C).
    20. Ledna, Catherine & Muratori, Matteo & Brooker, Aaron & Wood, Eric & Greene, David, 2022. "How to support EV adoption: Tradeoffs between charging infrastructure investments and vehicle subsidies in California," Energy Policy, Elsevier, vol. 165(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:120:y:2023:i:c:s0140988323001391. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.