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How Cost-effective are Electric Vehicle Subsidies in Reducing Tailpipe-CO2 Emissions? An Analysis of Major Electric Vehicle Markets

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  • Tamara L. Sheldon
  • Rubal Dua
  • Omar Abdullah Alharbib

Abstract

We estimate the cost-effectiveness of plug-in electric vehicle (PEV) subsidies in reducing tailpipe-CO2 emissions in China, the U.S., and nine European countries. We find that the per-tonne cost of tailpipe-CO2 avoided increases linearly with the government-subsidized percentage of the PEV price. Costs are relatively higher in the Netherlands and Denmark, which subsidized high-priced PEVs including plug-in hybrids, and lower in the U.S., where PEVs replaced higher-emissions cars. Chinese PEV subsidies have a short-run static cost of up to $1,600 per tonne, far exceeding the social cost of carbon, suggesting that subsidies are more a part of China’s industrial policy than its carbon policy. When subsidy-induced PEV sales and power generation emissions are considered, the ordering of countries based on the cost-effectiveness of subsidies changes. The long-run dynamic subsidy cost is expected to be lower, as current subsidies may drive future innovation and sales, and due to grid decarbonization.

Suggested Citation

  • Tamara L. Sheldon & Rubal Dua & Omar Abdullah Alharbib, 2023. "How Cost-effective are Electric Vehicle Subsidies in Reducing Tailpipe-CO2 Emissions? An Analysis of Major Electric Vehicle Markets," The Energy Journal, , vol. 44(3), pages 223-250, May.
    • Handle: RePEc:sae:enejou:v:44:y:2023:i:3:p:223-250
    DOI: 10.5547/01956574.44.2.tshe
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    References listed on IDEAS

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    1. Tamara Sheldon & Rubal Dua & Omar Al Harbi, 2021. "Are Electric Vehicle Subsidies Becoming More Impactful Over Time?," Discussion Papers ks--2021-dp04, King Abdullah Petroleum Studies and Research Center.
    2. Graff Zivin, Joshua S. & Kotchen, Matthew J. & Mansur, Erin T., 2014. "Spatial and temporal heterogeneity of marginal emissions: Implications for electric cars and other electricity-shifting policies," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 248-268.
    3. 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.
    4. Stephen P. Holland & Erin T. Mansur & Nicholas Z. Muller & Andrew J. Yates, 2016. "Are There Environmental Benefits from Driving Electric Vehicles? The Importance of Local Factors," American Economic Review, American Economic Association, vol. 106(12), pages 3700-3729, December.
    5. Archsmith, James & Kendall, Alissa & Rapson, David, 2015. "From Cradle to Junkyard: Assessing the Life Cycle Greenhouse Gas Benefits of Electric Vehicles," Research in Transportation Economics, Elsevier, vol. 52(C), pages 72-90.
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    Cited by:

    1. Qian Cheng & Yongqing Xiong, 2024. "Low‐carbon sustainable development driven by new energy vehicle pilot projects in China: Effects, mechanisms, and spatial spillovers," Sustainable Development, John Wiley & Sons, Ltd., vol. 32(1), pages 979-1000, February.

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