Should Electric Vehicle Purchase Subsidies Be Linked with Scrappage Requirements?

We build a vehicle purchase and disposal model that accounts for trade-in opportunity costs to analyze a program that links an electric vehicle (EV) purchase subsidy with a gasoline vehicle scrappage requirement. We evaluate the program based on changes in sales and scrappage, subsidy dollars spent, and the degree of additionality, or the extent to which households make decisions beyond business-as-usual behavior. We measure two distinct forms of additionality—one involving the vehicle purchase decision, denoted as "purchase additionality," and one for the scrap decision, denoted as "scrappage additionality." We find that linking a purchase subsidy with a scrappage requirement is expected to result in fewer EV sales and less spending relative to a program without linking. While linking lowers purchase additionality relative to a program without a scrappage requirement, it leads to a high degree of scrappage additionality. Our results highlight the importance of accounting for opportunity costs when evaluating subsidy policies.