IDEAS home Printed from https://ideas.repec.org/p/rff/dpaper/dp-23-13.html
   My bibliography  Save this paper

Roadblock or Accelerator? The Effect of Electric Vehicle Subsidy Elimination

Author

Listed:
  • Lohawala, Nafisa

    (Resources for the Future)

Abstract

Federal and state governments in many countries subsidize the early adopters of electric vehicles (EVs). These programs often use quotas or deadlines to phase out the subsidies, which can create dynamic incentives for car manufacturers. Since most of the literature studies the effect of introducing subsidies on market outcomes in static settings, little research has addressed the dynamic effects of subsidy-capping designs. This paper explores those effects in the US vehicle market. I develop a structural model of consumers’ vehicle choices and manufacturers’ pricing decisions in the US automobile industry. I then estimate the model using comprehensive data on new vehicle registrations, prices, characteristics, and subsidies in 30 states between 2011 and 2017. Based on the primitives generated from the model, I conduct counterfactual simulations to compare three designs: a marketwide deadline, a per-manufacturer deadline, and a per-manufacturer quota. The simulations show that for a given government expenditure, the quota leads to up to 18 percent lower EV sales than the deadlines. Moreover, each design influences the sales of conventional vehicles, consumer surplus, manufacturer profits, and liquid fuel consumption differently.

Suggested Citation

  • Lohawala, Nafisa, 2023. "Roadblock or Accelerator? The Effect of Electric Vehicle Subsidy Elimination," RFF Working Paper Series 23-13, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-23-13
    as

    Download full text from publisher

    File URL: https://www.rff.org/documents/3923/WP_23-13.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Jacquelyn Pless & Arthur A. van Benthem, 2019. "Pass-Through as a Test for Market Power: An Application to Solar Subsidies," American Economic Journal: Applied Economics, American Economic Association, vol. 11(4), pages 367-401, October.
    4. Ying Fan & Ge Zhang, 2022. "The welfare effect of a consumer subsidy with price ceilings: the case of Chinese cell phones," RAND Journal of Economics, RAND Corporation, vol. 53(2), pages 429-449, June.
    5. Severin Borenstein & Lucas W. Davis, 2016. "The Distributional Effects of US Clean Energy Tax Credits," Tax Policy and the Economy, University of Chicago Press, vol. 30(1), pages 191-234.
    6. Gulati, Sumeet & McAusland, Carol & Sallee, James M., 2017. "Tax incidence with endogenous quality and costly bargaining: Theory and evidence from hybrid vehicle subsidies," Journal of Public Economics, Elsevier, vol. 155(C), pages 93-107.
    7. Gallagher, Kelly Sims & Muehlegger, Erich, 2011. "Giving green to get green? Incentives and consumer adoption of hybrid vehicle technology," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 1-15, January.
    8. Virginia McConnell & Benjamin Leard, 2021. "Pushing New Technology into the Market: California’s Zero Emissions Vehicle Mandate," Review of Environmental Economics and Policy, University of Chicago Press, vol. 15(1), pages 169-179.
    9. Crago, Christine Lasco & Chernyakhovskiy, Ilya, 2017. "Are policy incentives for solar power effective? Evidence from residential installations in the Northeast," Journal of Environmental Economics and Management, Elsevier, vol. 81(C), pages 132-151.
    10. 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.
    11. Marika Cabral & Michael Geruso & Neale Mahoney, 2018. "Do Larger Health Insurance Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage," American Economic Review, American Economic Association, vol. 108(8), pages 2048-2087, August.
    12. James M. Sallee, 2011. "The Surprising Incidence of Tax Credits for the Toyota Prius," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 189-219, May.
    13. Shlomo Kalish & Gary L. Lilien, 1983. "Optimal Price Subsidy Policy for Accelerating the Diffusion Of Innovation," Marketing Science, INFORMS, vol. 2(4), pages 407-420.
    14. Katalin Springel, 2021. "Network Externality and Subsidy Structure in Two-Sided Markets: Evidence from Electric Vehicle Incentives," American Economic Journal: Economic Policy, American Economic Association, vol. 13(4), pages 393-432, November.
    15. 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.
    16. 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.
    Full references (including those not matched with items on IDEAS)

    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. Jeremy Dijk & Nathan Delacrétaz & Bruno Lanz, 2022. "Technology Adoption and Early Network Infrastructure Provision in the Market for Electric Vehicles," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 83(3), pages 631-679, November.
    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. James Bushnell & David Rapson, 2022. "The Electric Ceiling: Limits and Costs of Full Electrification," Working Papers 2220, Federal Reserve Bank of Dallas.
    4. Roberto Amaral-Santos & Ariaster Chimeli & Joao Paulo Pessoa, 2023. "Natural Gas Vehicles: Consequences to Fuel Markets and the Environment," Working Papers, Department of Economics 2023_07, University of São Paulo (FEA-USP).
    5. Patrick Bigler & Doina Maria Radulescu, 2022. "Environmental, Redistributive and Revenue Effects of Policies Promoting Fuel Efficient and Electric Vehicles," CESifo Working Paper Series 9645, CESifo.
    6. Zunian Luo, 2022. "Powering Up a Slow Charging Market: How Do Government Subsidies Affect Charging Station Supply?," Papers 2210.14908, arXiv.org, revised Jan 2023.
    7. Linn, Joshua, 2022. "Balancing Equity and Effectiveness for Electric Vehicle Subsidies," RFF Working Paper Series 22-07, Resources for the Future.
    8. Nathan Delacrétaz & Bruno Lanz & Jeremy van Dijk, 2020. "The chicken or the egg: Technology adoption and network infrastructure in the market for electric vehicles," IRENE Working Papers 20-08, IRENE Institute of Economic Research.
    9. Fournel, Jean-François, 2023. "Electric Vehicle Subsidies: Cost-Effectiveness and Emission Reductions," TSE Working Papers 23-1465, Toulouse School of Economics (TSE).
    10. Pessoa, Joao Paulo & Santos, Roberto Amaral & Chimeli, Ariaster, 2023. "Natural Gas Vehicles: Consequences to Fuel Markets and the Environment," SocArXiv 7tvgy, Center for Open Science.
    11. Azarafshar, Roshanak & Vermeulen, Wessel N., 2020. "Electric vehicle incentive policies in Canadian provinces," Energy Economics, Elsevier, vol. 91(C).
    12. Carley, Sanya & Zirogiannis, Nikolaos & Siddiki, Saba & Duncan, Denvil & Graham, John D., 2019. "Overcoming the shortcomings of U.S. plug-in electric vehicle policies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 113(C), pages 1-1.
    13. Muehlegger, Erich & Rapson, David S., 2022. "Subsidizing low- and middle-income adoption of electric vehicles: Quasi-experimental evidence from California," Journal of Public Economics, Elsevier, vol. 216(C).
    14. Lucas W. Davis & James M. Sallee, 2020. "Should Electric Vehicle Drivers Pay a Mileage Tax?," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 1(1), pages 65-94.
    15. Kenneth Gillingham & Marten Ovaere & Stephanie Weber, 2021. "Carbon Policy and the Emissions Implications of Electric Vehicles," CESifo Working Paper Series 8974, CESifo.
    16. Stephen P. Holland & Erin T. Mansur & Andrew J. Yates, 2021. "The Electric Vehicle Transition and the Economics of Banning Gasoline Vehicles," American Economic Journal: Economic Policy, American Economic Association, vol. 13(3), pages 316-344, August.
    17. Mark Colas & Emmett Saulnier, 2023. "Optimal Subsidies for Residential Solar," CESifo Working Paper Series 10446, CESifo.
    18. Jianwei Xing & Benjamin Leard & Shanjun Li, 2019. "What Does an Electric Vehicle Replace?," NBER Working Papers 25771, National Bureau of Economic Research, Inc.
    19. James Archsmith & Erich Muehlegger & David S. Rapson, 2022. "Future Paths of Electric Vehicle Adoption in the United States: Predictable Determinants, Obstacles, and Opportunities," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 3(1), pages 71-110.
    20. Shanjun Li & Xianglei Zhu & Yiding Ma & Fan Zhang & Hui Zhou, 2022. "The Role of Government in the Market for Electric Vehicles: Evidence from China," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 41(2), pages 450-485, March.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:rff:dpaper:dp-23-13. 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: Resources for the Future (email available below). General contact details of provider: https://edirc.repec.org/data/rffffus.html .

    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.