The optimal subsidy on electric vehicles in a metropolitan area - a SCGE study for Germany
Many governments subsidize electric mobility (E-mobility) to increase the share of electric vehicles (EV) in the car fleet. This aims at reducing carbon emissions. Despite that there is not much research on the full economic costs and benefits of this measures. There are only a few Cost Benefit Analyses (CBA). They, however, do not take into account repercussion and substitution effects. We fill this gap in the literature and examine subsidies to EVs in a full spatial general equilibrium model. Since cities are the main area were EVs will be used, we focus on cities and apply a spatial approach. In particular, we ask whether it is optimal to subsidize or tax electric vehicles and, how large, the corresponding optimal rate is. We, first, derive analytically the optimal subsidy in a spatial partial equilibrium model of a city with two zones where commuting, carbon emissions, endogenous labor supply, fuel and power taxes are considered and where we distinguish between fuel vehicles and electric vehicles. There we find that the optimal subsidy rate is the sum of changes in externality costs (emissions + congestion), an opposite tax interaction effect, a redistribution effect between cities inhabitants and absentee landlords and a cost effect due to higher costs of producing travelling with power in comparison to fuel. The latter two effects are usually not considered in CBAs. Second, we extend the model to a full spatial general equilibrium model and employ simulations to calculate sign and size of the optimal subsidy or tax rate. This model is calibrated to a typical German metropolitan area. The results show that electric vehicles should not be subsidized but taxed. The results are robust with respect to changes in the willingness to adopt electric vehicles (EVs), changes in fix costs of EVs, and even if emission of EVs are zero. We change all these parameters to capture extreme and very unlikely behavior such as a very high demand elasticity of EVs with respect to the power tax rate, very low costs and the case that EVs have zero CO2 emissions. Concerning these variables we suggest that EVs should not be subsidized because welfare costs of achieving a small reduction in emissions are very high. We draw the conclusion that E-mobility might only be an efficient policy if it is considered as complement to other policies. This issue is left for future research.
|Date of creation:||Oct 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.ersa.org
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harvey S. Rosen & Kenneth A. Small, 1979.
"Applied Welfare Economics with Discrete Choice Models,"
NBER Working Papers
0319, National Bureau of Economic Research, Inc.
- Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-30, January.
- Anas, Alex & Rhee, Hyok-Joo, 2006.
"Curbing excess sprawl with congestion tolls and urban boundaries,"
Regional Science and Urban Economics,
Elsevier, vol. 36(4), pages 510-541, July.
- Alex Anas & Hyok-Joo Rhee, 2004. "Curbing Excess Sprawl with Congestion Tolls and Urban Boundaries," Urban/Regional 0408004, EconWPA.
- Delucchi, Mark & Lipman, Timothy, 2001. "An Analysis of the Retail and Lifecycle Cost of Battery-Powered Electric Vehicles," Institute of Transportation Studies, Working Paper Series qt50q9060k, Institute of Transportation Studies, UC Davis.
- Ian W. H. Parry & Kenneth A. Small, 2005.
"Does Britain or the United States Have the Right Gasoline Tax?,"
American Economic Review,
American Economic Association, vol. 95(4), pages 1276-1289, September.
- Parry, Ian & Small, Kenneth, 2002. "Does Britain or the United States Have the Right Gasoline Tax?," Discussion Papers dp-02-12-, Resources For the Future.
- Tscharaktschiew, Stefan & Hirte, Georg, 2011.
"Should subsidies to urban passenger transport be increased? A spatial CGE analysis for a German metropolitan area,"
Dresden Discussion Paper Series in Economics
01/11, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
- Tscharaktschiew, Stefan & Hirte, Georg, 2012. "Should subsidies to urban passenger transport be increased? A spatial CGE analysis for a German metropolitan area," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(2), pages 285-309.
- Karplus, Valerie J. & Paltsev, Sergey & Reilly, John M., 2010. "Prospects for plug-in hybrid electric vehicles in the United States and Japan: A general equilibrium analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(8), pages 620-641, October.
- AfDB AfDB, . "African Statistical Yearbook 2009," African Statistical Yearbook, African Development Bank, number 58 edited by Koua Louis Kouakou.
- Anas, Alex & Xu, Rong, 1999. "Congestion, Land Use, and Job Dispersion: A General Equilibrium Model," Journal of Urban Economics, Elsevier, vol. 45(3), pages 451-473, May.
- Viktor Steiner & Johanna Cludius, 2010. "Ökosteuer hat zu geringerer Umweltbelastung des Verkehrs beigetragen," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 77(13/14), pages 2-7.
- Parry, Ian W.H. & Timilsina, Govinda R., 2008.
"How Should Passenger Travel in Mexico City Be Priced?,"
dp-08-17, Resources For the Future.
- Parry, Ian W.H. & Timilsina, Govinda R., 2010. "How should passenger travel in Mexico City be priced?," Journal of Urban Economics, Elsevier, vol. 68(2), pages 167-182, September.
- Kazimi, Camilla, 1997. "Valuing Alternative-Fuel Vehicles in Southern California," American Economic Review, American Economic Association, vol. 87(2), pages 265-71, May.
- Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
- Robert W. Hahn, 1995. "Choosing among fuels and technologies for cleaning up the air," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 14(4), pages 532-554.
- Tscharaktschiew, Stefan & Hirte, Georg, 2010. "The drawbacks and opportunities of carbon charges in metropolitan areas -- A spatial general equilibrium approach," Ecological Economics, Elsevier, vol. 70(2), pages 339-357, December.
- Dewey, Jim & Montes-Rojas, Gabriel, 2009. "Inter-city wage differentials and intra-city workplace centralization," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 602-609, September.
- Kazimi, Camilla, 1997. "Evaluating the Environmental Impact of Alternative-Fuel Vehicles," Journal of Environmental Economics and Management, Elsevier, vol. 33(2), pages 163-185, June.
When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa12p324. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier)
If references are entirely missing, you can add them using this form.