With the Right Government Incentives, Electric Vehicle Adoption Could Rise

Over the past decade, the trend of switching to electricity as a power source for everything from cars to space heaters has garnered much attention. With electricity now increasingly being generated from renewable energy sources, the electrification of transportation offers an attractive approach to reducing greenhouse gas emissions and potentially decreasing total energy consumption. According to one recent study from the National Renewable Energy Laboratory, the transportation industry could be the most significant contributor to advancing electrification.

However, despite decreasing battery costs, it is still more expensive to own an electric vehicle (EV) than a traditional gas-operated vehicle. To mitigate these costs, many states provide incentives to encourage their residents to adopt electric vehicles. These include monetary motivators such as tax credits and rebates, as well as commuting benefits such as access to high-occupancy vehicle lanes. As states make substantial investments to promote electric vehicle adoption, it is important to determine which policies do so most effectively.

In a recent study, Easwaran Narassimhan and Caley Johnson tackle this issue by examining purchase data for both plug-in hybrid electric vehicles and battery electric vehicles from 2008 to 2016, as well as data on state-level incentives for those adopting electric vehicles. Specifically, the authors seek to answer three main questions: First, what state-level incentives encouraging electric vehicle adoption do consumers respond well to? Second, does wider availability of public charging stations in the state affect the number of electric vehicle purchases? Finally, do these effects vary between plug-in hybrid vehicles and battery electric vehicles?

Consistent with several previous studies, the authors observed that consumers do, in fact, respond to state-level vehicle-purchase incentives. But this research also found that rebates are stronger incentives than tax credits — that is, people tend to prefer an immediate benefit over future savings. For instance, the study found that a tax increase of one percent, relative to the vehicle’s price, is associated with a 1.8 percent increase in battery-powered car purchases, while a one percent rebate increase corresponds to a 2.16 percent jump in car purchases. The authors also pointed out that these mechanisms are more effective when the price of the vehicle is lower, indicating that the potential for incentives to increase adoption might grow as electric vehicles become less expensive.

Moreover, the authors’ results suggest that the presence of public charging infrastructure is strongly correlated with vehicle-purchasing decisions. One additional installation of a public charging station per capita is associated with a 7.2 percent increase in battery electric car purchases and a 2.6 percent increase in hybrid vehicle purchases. This effect becomes stronger with increasing driving ranges of hybrid cars (when they run on battery power), while it weakens with increasing ranges of battery electric vehicles. This suggests that hybrid owners tend to account for the availability of free charging stations when they calculate total cost of ownership. On the other hand, according to the researchers, owners of short-range battery vehicles tend to have more “range anxiety.”

Finally, the authors found that environmental awareness could play an important role in EV adoption, to an even greater extent than the availability of tax incentives. In states where public opinion favors environmentalism, electric vehicle sales are significantly higher.

Ultimately, this research shows that governments have several levers available to them to encourage adoption of EVs. Options include significant investment in charging infrastructure, tax incentives, and rebates at the moment of purchase. The big question, then, is not if there are ways to encourage EV adoption, but rather which ones governments can employ, given their budgetary and political capacities.

Article source: Narassimhan, Easwaran, and Caley Johnson, “The Role of Demand-Side Incentives and Charging Infrastructure on Plug-in Electric Vehicle Adoption: Analysis of US States.” Environmental Research Letters 13, no. 7 (2018): 074032.

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