How to Accelerate the Electric Vehicle Transition

The United Nations Environment Programme has assessed that global emissions must drop 7.6% annually from 2020 through 2030 to achieve the Paris Climate Agreement’s goal of limiting temperature increases to 1.5 degrees Celsius above pre-industrial levels. A previous Chicago Policy Review article discussed the critical importance of transportation decarbonization to global climate change mitigation efforts.

According to the International Energy Agency (IEA), transportation from all sources accounted for 24% of all global emissions from fuel combustion in 2018. Similarly, the United States Energy Information Administration (EIA) reported that the transportation sector was responsible for about 37% of energy related emissions in the United States in 2019. Given the transportation sector’s large share of total emissions, it is not surprising that governments worldwide are pursuing strategies to decarbonize their transportation networks as part of their plans to address climate change. According to the IEA’s 2020 Global EV Outlook, 17 countries have announced 100% zero-emission vehicle targets or the phase-out of internal combustion engine vehicles by 2050. Electrification of transportation systems, primarily through the adoption of electric vehicles, is the intended outcome of these policies.

Despite the broad adoption of zero-emission vehicle targets globally, most nations are just scratching the surface of market transformation. Norway is a global leader, with battery electric cars holding a nearly 60% market share in the first quarter of 2020 according to a McKinsey & Company analysis. However, the same analysis shows that most other countries, like the United States, are far below even a 20% market share during the same period. Thus, catalyzing a rapid transition to electric vehicles in the United States and most other nations remains a substantial challenge for policy makers.

In order to effectively electrify the transportation sector, electricity service providers must adapt in a number of ways. First, electric grids around the world must rapidly become cleaner. A recent National Bureau of Economic Research working paper by Muehlegger and Rapson explained that emission reductions due to a California EV subsidy program could vary widely depending on the ‘cleanliness’ of the electric grid as well as the vehicle displaced by a new electric vehicle. Similarly, results from another study show that in Japan, “owing to the unique combination of very efficient petrol cars (with a growing share of hybrids) and a power sector that is not highly decarbonized, [electric vehicles] could lead to marginally higher emissions.” Unfortunately, data from the United States Energy Information Administration (EIA) shows that the United States as a whole has much work to decarbonize its electric generation. There is considerable variation in the use of coal, natural gas, and zero emission fuels across the country.

Decarbonizing the existing electric grid is merely a starting point on the path to consequently decarbonize the transportation sector via electrification. A United States National Renewable Energy Laboratory (NREL) report estimated that expanded electrification of the economy, the vast majority due to transportation electrification, could increase total electricity demand in 2050 by 20 to 38% compared to a reference case scenario. Therefore, the US must not only make progress transitioning its current electric system to lower emission resources, it must also expand its system dramatically and ensure that this additional demand is met with lower emission resources. Moreover, the US must meet this challenge while simultaneously ensuring that electric service continues to be reliable.

While the electric utility industry adapts to a future relying on low emission resources and expanding its role in the economy, the automobile market also faces a challenging transition. Although the IEA Global EV Outlook noted that the global electric vehicle market has expanded rapidly in recent years, they are still emerging products that are maturing commercially. The IEA has also observed that mainstream consumers may continue to delay electric vehicle purchases in anticipation of future cost reductions and performance improvements. Government policy can help accelerate the mainstream emergence of electric vehicles and thereby accelerate the transition to cleaner transportation.

One policy that could catalyze this transition is a carbon pricing scheme that encompasses transportation fuels, e.g. a carbon tax. Alternatives to a carbon tax include EV purchase subsidies, gasoline vehicle sales bans, and gasoline vehicle production quotas that phase out production of gasoline vehicles over time. A National Bureau of Economic Research working paper by Holland et. al. shows that each of these policy measures is workable, but their effectiveness is highly dependent on automobile consumers’ price sensitivity, and EV adoption depends on specific market characteristics. Holland et. al. also identify that a ban on gasoline vehicle sales can create a perverse incentive where consumers rush to purchase new gasoline vehicles just before the ban takes effect.

An additional key factor to EV adoption that Holland et. al. identify is the substitutability of gasoline vehicles for electric vehicles. For example, consumers may find it much more difficult and time consuming to “fuel” EVs, i.e. charge the battery at a charging station, compared with gasoline vehicles. The authors explain that technical improvements such as installation of more charging stations and decreased vehicle charging times along with increasing consumer familiarity with electric vehicle technology may make electric vehicles better substitutes for gasoline vehicles.

Policy advocates have recognized that a suite of complementary policies will be necessary to accelerate the transition to electric vehicles. For example, the Zero Emission Transportation Alliance (ZETA) policy platform has included incentives to encourage consumer adoption as well as investments in charging infrastructure that would ease the switch from diesel or gasoline vehicles to electric vehicles. Furthermore, a clean and reliable electric grid is essential supporting infrastructure for a national fleet of  emission-reducing electric vehicles. Policymakers would do well to bear in mind these interlocking policy issues as they develop supporting agendas for transportation electrification.

---

Holland, S.P., et. al. “The Electric Vehicle Transition and the Economics of Banning Gasoline Vehicles.” National Bureau of Economic Research Working Paper Series. (February 2020) https://www.nber.org/papers/w26804

International Energy Agency. Global EV Outlook 2020. France, IEA: June 2020. https://www.iea.org/reports/global-ev-outlook-2020 (accessed August 30, 2020).

Mai, Trieu, et. al. Electrification Futures Study: Scenarios of Electric Technology Adoption and Power Consumption for the United States. National Renewable Energy Laboratory. (2018) https://www.nber.org/papers/w26804

Muehlegger, Erich and David S. Rapson. “Correcting Estimates of Electric Vehicle Emissions Abatement: Implications for Climate Policy.” National Bureau of Economic Research Working Paper Series. (January 2021) https://www.nber.org/system/files/working_papers/w27197/w27197.pdf