The Economics of Electric Vehicles

Abstract

We examine the private and public economics of electric vehicles (EVs) and discuss when market forces will produce the optimal path of EV adoption. Privately, consumer cost savings from EVs vary. Some experience net benefits from choosing gasoline cars, even after accounting for EV subsidies. Publicly, we survey the literature documenting the external costs and benefits of EVs and highlight several themes for optimal policy design including, 1) promoting regional variation in EV policies that align private incentives with social benefits, 2) pursuing a time-path of policies that reflect changing marginal benefits, and 3) rationalizing electricity and gasoline prices to reflect their social marginal cost. On the extensive margin, purchase incentives should ramp-down as learning-by-doing and network externalities (to the extent that they exist) diminish; on the intensive margin, gasoline should become relatively more expensive over time than electricity (per mile traveled) to reflect cleaner marginal emissions from electricity generation.

Are industrial policy instruments effective?

“… Expansiesteun (Expansion support) in Flanders, Belgium. Ramboer and Reynaerts (2020 [70]) do not use firm-level data but municipality-level data. They however use an exogenous change in eligibility to estimate causal effects of this policy.…”

Exploring the Potential for Electric Retrofit Regulations and an Accreditation Scheme for the UK

“…A further consideration was the uncertainty in the future costs of petrol, diesel, and electricity [6], which could have a considerable effect on these LCCs. Regarding the initial, upfront costs specifically, a study in the USA in July 2021, highlighted that EVs were still more expensive to produce than ICE vehicles [25], however, lithium-ion battery pack costs had decreased by 85% between 2010 and 2018 [26]. If these costs continue to decrease, then price parity between EVs and ICE vehicles could be met, however, there appears to be a lot of uncertainty on when this may happen, although, within 10 years is suggested by many estimates [25].…”

“…Regarding the initial, upfront costs specifically, a study in the USA in July 2021, highlighted that EVs were still more expensive to produce than ICE vehicles [25], however, lithium-ion battery pack costs had decreased by 85% between 2010 and 2018 [26]. If these costs continue to decrease, then price parity between EVs and ICE vehicles could be met, however, there appears to be a lot of uncertainty on when this may happen, although, within 10 years is suggested by many estimates [25]. Figure 2 highlights the total cost of ownership of a medium-sized car, bought new in 2021, depending on whether it was a petrol or diesel ICE vehicle, or a BEV [27].…”

Powering Up a Slow Charging Market: How do Government Subsidies Affect Charging Station Supply?

“…My study offers a first analysis to quantify the elasticity of charging station supply with respect to charging station subsidies. More broadly, I contribute to the literature on the role of transportation sector government policy in mitigating climate change (for an overview, see Rapson and Muehlegger, 2021). 6 Graff Zivin et al (2014), Archsmith et al (2015), and Holland et al (2016) find that EVs can emit substantially less lifetime carbon emissions and local pollutants than ICEs (depending on regional electricity sources).…”