Electric vehicle subsidies: Time to accelerate or pump the brakes?

Promoting plug-in electric vehicle (PEV) adoption through subsidies represents a commonly used policy lever for decarbonizing the light-duty vehicle sector. However, it is unclear how the subsidy cost-effectiveness has evolved over time and whether further subsidization is needed to induce adoption beyond wealthy consumers. We explore these questions by assessing the federal PEV subsidy program in the United States. To do so, we extend Sheldon and Dua's (2019a, 2019b) work by using the same approach on large-scale U.S. new vehicle buyer survey data. While results averaged over fuel-types suggest that PEV subsidies are becoming less impactful and costlier over time, detailed model-level exploration reveals that it is due to an increasing share of higher-priced BEVs such as Teslas. The model-level subsidy impact has not changed much over time. Moreover, if the subsidies had been discontinued in 2017, half of the below median income (90 K USD) new vehicle buyers would not have adopted a PEV, highlighting the need to continue the subsidies. The findings hold significance for policymakers worldwide on how to design effective PEV subsidy programs.

Automated summary

Promoting the adoption of plug-in electric vehicles (PEVs) through subsidies is a common policy lever for reducing emissions in the light-duty vehicle sector. The effectiveness and cost-effectiveness of these subsidies over time, as well as the need for further subsidization to encourage adoption among non-wealthy consumers, are examined in this study using data from a large-scale U.S. new vehicle buyer survey. The results indicate that while the overall impact and cost of PEV subsidies have decreased over time, this is primarily due to the increasing proportion of higher-priced PEVs like Teslas. The subsidy impact at the model level has remained relatively constant, and discontinuing subsidies in 2017 would have resulted in a significant decrease in PEV adoption among below-median income new vehicle buyers, emphasizing the continued need for subsidies. These findings hold implications for policymakers worldwide in designing effective PEV subsidy programs.