The dynamic role of subsidies in promoting global electric vehicle sales

Abstract

We offer the most comprehensive analysis to date of global plug-in electric vehicle (PEV) subsidies, a key part of countries’ strategies to reduce transport carbon emissions and meet Paris Agreement goals. We accomplish this by estimating vehicle choice models for 23 countries using 2010–2019 sales data and using counterfactual simulations to assess the cost-effectiveness of PEV incentives. We also provide the first-ever analysis of medium-run effects, finding that subsidies increase sales not only in the year they are offered, but also in subsequent years. Incentive policies are expensive, costing between $14,857 and $62,443 per additional PEV sold ($11-$36 per additional gallon of gasoline avoided, or upwards of $1,212 per avoided metric ton of carbon dioxide). However, when factoring in medium-run effects, most countries’ cost-effectiveness improves substantially. Cost-effectiveness of PEV subsidies has generally been flat to improving over the last decade, suggesting subsidies, though expensive, remain an important driver of PEV adoption.