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Journal Article

Governments Should Optimize Electric Vehicle Subsidies


Over the past two decades, various support policies have been adopted to stimulate sales of electric vehicles (EVs). Purchase subsidies are among the most ubiquitous of these. In the USA, consumers can realize tax credits of up to $7,500 when purchasing an EV. Similar incentives accompany the sale of EVs in several countries worldwide, including Canada, China and Norway (to name a few). EV subsidy programmes aim to accelerate decarbonization efforts by incentivizing the adoption of more fuel-efficient, and hence less carbon-intensive, mobility options. Doing so represents a potential path- way towards achieving net-zero greenhouse gas emissions and meeting targets designated by the Paris Agreement.

However, the economically efficient administration of purchase subsidies — a politically, financially and socially advantageous outcome — necessitates that three conditions must be met. First, the subsidy should target consumers whose vehicle-purchase decisions change owing to the presence of the subsidy. Second, the subsidized EV should replace a petrol-powered vehicle. Third, the vehicle being replaced should, to the extent possible, be ‘maximally polluting’. The more polluting the replaced vehicle is, the greater the emissions reductions that are potentially realized owing to EV adoption. Emerging evidence raises questions about whether, and to what degree, these conditions are being met.

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