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Subsidizing Low- and Middle-Income Adoption of Electric Vehicles: Quasi-Experimental Evidence from California

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  • Erich Muehlegger
  • David S. Rapson

Abstract

Little is known about electric vehicle (EV) demand by low- and middle-income households. In this paper, we exploit a policy that provides exogenous variation in large EV subsidies targeted at the mass market in California. Using transaction-level data, we estimate three important policy parameters: the rate of subsidy pass-through, the impact of the subsidy on EV adoption, and the elasticity of demand for EVs among low- and middle-income households. Demand for EVs in our sample is price-elastic (-3.3) and pass-through to buyers is indistinguishable from 100 percent. We use these estimates to calculate that the expected subsidy bill required for California to reach its goal of 1.5 million EVs by 2025 is likely to exceed $12-18 billion.

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  • Erich Muehlegger & David S. Rapson, 2018. "Subsidizing Low- and Middle-Income Adoption of Electric Vehicles: Quasi-Experimental Evidence from California," NBER Working Papers 25359, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25359
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    Cited by:

    1. Lucas W. Davis, 2024. "The Economic Determinants of Heat Pump Adoption," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 5(1), pages 162-199.
    2. Vona, Francesco, 2023. "Managing the distributional effects of climate policies: A narrow path to a just transition," Ecological Economics, Elsevier, vol. 205(C).
    3. Fournel, Jean-François, 2023. "Electric Vehicle Subsidies: Cost-Effectiveness and Emission Reductions," TSE Working Papers 23-1465, Toulouse School of Economics (TSE).
    4. Pessoa, Joao Paulo & Santos, Roberto Amaral & Chimeli, Ariaster, 2023. "Natural Gas Vehicles: Consequences to Fuel Markets and the Environment," SocArXiv 7tvgy, Center for Open Science.
    5. Burra, Lavan T. & Sommer, Stephan & Vance, Colin, 2023. "Free-Ridership in Subsidies for Company- and Private Electric Vehicles," Ruhr Economic Papers 1015, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    6. Erich J. Muehlegger & David S. Rapson, 2023. "Correcting Estimates of Electric Vehicle Emissions Abatement: Implications for Climate Policy," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(1), pages 263-282.
    7. Katarzyna Sobiech-Grabka & Anna Stankowska & Krzysztof Jerzak, 2022. "Determinants of Electric Cars Purchase Intention in Poland: Personal Attitudes v. Economic Arguments," Energies, MDPI, vol. 15(9), pages 1-26, April.
    8. Elizabeth C. Klee & Adair Morse & Chaehee Shin, 2024. "Auto Finance in the Electric Vehicle Transition," Finance and Economics Discussion Series 2024-065, Board of Governors of the Federal Reserve System (U.S.).
    9. Burra, Lavan T. & Sommer, Stephan & Vance, Colin, 2024. "Free-ridership in subsidies for company- and private electric vehicles," Energy Economics, Elsevier, vol. 131(C).
    10. Qiao Yu & Brian Yueshuai He & Jiaqi Ma & Yifang Zhu, 2023. "California’s zero-emission vehicle adoption brings air quality benefits yet equity gaps persist," Nature Communications, Nature, vol. 14(1), pages 1-14, December.
    11. Rosa, Carmen Brum & Francescatto, Matheus Binotto & Neuenfeldt Júnior, Alvaro Luiz & Bernardon, Daniel Pinheiro & dos Santos, Laura Lisiane Callai, 2023. "Regulatory analysis of E-mobility for Brazil: A comparative review and outlook," Utilities Policy, Elsevier, vol. 84(C).
    12. Trotta, Gianluca & Sommer, Stephan, 2024. "The effect of changing registration taxes on electric vehicle adoption in Denmark," Transportation Research Part A: Policy and Practice, Elsevier, vol. 185(C).
    13. David S. Rapson & James B. Bushnell, 2022. "The Electric Ceiling: Limits and Costs of Full Electrification," NBER Working Papers 30593, National Bureau of Economic Research, Inc.
    14. Wang, Kunlun & Zheng, Leven J. & Lin, Boqiang, 2024. "Demand-side incentives, competition, and firms’ innovative activities: Evidence from automobile industry in China," Energy Economics, Elsevier, vol. 132(C).
    15. Wes Austin & Stefano Carattini & John Gomez Mahecha & Michael Pesko, 2020. "COVID-19 Mortality and Contemporaneous Air Pollution," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper2016, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    16. Tsanko, Ilona, 2023. "Would you like to supersize your car? The effect of environmental subsidies on emissions," ZEW Discussion Papers 23-033, ZEW - Leibniz Centre for European Economic Research.
    17. Spiller, Beia & Wilwerding, Rachel & Russo, Suzanne, 2024. "Equity in Electric Vehicle Charging Infrastructure," RFF Working Paper Series 24-14, Resources for the Future.
    18. Soetevent, Adriaan R., 2021. "I’d Like to Move It! Consumption Rivalry in the EV Public Charging Market: Demand Estimation with Deterministic Choice Set Variation," EconStor Preprints 228520, ZBW - Leibniz Information Centre for Economics.
    19. Roberto Amaral-Santos & Ariaster Chimeli & Joao Paulo Pessoa, 2023. "Natural Gas Vehicles: Consequences to Fuel Markets and the Environment," Working Papers, Department of Economics 2023_07, University of São Paulo (FEA-USP).
    20. Peter Haan & Adrián Santonja & Aleksandar Zaklan, 2023. "Effectiveness and Heterogeneous Effects of Purchase Grants for Electric Vehicles," Discussion Papers of DIW Berlin 2032, DIW Berlin, German Institute for Economic Research.

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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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