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Equilibrium Effects in Complementary Markets: Electric Vehicle Adoption and Electricity Pricing

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  • Heid, Pascal
  • Remmy, Kevin
  • Reynaert, Mathias

Abstract

The transition to electric vehicles (EVs) shifts the complementary market for passenger transport from oil to electricity. We develop and estimate a joint equilibrium model of the German electricity and automobile markets, emphasizing the timing of EV charging, as electricity generation costs and pollution vary intraday. Our results show that under Germany’s current electricity pricing scheme, EVs create a significant pecuniary externality: electricity expenses rise by €0.66 for every €1 spent charging. Exposing charging to wholesale price variation eliminates the pecuniary externality, makes EVs greener, and increases adoption—a triple dividend.

Suggested Citation

  • Heid, Pascal & Remmy, Kevin & Reynaert, Mathias, 2024. "Equilibrium Effects in Complementary Markets: Electric Vehicle Adoption and Electricity Pricing," TSE Working Papers 24-1589, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:129899
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    References listed on IDEAS

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    More about this item

    Keywords

    Electric vehicles; electricity markets; charging; complementary markets;
    All these keywords.

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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