Government Subsidy Design for Electric Vehicle and Charging Markets

Abstract

The adoptions of electric vehicles (EVs) rely on the availability of charging infrastructures which are often built by third-party service providers (SPs) in large cities. However, profit-maximizing SPs might locate the piles disproportionally in suburbs versus downtown due to lower costs, which results in high social costs for EV charging or weak EV adoptions. Considering such a mismatch of location preferences between drivers and SPs, we compare three types of subsidy policies with a stylized game-theoretical model: (i) subsidizing EV purchases, (ii) subsidizing SPs by the pile usage, and (iii) subsidizing SPs by pile numbers. Subsidizing EV purchases is effective in promoting EV adoptions but not in alleviating the spatial mismatch. In contrast, subsidizing SPs (with either format) can be more effective in addressing the spatial mismatch and can also promote EV adoptions. In different situations, each type of policy can emerge as the best, and the rule to determine which side (SPs versus EV buyers) to subsidize largely depends on the cost factors in the charging market rather than the EV price or the environmental benefits. A “jigsaw-piece rule” is found to guide policy design. Subsidizing SPs is better if charging is too costly or time consuming, and subsidizing EV purchases dominates if charging is sufficiently fast and easy; Given charging costs that are neither too low nor too high, subsidizing SPs is better only if pile building at downtown versus suburbs is moderately more expensive.