Optimal mechanism design of public policies for promoting electromobility: A dynamic programming formulation

Abstract

Electromobility is considered a promising future of road transportation, driving the current industrial and market shift to the era of Electric Vehicles (EVs). As electromobility’s ecosystem depends on electricity generated by the energy sector, decision-makers face the tedious task of enacting policies that alter the transport and energy sectors simultaneously to promote EVs. This paper proposes an Optimal Mechanism Design framework for planning the shift to electromobility from the urban level. The framework fuses concepts of Mechanism Design, optimization methods and Cost-Benefit Analysis (CBA), incorporating all important elements for a comprehensive and sound policy-making procedure, such as market dynamics and the associated financial, social and technological dimensions for the transport and energy sectors. The policies considered incorporate EV promotion incentives, taxation, charging infrastructure, electricity taxation and infrastructure such as power plants and Renewable Energy Sources (RES) to support the growing energy needs. Market mechanisms comprise direct links between policy actions and sustainability outcomes. The framework identifies and optimizes these mechanisms to maximize the CBA sustainability indicators. The framework is applied to Nicosia, Cyprus’s capital, where accelerated EV adoption appears to maximize the transport sector's socioenvironmental sustainability and the energy sector's financial sustainability. On the other hand, delayed EV adoption maximizes the energy sector's socioenvironmental sustainability and the transport sector's financial sustainability. Taxation policies are used to limit EV penetration, whilst funding incentives are used to accelerate EV adoption. The results provide decision-makers with a new tool for optimally planning EV adoption using a policy mixture that optimizes financial and socioenvironmental performance.