Targeted electric vehicle procurement incentives facilitate efficient abatement cost outcomes

Abstract

Electric vehicles (EVs) are one solution to creating a transportation system that is more energy efficient, fosters greater energy security, and is less polluting. Existing public policy reflects this sentiment. Over the last two decades, various government-sponsored policies have been adopted to stimulate EV sales. The most notable – and ubiquitous – of these are procurement incentives. However, the effectiveness of this policy as a pathway to emissions reductions depends on the cost-to-emissions advantage EVs offer over gasoline powered vehicles. Under what conditions is this advantage realized? Using publicly available data, we estimate the precursors – with foci on aggregate mileage and battery longevity - required for EVs to achieve an array of abatement cost thresholds. Our findings are fourfold. First, we illustrate that increased aggregate vehicle utilization – ceteris paribus – decreases implied abatement cost. Second, we find that, after accounting for battery replacements, requisite aggregate utilization for EV-incentive policies to achieve cost parity with alternatives can greatly exceed existing ownership trends, depending on the targeted abatement cost and vehicle ownership period. Third, we document that – owing to their sole emphasis on EV procurement rather than utilization – existing policy fails to accommodate these preconditions. Fourth, we demonstrate that electrical grid decarbonization may be insufficient to produce efficient abatement cost outcomes for EVs. Addressing these inefficiencies necessitates – we conclude – adopting procurement incentivize programs that reward utilization rather than acquisition alone. Doing so would also address longstanding distributional concerns surrounding such programs.