The economic and environmental impacts of tax incentives for battery electric vehicles in Europe

Abstract

Vehicle taxes and purchase subsidies have been used frequently to provide incentives for electric vehicle adoption. To examine the role of the incentives in reducing total ownership costs of battery electric vehicles (BEVs), increasing BEV sales, and obtaining environmental benefits from switching to BEVs, we carry out cost–benefit analyses and ordinary least square regressions. We study 10 pairs of BEVs and their internal combustion engine vehicle (ICEV) counterparts across 28 European countries from 2012 to 2014. The results show that, under the incentive schemes, the costs reduced by switching to large BEVs from their ICEV counterparts are larger than the costs reduced by switching to small BEVs from their ICEV counterparts. Owing to the cost-reduction effect, a 10% increase of the total tax incentive leads to an increase in the sales share of BEVs by around 3% on average. Finally, we find that it is still costly to use the tax incentives to reduce CO2 emissions and other environmental externalities through transport electrification, despite recent improvements in greening electricity generation and lowering battery costs.