What role for electric vehicles in the decarbonization of the car transport sector in Europe?

Abstract

The transport sector is the only sector where carbon emissions continue to grow. This has led policy makers to propose ambitious policies to reduce emissions in the car sector, in particular carbon emissions standards, portfolio mandates for Electric Vehicles and purchase taxes or subsidies. We use a stylized two-period model for the car manufacturing sector to compare the cost efficiency of these policies. The model has gasoline fueled cars (GV) compete with battery electric cars (EV). Both types of cars have endogenous technological progress that is triggered by environmental policies, including tradable carbon emissions standards, portfolio mandates, carbon taxes, purchase taxes and R&D subsidies. Parked EVs can serve as batteries that help grid operators to shift off peak (renewable) electricity to peak hour supply. The model is calibrated to evaluate the EU policy to reduce average carbon emissions of new cars by 37,5% in 2030 compared to 2021. We assess the cost-efficiency of policy instruments evaluating vehicle costs and prices, fuel costs, and externalities. We find that a carbon emissions standard achieves emission reductions at a much lower cost than a portfolio mandate for electric cars.