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A Cost Benefit Analysis of introducing Electric Vehicles in Bhutan

Norbu, Nyingtob (2015): A Cost Benefit Analysis of introducing Electric Vehicles in Bhutan.

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Bhutan is reputed for its pristine environment and its unparalleled commitment towards environmental conservation. However, recent studies have found that carbon emissions are on the rise with rapidly increasing fossil fuel consumption, which now constitutes the most significant item in Bhutan’s import basket. While Bhutan is a net exporter of hydroelectric energy the import of fossil fuel offsets nearly 70% of the exports of electricity to India. In the aftermath of the recent balance of payments challenges with India, the country is compelled to consider alternative mobility options to reduce its dependence on fossil fuel imports and harness its abundant hydro-power, but more importantly, to serve as a model for conservation efforts. With the vision to become the first full-fledged electric-vehicle city in the world, Bhutan must mobilize significant institutional and financial resources. As a stepping stone towards this initiative the government is considering the replacing of a fleet of taxis with electric vehicle equivalents. The relative upfront costs of adopting an electric platform are considered a major deterrent notwithstanding the future stream of savings on account of lower energy and maintenance costs and the intangible benefits to society as a whole. Hence, this paper conducts a Cost Benefit Analysis of the initiative. While most studies focus only on the end-user, this study takes a more comprehensive approach by studying the costs and benefits to both users as well as society taking into consideration various assumptions and scenarios. The macroeconomic and microeconomic implications of this initiative are assessed, and policy recommendations are also offered. Under all scenarios the EV option emerges as the most preferred model. Even the baseline scenario in which no incentives are offered reveals a favourable outcome for the EV. However, these outcomes are assessed over a relatively long time span of 8 and 10 years which gives rise to a time inconsistency problem, which is why some intervention may be necessary to nudge individuals in favour of the EV option.

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