Cap or no cap? What can governments do to promote EV sales?

Luo, Zunian (2021): Cap or no cap? What can governments do to promote EV sales? Published in: Cornell Undergraduate Economic Review No. Fall 2021 (November 2021)

Abstract

This paper examines the effect of the federal EV income tax subsidy on EV sales. I find that reduction of the federal subsidy caused sales to decline by 43.2%. To arrive at this result, I employ historical time series data from the Department of Energy Alternative Fuels Data Center. Using the fact that the subsidy is available only for firms with fewer than 200,000 cumulative EV sales, I separate EV models into two groups. The treatment group consists of models receiving the full subsidy, and the control group consists of models receiving the reduced subsidy. This allows for a difference in differences (DiD) model structure. To examine the robustness of the results, I conduct regression analyses. Due to a relatively small sample size, the regression coefficients lack statistical significance. Above all, my results suggest that federal incentives designed to promote EV consumption are successful in their objectives.

• Item Type: MPRA Paper
• Language: English
• Keywords: environmental economics; climate change; electric vehicles; economic policy
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q50 - General

References

Aguirre, K., Eisenhardt, L., Lim, C., Nelson, B., Norring, A., Slowik, P., & Tu, N. (2012). Lifecycle analysis comparison of a battery electric vehicle and a conventional gasoline vehicle. California Air Resource Board. https://www.ioes.ucla.edu/wp-content/uploads/batteryelectricvehiclelca2012.pdf

Ajanovic, A., & Haas, R. (2016). Dissemination of electric vehicles in urban areas: Major factors for success. Energy, 115, 1451-1458. https://doi.org/10.1016/j.energy.2016.05.040.

Allcott, Hunt, and Michael Greenstone. 2012. "Is There an Energy Efficiency Gap?" Journal of Economic Perspectives, 26 (1): 3-28. https://doi.org/10.1257/jep.26.1.3

Alternative Fuels Data Center - Department of Energy. (2020). Electric Vehicle Registrations by State [Excel Spreadsheet]. Retrieved from https://afdc.energy.gov/data/10962

Alternative Fuels Data Center - Department of Energy. (2020). U.S. Plug-In Electric Vehicle Sales by Model [Excel Spreadsheet]. Retrieved from https://afdc.energy.gov/data/10567

Amy Finkelstein, E-ztax: Tax Salience and Tax Rates, The Quarterly Journal of Economics, Volume 124, Issue 3, August 2009, Pages 969–1010, https://doi.org/10.1162/qjec.2009.124.3.969

Anthoff, David and Emmerling, Johannes, Inequality and the Social Cost of Carbon (August 26, 2016). FEEM Working Paper No. 54.2016, Available at SSRN: https://ssrn.com/abstract=2830457 or http://dx.doi.org/10.2139/ssrn.2830457

Bhat, C. R., Sen, S., & Eluru, N. (2009). The impact of demographics, built environment attributes, vehicle characteristics, and gasoline prices on household vehicle holdings and use. Transportation Research Part B: Methodological, 43(1), 1-18. https://doi.org/10.1016/j.trb.2008.06.009.

Bloom, N., Schankerman, M., & Van Reenen, J. (2013). Identifying technology spillovers and product market rivalry. Econometrica, 81(4), 1347-1393. https://doi.org/10.3982/ECTA9466

Bloomberg NEF. (2021). Electric Vehicle Outlook 2021. https://about.newenergyfinance.com/electric-vehicle- outlook/ Cain, T. (2021). Chevrolet Volt Sales Figures. Retrieved 5 September 2021, from https://www.goodcarbadcar.net/chevrolet-volt-sales-figures/

Card, D., Katz, L. F., & Krueger, A. B. (1994). Comment on David Neumark and William Wascher,“Employment effects of minimum and subminimum wages: Panel data on state minimum wage laws”. ILR Review, 47(3), 487-497. https://doi.org/10.1177/001979399404700308

Carleton, Tamma and Greenstone, Michael, Updating the United States Government's Social Cost of Carbon (January 14, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2021-04, https://ssrn.com/abstract=3764255

Chetty, Raj, Adam Looney, and Kory Kroft. 2009. "Salience and Taxation: Theory and Evidence." American Economic Review, 99 (4): 1145-77. https://doi.org/10.1257/aer.99.4.1145

Clean Vehicle Rebate Project. (2015, October 28). CVRP Participation Rates. https://cleanvehiclerebate.org/eng/content/cvrp-participation-thru-2015-03

Clinton, B., Brown, A., Davidson, C., & Steinberg, D. (2015). Impact of direct financial incentives in the emerging battery electric vehicle market: A preliminary analysis (presentation); nrel (national renewable energy laboratory). No. NREL/PR-6A20-63263). National Renewable Energy Lab.(NREL), Golden, CO (United States). https://www.nrel.gov/docs/fy15osti/63263.pdf

Colias, M. & Foldy, B. (2021). GM’s Chevy Bolt Recall Casts Shadow Over EV Push. Retrieved 9 September 2021, from https://www.wsj.com/articles/gms-chevy-bolt-recall-casts-shadow-over-ev-push- 11630246736?st=eju6p7vejqsxiu4

Compustat Industrial [Annual Data]. (2010-2020). Available: Standard & Poor's/Compustat [2021, August 15]. Retrieved from Wharton Research Data Service

Covert, T., Greenstone, M., & Knittel, C. R. (2016). Will we ever stop using fossil fuels?. Journal of Economic Perspectives, 30(1), 117-38. https://doi.org/10.1257/jep.30.1.117

Daziano, R. A., & Bolduc, D. (2013). Incorporating pro-environmental preferences towards green automobile technologies through a Bayesian hybrid choice model. Transportmetrica A: Transport Science, 9(1), 74-106. https://doi.org/10.1080/18128602.2010.524173

DeShazo, J. R. (2016). Improving incentives for clean vehicle purchases in the United States: challenges and opportunities. Review of Environmental Economics and Policy, 10(1), 149-165. https://doi.org/10.1093/reep/rev022

DeVries, C. O. C. (2018, December 25). Electric car credits benefit the elite over the many. TheHill. https://thehill.com/opinion/finance/422732-electric-car-credits-benefit-the-elite-over-the-many

Dyni, J. R. (2006). Geology and resources of some world oil-shale deposits. https://pubs.usgs.gov/sir/2005/5294/pdf/sir5294_508.pdf?simple=True

Energy Information Administration. (2021, March 18). Electricity explained. https://www.eia.gov/energyexplained/electricity/electricity-in-the-us.php

Energy Information Administration. (2011, September 19). China and India account for half of global energy growth through 2035. https://www.eia.gov/todayinenergy/detail.php?id=3130

Erb, T. (2021, March 30). The Social Cost of Carbon - Going Nowhere But Up. Center for Climate and Energy Solutions. https://www.c2es.org/2021/03/the-social-cost-of-carbon-going-nowhere-but-up/

Federal EV Tax Credit Phase Out Tracker By Automaker – EVAdoption. (2021). Retrieved 23 September 2021, from https://evadoption.com/ev-sales/federal-ev-tax-credit-phase-out-tracker-by-automaker/

Ford, C., 2021. Interpreting Log Transformations in a Linear Model | University of Virginia Library Research Data Services + Sciences. [online] Data.library.virginia.edu. Available at: <https://data.library.virginia.edu/interpreting- log-transformations-in-a-linear-model/> [Accessed 13 September 2021].

Gayer, T., & Parker, E. (2013). Cash for Clunkers: An evaluation of the car allowance rebate system. Brookings Institution, 9. https://www.brookings.edu/wp- content/uploads/2016/06/cash_for_clunkers_evaluation_paper_gayer.pdf

Gillingham, K. T., Houde, S., & van Benthem, A. A. (2021). Consumer myopia in vehicle purchases: evidence from a natural experiment. American Economic Journal: Economic Policy, 13(3), 207-38. https://doi.org/10.1257/pol.20200322

Goldin, J. (2015). Optimal tax salience. Journal of Public Economics, 131, 115-123. http://dx.doi.org/10.1016/j.jpubeco.2015.09.005. H.R.2454 - 111th Congress (2009-2010): American Clean Energy and Security Act of 2009. (2009, July 7). https://www.congress.gov/bill/111th-congress/house-bill/2454

H.R.3684 - 117th Congress (2021-2022): Infrastructure Investment and Jobs Act. (2021, October 1). https://www.congress.gov/bill/117th-congress/house-bill/3684

Hardman, S., Chandan, A., Tal, G., & Turrentine, T. (2017). The effectiveness of financial purchase incentives for battery electric vehicles–A review of the evidence. Renewable and Sustainable Energy Reviews, 80, 1100-1111. http://dx.doi.org/10.1016/j.rser.2017.05.255

Heffner, R. R., Kurani, K. S., & Turrentine, T. S. (2007). Symbolism in California’s early market for hybrid electric vehicles. Transportation Research Part D: Transport and Environment, 12(6), 396-413. https://doi.org/10.1016/j.trd.2007.04.003

Holland, S. P., Mansur, E. T., Muller, N. Z., & Yates, A. J. (2020). Decompositions and policy consequences of an extraordinary decline in air pollution from electricity generation. American Economic Journal: Economic Policy, 12(4), 244-74. https://doi.org/10.1257/pol.20190390

Holland, Stephen P.; Mansur, Erin T.; Muller, Nicholas Z.; and Yates, Andrew J., "Are There Environmental Benefits from Driving Electric Vehicles? The Importance of Local Factors" (2016). Open Dartmouth: Faculty Open Access Articles. 2382. https://doi.org/10.1257/aer.20150897

Interagency Working Group. (2021). Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive Order 13990. Tech. rep., White House. URL https://www.whitehouse.gov/wp- content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf

Kelley Blue Brook. (2021, September 14). New-Vehicle Prices Surge to Record Highs for Fifth Straight Month, According to Kelley Blue Book. Kelley Blue Book | MediaRoom. Retrieved October 31, 2021, from https://mediaroom.kbb.com/2021-09-14-New-Vehicle-Prices-Surge-to-Record-Highs-for-Fifth-Straight-Month,- According-to-Kelley-Blue-Book.

Lambert, F. (2018). GM kills the Chevy Volt, shuts down factories, but accelerates EV investment. Retrieved 5 September 2021, from https://electrek.co/2018/11/26/gm-chevy-volt-factory-shutdown-electric-investmet/

Lambert, F. (2021). Tesla Model S caught fire and burned down while charging at a Supercharger [Gallery]. Retrieved 9 September 2021, from https://electrek.co/2016/01/01/tesla-model-s-caught-fire-and-burned-down- charging-supercharger/

Layard, R., Mayraz, G., & Nickell, S. (2008). The marginal utility of income. Journal of Public Economics, 92(8-9), 1846-1857. https://doi.org/10.1016/j.jpubeco.2008.01.007

Leard, B. L. (2021, March 24). Federal Climate Policy 104: The Transportation Sector [Illustration]. https://www.rff.org/publications/explainers/federal-climate-policy-104-the-transportation-sector/

Levitt, S., List, J., & Syverson, C. (2013). Toward an Understanding of Learning by Doing: Evidence from an Automobile Assembly Plant. <i>Journal of Political Economy,</i> <i>121</i>(4), 643-681. https://doi.org/10.1086/671137

Li, S., Linn, J., & Spiller, E. (2013). Evaluating “Cash-for-Clunkers”: Program effects on auto sales and the environment. Journal of Environmental Economics and management, 65(2), 175-193. https://doi.org/10.1016/j.jeem.2012.07.004

Li, S., Tong, L., Xing, J., & Zhou, Y. (2017). The market for electric vehicles: indirect network effects and policy design. Journal of the Association of Environmental and Resource Economists, 4(1), 89-133. http://dx.doi.org/10.1086/689702

Modaresi, R., Pauliuk, S., Løvik, A. N., & Müller, D. B. (2014). Global carbon benefits of material substitution in passenger cars until 2050 and the impact on the steel and aluminum industries. Environmental science & technology, 48(18), 10776-10784. https://doi.org/10.1021/es502930w

Ritchie, H., & Roser, M. (2020) - "CO2 and Greenhouse Gas Emissions". Published online at OurWorldInData.org. Retrieved from: 'https://ourworldindata.org/co2-and-other-greenhouse-gas-emissions' [Online Resource]

Roster, E. (2021, January 22). The Most Important Number You’ve Never Heard Of. Bloomberg Green. https://www.bloomberg.com/news/articles/2021-01-22/how-do-you-put-a-price-on-climate-change-michael- greenstone-knows?sref=pD2ECzY4

S.395 - 117th Congress (2021-2022): Electric CARS Act of 2021. (2021, February 23). https://www.congress.gov/bill/117th-congress/senate-bill/395

Senator Deborah Fischer. (2021, August 11). Fischer Opposes Senate Democrats’ Reckless Tax and Spend Plan [Press release]. https://www.fischer.senate.gov/public/index.cfm/news?ID=C9544E5D-4703-4DFD-97B1- EB36A7D64814

Text - S.2118 - 117th Congress (2021-2022): Clean Energy for America Act. (2021, June 21). https://www.congress.gov/bill/117th-congress/senate-bill/2118/text

The White House (2021, August 5) FACT SHEET: President Biden Announces Steps to Drive American Leadership Forward on Clean Cars and Trucks. https://www.whitehouse.gov/briefing-room/statements- releases/2021/08/05/fact-sheet-president-biden-announces-steps-to-drive-american-leadership-forward-on-clean- cars-and-trucks/

The White House (2021, July 28) FACT SHEET: Historic Bipartisan Infrastructure Deal. https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/28/fact-sheet-historic-bipartisan- infrastructure-deal/

United States Environmental Protection Agency. (2021). Sources of Greenhouse Gas Emissions. https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions

Wang, S & Ge, M. (2019, October 16). Everything You Need to Know About the Fastest-Growing Source of Global Emissions: Transport. World Resources Institute. https://www.wri.org/insights/everything-you-need-know-about- fastest-growing-source-global-emissions-transport

Ziegler, A. (2012). Individual characteristics and stated preferences for alternative energy sources and propulsion technologies in vehicles: A discrete choice analysis for Germany. Transportation Research Part A: Policy and Practice, 46(8), 1372-1385. https://doi.org/10.1016/j.tra.2012.05.016

Ziegler, M. S., & Trancik, J. E. (2021). Re-examining rates of lithium-ion battery technology improvement and cost decline. Energy & Environmental Science, 14(4), 1635-1651. https://doi.org/10.1039/D0EE02681F