Association for Public Policy Analysis & Management

Transportation accounts for roughly one-third of U.S. greenhouse (GHG) emissions. Electric vehicles (EVs) have the potential to reduce GHG emissions while also providing grid services. To encourage adoption, the federal government offers a purchase subsidy of up to $7,500 per vehicle. Multiple states promote EV adoption and use by offering additional incentives that vary substantially in their scope and magnitude. This research addresses the political economy underlying decisions by individual states to adopt policies promoting EVs. While there is an extensive literature examining the political economy of energy and climate policies, this paper is the first to comprehensively examine EV adoption and use.

Between 2010 and 2017, 23 states offered vehicle purchase subsidies. However, they vary widely in terms of their timing and magnitude. For example, nine states began offering subsidies prior to 2012 and continue through today. Four states, on the other hand, ended this policy by 2016. Another seven states introduced them for the first time from 2014. Lastly, three states that had ended their purchase subsidies by 2015, reintroduced them a few years later. Another notable trend is the adoption of annual EV fees, implemented in 20 states, to replace declining gas tax revenues. What economic and political factors underpin decisions by state governments to subsidize or tax EV adoption and use? Motivations could range from correcting pollution externalities, responding to political pressures, and leveraging natural and built environment characteristics like travel distances and renewable energy.

Our study uses a comprehensive database of U.S. state policies over the 2010-2017 period designed to promote consumer purchase and use of EVs (Wee et al., 2018 and 2019). We focus on five policy instruments that are particularly valuable to consumers: vehicle purchase subsidies, home charger subsidies, high occupancy vehicle (HOV) lane exemptions, reduced vehicle registration fees, and annual fees imposed only on EVs. We use several panel econometric methods to examine why and when states adopt such policies. Our econometric model exploits variation within states to analyze particular policies as well as the aggregate value of the five policies.

Our initial specification focuses on the use of EV subsidies to allow GHG mitigation benefits to be realized. Regressions use state-year-specific measures of efficiency gains from EV subsidies and state-year-specific measures of the impact of subsidies on sales to measure efficiency considerations. A second set of specifications also considers pressures from interest groups formed to express citizen environmental preferences or business preferences. A third set of specifications step in various political and social variables. Lastly, we include resource endowments, existing infrastructure, and air pollution measures.

This work will build understanding of government motivation in EV technology deployment, with particular importance to understanding policy coherence. The political economy that underlies the policy formation process will help provide insight into why specific sets of policies are adopted even though they may not be coherent or optimal. This is a critically important piece in understanding the pathways to decarbonization of the transportation sector.