Association for Public Policy Analysis & Management

Widespread adoption of battery electric vehicles could greatly reduce carbon emissions resulting from passenger vehicle use, since these cars can be powered by energy sources that do not emit carbon. Subsidies to reduce the fixed costs of expanding the recharging network would encourage further adoption.  To determine the optimal subsidy structure for maximum BEV adoption, I simulate adoption levels for a geographically uniform distribution of consumers. Drivers maximize their utility based on the battery capacity (which gives the vehicle a limited driving range) and recharging (or refueling) networks of the vehicle. This model is an extension of analyses by Struben amd Sternman (2007) and Langer and McRae (2014) to apply to battery-powered cars,  which require accounting for a limited range of travel, heterogeneous charging station demand, and the possibility of rapid innovation in battery technology.

Some drivers will not require a recharging network because their daily trips can all be made within the range of a single charge. If battery capacity is increased enough, nearly all users that prefer the BEV will have their daily trips covered by a single charge and the need for charging network capacity will ultimately decrease. Currently, however, a multi-dimensional chicken-and-egg problem exists. There are not enough drivers of electric vehicles to support a stable equilibrium number of charging stations, and the battery technology is not advanced enough to attract a significant number of drivers who could do without the charging network. Without more drivers to motivate an increase in the charging network or battery capacity, the network eventually collapses and the number of BEVs will fall to the level of drivers who can make their daily commutes with home-charging only.  Results of the simulation show that the optimal battery capacity may have already been reached, but the technology is still too expensive for more widespread adoption. To reach a stable equilibrium of supply and demand for charging stations, I recommend subsidies for station installation to maintain the maximum threshold level (with a battery size capable of traveling 82 miles, 3 stations with fixed costs of $150,000). If this minimum level is maintained and we can also improve recharging technology or reduce capital costs, adoption will increase more rapidly.