How to reach 50 percent zero-emission vehicles

BY CHRISTOPHER R. KNITTEL, JIM STOCK AND SHANJUN LI, OPINION CONTRIBUTORS — 09/01/21 05:00 PM EDT, PUBLISHED BY THE HILL

The Biden administration has set a goal for 50 percent of cars and light trucks sold in 2030 to be zero-emission vehicles. This is a critical step in the fight against climate change. The transportation sector accounts for nearly 30 percent of U.S. greenhouse gas emissions, and more than half of transport emissions are from light-duty vehicles. With electric vehicle prices falling and more models being introduced, the transition to electric vehicles is within grasp — but only if it is supported by the right mix of policies.

Two main types of policy support are on the table. The bipartisan infrastructure deal moving through Congress includes $7.5 billion for charging stations. The $3.5 trillion budget reconciliation package includes a to-be-determined sales incentive aimed at consumers, like (but different than) the current electric vehicle (EV) tax credit. The sales incentive is likely to have a high price tag: light duty vehicle sales average around 16 million annually, so if one-fourth of those sales are EVs and the tax credit is the current $7500, the annual fiscal cost would be $30 billion — a sum that increases with the EV sales share.

The question for Congress, then, is how to allocate funds across EV rebates and cost-shares for charging stations.

In principle, one can argue for both programs. Subsidizing EV sales will tempt consumers to try an EV and will provide a public benefit through expediting the decarbonization of light duty vehicles.

Subsidizing charging stations addresses a different challenge: the chicken-and-egg problem that few EVs beget few charging stations and vice versa. There are more than 150,000 gasoline stations in the US, but fewer than 5,000 level-three (“Fast DC”) chargers. While there are roughly 40,000 public level-two stations, which work with all EVs, they can take 8 hours or more for a full charge.

To examine the tradeoff between public spending on charging stations and on rebates, we undertook an economic modeling exercise that simulates the battery EV and charging station markets under different policy scenarios. We varied the size of the subsidies and total program budgets for both vehicles and charging stations. From this exercise, we obtain the share of battery EVs, the reduction in greenhouse gases, total governmental outlays, and the program costs measured in the standard units of dollars per ton of CO2 emissions abated.

Our main finding is that charging stations are key to the rapid electrification of this sector — especially if working under fiscal constraints. For example, if the charging station budget is fixed at $7.5 billion, EV rebates of $11,000 (roughly as proposed in the Clean Energy for America Act) would achieve approximately a 45 percent EV share in 2050, at a cost of $400 billion. In contrast, increasing charging station spending to $30 billion while halving the per-car rebate would achieve a 2030 EV share of 50 percent at a fiscal cost of $170 billion.

These results strongly suggest that the $7.5 billion for charging stations in the bipartisan infrastructure deal is not enough. The results also make sense: A 2020 survey showed that driving range and the availability of public charging are key determinants of EV owners’ satisfaction. If you live in an apartment building or cannot otherwise install your own level-two charger, owning an EV currently simply isn’t an option.

Getting this right can help the U.S. catch up to other major economies in electric vehicle adoption. In 2020, the share of EVs including both battery EVs and plug-in hybrids among new vehicle sales was only about 2 percent in the US, compared to over 5 percent in China and over 10 percent in many European countries (a whopping 70 percent in Norway with most of them being battery EVs).

Our analysis underscores the importance of focusing on charging infrastructure. The current EV tax credits have largely subsidized the well-to-do, but jump-starting charging stations helps all consumers. While the costs of EVs are still higher than traditional gasoline-based vehicles today, as battery costs fall and EVs get closer to cost-parity, the main hurdle from large-scale adoption is going to be a lack of recharging infrastructure. Removing this hurdle requires a change in policy focus if we are to achieve deep EV penetration by 2030.

Christopher R. Knittel, Ph.D., is the George P. Shultz professor of applied economics at the Massachusetts Institute of Technology (MIT).

James H. Stock, Ph.D., is the Harold Hitchings Burbank professor of political economy, Faculty of Arts and Sciences and member of the faculty at the Harvard Kennedy School.

Shanjun Li, Ph.D., is a professor of applied economics and policy and holds the Kenneth L. Robinson Chair in the Dyson School of Applied Economics and Management at Cornell University.