Principles for effective electric vehicle incentive design

Faced with declining air quality and their own climate goals, many governments around the world have sought to accelerate the market for electric vehicles. There are various tools used by the governments to promote electric vehicles, but because the upfront costs of electric vehicles are higher than their conventional counterparts, the issue that tends to get the most attention is the fiscal incentive.

 

The types of incentives used, however, vary greatly. This analysis assesses the best practices in the design of electric vehicle incentives, comparing them across major markets in North America, Europe, and Asia. It studies the different aspects of electric vehicle incentives, including their magnitude, type, eligibility by technology type, timing, and durability. The authors quantify both what incentives are in place and the link between the incentives and electric vehicle uptake. 

 

Based on the findings, the authors outline four principles that are emerging to define the optimal design of electric vehicle incentives. These include making the value of the incentives crystal clear to consumers and dealers, and ensuring that the incentives are available to the full target market. 

 

More than 500,000 electric vehicles were sold globally in 2015–up from just hundreds in 2010–and most of these electric vehicles were sold in markets where well-designed fiscal incentives are in place. As electric vehicles are likely to be a key part of the transport sector’s ability to meet long-term decarbonization goals, a key question is how quickly electric vehicles could move beyond this early higher cost stage to larger volume, greater economies of scale, and lower cost. Until then, optimally designed incentives are bringing the effective cost of electric vehicles closer to those of conventional vehicles, helping to more rapidly establish a new electric-drive fleet.