What impact do EV incentives have?

Are EV incentives good for society? Policy makers the world over want to know the answer to that question. Many nations and local areas use tax credits or rebates to entice people to consider electric cars. Others offer access to HOV lanes during rush hour, preferential parking in cities, or free electricity to lure drivers into electric cars.

It’s hard to know if tax credits and other financial incentives are a good deal for taxpayers. There is very little data to guide policy makers in this area. However, British Columbia let its financial incentives expire in 2014 when funding ran out, then reinstated them in 2015 when more funding became available. (Funding is about to run out again.)

An analysis by Matthew Klippenstein compared EV sales before and after the incentives expired and compared that data with figures from other Canadian provinces that had incentives in effect the entire time. His study revealed that the incentives had relatively little effect on sales of EVs in the premium category, which he defines as the Tesla Model S and BMW i3.

Sales of those cars hardly changed after the incentives expired. On the other hand, sales of lower priced cars like the Chevy Volt and Nissan LEAF were cut roughly in half when the incentives were no longer available. They rebounded when the incentives were reinstated.

That is interesting information. The state of California has decided to eliminate EV incentives for upper income buyers (Defined as married couples with annual income of $500,000 or more.) It wants to focus its efforts on getting more lower income people to switch to electric cars.

The theory is that lower income people are currently driving older cars with relatively high emissions. Getting those cars off the road and replacing them with low or zero emissions vehicles will have a higher environmental benefit than convincing some Silicon Valley executive to trade a Porsche for a Tesla.

Klippenstein’s study seems to lend support to the theory that financial incentives are more effective at getting lower income people to give up fossil fuels and switch to driving electric cars. Studies like his provide useful information for regulators and policy makers everywhere.