Purchase subsidies for 100% zero-emissions vehicle sales goals: Effectiveness, government cost, and supplier capture

Abstract

Globally, purchase subsidies are among the most common policies used to support the deployment of zero-emissions vehicles (ZEVs). However, it is unclear if subsidies alone can effectively and efficiently achieve ambitious long-term ZEV sales goals, such as the 100% by 2035 target adopted by numerous developed countries. To shed insight on subsidy impacts under consumer-supplier dynamics, we use a technology adoption model (AUM) that endogenously represents consumer preferences for (and purchases of) light-duty passenger ZEVs, and automaker decision-making about ZEV pricing, innovation activities, and charger deployment. We use AUM to simulate the impacts of different levels and durations of ZEV purchase subsidies in the 2023–2035 time frame in the case region of Canada. Results indicate that a subsidy-dominated policy mix needs to increase subsidy values to at least $40,000 per ZEV by 2035 to achieve the 100% goal in Canada. In that scenario, average government expenditure on subsidies is 450–820 $/tonne CO₂e abated, and up to $180 billion in total direct government expenditure. Across subsidy-dominated scenarios, automakers capture 15–23% of subsidy value and increase their overall profit; both trends increase with higher subsidy duration and value. In short, a subsidy-dominated approach to inducing ZEV sales is likely to prove costly; other policies should be considered to lead a policy mix, such as regulation, taxation, or a feebate program.