The energy efficiency paradox in electric vehicle adoption: Estimating the internal discount rate and the influences of behavioural factors

Abstract

The adoption of electric vehicles (EV) has increased significantly in countries such as China and Norway. Yet, it is still a concern in countries such as India, where the demand for EVs is lower than that for gasoline vehicles (GV), despite the EVs’ greater long-run operational cost-effectiveness. A plausible factor is the trade-off that consumers face in an EV vs. GV purchase between EVs’ near-term higher upfront costs and their long-term lower operational costs. We investigate this by estimating the internal discount rate, which captures consumers’ preference for immediate benefits over future gains. In doing so, we invoke the “energy efficiency paradox,” which refers to consumers’ reluctance to adopt an energy-efficient technology despite its long-run cost-effectiveness. We also study the roles played by consumer inattention, risk aversion, and subjective norm in low EV uptake. We design and conduct an experimental survey of over 600 Indian consumers, and using a combination of empirical estimation techniques, we arrive at multiple results. We find that the internal discount rate is nearly 60%, suggesting that consumers underestimate future benefits from EV usage too heavily. Our results also show that an increase in the perceived annual savings by US $1,370 is highly likely to increase consumer EV adoption likelihood by 6.8% and inattentive consumers are 10.4% less likely to adopt an EV as compared to attentive consumers. Our findings contribute to a nuanced understanding of why consumers hesitate to adopt the EV and generate insights that can have prolonged implications for practitioners and academia.