Accelerating the electric vehicle revolution: Policy implications of charging subsidies and green taxes

Abstract

Electric vehicles (EVs) are central to global efforts to reduce transportation emissions, yet limited charging infrastructure remains a primary barrier to widespread adoption. Governments worldwide have implemented various subsidies for EV purchasers and manufacturers, alongside green tax schemes, to incentivise infrastructure expansion and boost EV uptake. This research explores the efficacy of policy combinations — specifically purchase-based or per-station subsidies and green taxes — in a duopolistic market setting. By employing a game-theoretic model comprising profit-maximising EV and gasoline vehicle (GV) manufacturers, a population of utility-maximising consumers, and a social welfare-maximising government, we observe that a purchase-based subsidy in combination with a green tax provides a win–win–win outcome for the government and the manufacturers. Incorporating consumers’ EV-related anxieties, our analysis suggests that a green tax, either on its own or combined with subsidies, is the most effective policy for governments aiming to maximise social welfare. In markets characterised by diverse and sometimes misinformed consumers, a policy mix of green taxes and charging subsidies proves especially beneficial when the environmental impact of EV adoption is substantial. Additionally, when accounting for network effects, which could result in congested charging stations, pairing consumer subsidies with a green tax emerges as the preferential policy. Manufacturers and policymakers are provided with multifaceted insights that aid in conceptualising electric mobility.