Principal investigator: Bruno Benevit
Original title: Policy incentives and electric vehicle adoption in China: From a perspective of policy mixes
Authors: Xiaolei Zhao, Xuemei Li, Dehan Jiao, Yumeng Mao, Jingxiao Sun and Guanyi Liu
Location of the Intervention: China
Sample Size: 275 cities
Sector: Industrial Economy
Primary Variable of Interest: Adoption of electric vehicles
Type of Intervention: Incentive policies for electric vehicles
Methodology: TWFE
Summary
The search for sustainable energy alternatives has driven the electric vehicle market in the last decade. China has become a leader in technological advancement and in the sale and adoption of electric vehicles, adopting a series of industrial policies for the sector. However, it is important to understand the combined effectiveness of these incentive measures as this market expands. In this sense, this study analyzed the impacts of incentive measures in China on the adoption of electric vehicles, understanding both their average effects and the complementary and mixed effects of such policies. The results suggest that subsidies for the purchase of electric vehicles have limited effects, indicating the need for a gradual withdrawal of these policies and the search for more economical alternatives. Furthermore, the combination of policies has different impacts depending on sales levels, income, and population density, being more effective in cities with higher sales, upper-middle income, and medium population density.
- Policy Problem
Due to concerns about the negative externalities caused by the use of fossil fuels in automobiles, the electric vehicle (EV) market has experienced strong growth in recent years (ZHAO et al., 2024). However, electric vehicles require a new set of infrastructure for their full adoption. Additionally, the shorter range of this type of vehicle compared to conventional vehicles implies another barrier to its adoption by the population (NESHAT; KAYA; GHABOULIAN ZARE, 2023).
In this context, the Chinese government has adopted several incentive policies for the use of EVs in the country, starting with the "Ten Cities, One Thousand Vehicles" pilot project, initiated in 2009. In 2011, six cities were chosen as the first pilot cities, offering subsidies for the purchase of EVs. By 2014, the number of pilot cities had increased to 88, each developing its own specific incentive policies for the EV sector (AVCI; GIROTRA; NETESSINE, 2015).
While current research tends to focus on the average effects of isolated incentive policies, understanding the establishment of the EV market requires a more detailed analysis of policy combinations (ZHAO et al., 2024). Thus, considering the potential synergies between different types of policies can help in understanding their complementarities and improving their effectiveness.
- Policy Implementation Context
Incentive policies for EVs in China include purchase subsidies and exemptions from acquisition restrictions. Since 2009, the government has implemented subsidies to mitigate the high costs of EVs, initially focused on the public sector and later extended to the private sector. Subsidies have been adjusted over time, with gradual reductions in their values. Simultaneously, technical criteria for electric vehicles, such as minimum range and battery energy density, have been increased. Furthermore, a price cap for eligible vehicles was introduced in 2020, and the national subsidy policy was terminated in 2022.
Meanwhile, several cities have adopted restrictions on vehicle purchases to control traffic and reduce pollution, but EVs have been exempt from these rules in many locations, encouraging their adoption. Other incentives include parking policies and priority in traffic. In some cities, EVs have access to free or reduced-rate parking, as well as exclusive spaces in strategic locations. Qingdao, Xi'an, and Chengdu offer free daily parking hours, while Shenzhen and other cities grant discounts on public parking and street parking.
In terms of traffic, some localities have implemented privileges for EVs, allowing access to exclusive bus lanes and exemption from license plate-based traffic restrictions. In Beijing, since 2016, EVs have been exempt from peak-hour traffic restrictions, and cities like Xi'an and Zhengzhou grant similar exemptions. Over the years, the incentive strategy for EVs in China has notably evolved into a combined policy system of financial stimuli, infrastructure, and regulatory incentives.
- Evaluation Details
The study used annual data from 2016 to 2022 for 275 cities in China, allowing it to track the evolution of incentive policies and the adoption of electric vehicles over a seven-year period. The final sample comprises 1925 observations, providing a panel framework for identifying policy trends over time and across different locations.
The data source for the main variable in the study came from China Automotive Data Co., Ltd, providing data on the number of electric vehicles sold in each city. Additionally, six policy instruments were selected, and their implementations were cataloged using official documents.
Furthermore, control variables based on previous studies were included, such as per capita disposable income, population density, educational level, and air quality. The Air Quality Index (AQI) was used to characterize air pollution, considering the concentration of six main pollutants. Information on average temperature and patent records related to electric vehicles were also incorporated, factors that may influence the performance of these vehicles and their adoption in the cities analyzed. The data were obtained from official sources. China City Statistical Yearbook 2017–2023, China Population Statistical Yearbook, and government environmental monitoring platforms.
- Method
The study adopted a two-dimensional fixed effects model (Two-Way Fixed Effect – (TWFE) to estimate the impact of policies incentivizing the adoption of electric vehicles. This model included fixed time and city effects to control for unobservable factors that could influence the results. The policies analyzed included purchase subsidies, vehicle acquisition restrictions, parking incentives, priority rights on roads, charging incentives, and charging infrastructure subsidies.
Beyond the baseline model, the complementarity of policies was investigated. First, a policy complementarity model was estimated, which assesses the combined effect of multiple measures. In this way, the combined impact of parking incentives, priority rights, charging incentives, and charging infrastructure subsidies was measured by an aggregate variable. Second, the study also analyzed the policy mix and assessed the potential impact of the simultaneous implementation of different combinations of measures, ranging from policy pairs to the joint application of all five considered.
The panel quantile model allows for the assessment of how policy effects vary across the distribution of electric vehicle adoption, capturing heterogeneities between different cities. Finally, the flexible semiparametric model incorporates variations in the socioeconomic characteristics of localities, allowing the impact of policies to depend on factors such as income and population density. These complementary approaches offer a detailed view of the influence of policies and their combinations on the dissemination of electric vehicles.
Further analyses included investigating the impact on the adoption of electric vehicles (EVs) of: (i) autonomous vehicles, (ii) technology vehicle-to-grid (V2G) and (iii) the impacts of technological advances in batteries. It is worth highlighting that V2G technology allows the use and supply of energy to the electricity distribution network (power gridTo evaluate the first aspect, the Polit variable was introduced, indicating whether a city was selected for a pilot program for autonomous vehicles. The second aspect considered the interaction between EVs and the electricity grid, observing the potential incentives for optimizing energy consumption and generating revenue for owners. Finally, the study presented qualitative analyses regarding manufacturers, consumers, and policymakers, as well as a comparative analysis of different international experiences.
Furthermore, the impact of advancements in battery technologies was analyzed, using the number of patents granted as a variable of interest. The results show that improvements in energy density and battery charging time drive the adoption of EVs by reducing costs and extending vehicle lifespan. A tripartite qualitative analysis was also conducted considering manufacturers, consumers, and policymakers. Manufacturers emphasize the importance of incentives at the start of the market but warn of distortions caused by prolonged subsidies. Consumers value financial incentives but highlight charging infrastructure and vehicle range as decisive factors. Policymakers seek to balance EV adoption with environmental and economic objectives, advocating for a transition to a market less dependent on subsidies. Finally, international comparisons highlight different approaches adopted by countries such as China, Norway, the United States, and Japan, providing subsidies for policy improvements.
- Main results
The results from the TWFE models highlighted the effectiveness of the policies. Purchase exemption policies, traffic priority, charging discounts, and subsidies for charging infrastructure showed positive impacts, with the latter two showing the greatest effects. In contrast, the purchase subsidy policy did not show statistically significant effects on the adoption of electric vehicles. These results may be related to the gradual reduction of subsidies over time.
Furthermore, it was found that the complementarity between incentive policies is significant, suggesting that combining different measures can enhance results. However, the existence of complementarities between policies does not necessarily imply a positive effect on adoption, since the interaction between some measures can generate undesirable effects.
Analysis of the policy mix revealed that the combination of traffic priority and charging discounts has a positive effect on the adoption of electric vehicles. However, other policy sets showed negative impacts, such as the combination of parking discounts, charging discounts, and infrastructure subsidies, indicating that certain interactions can reduce the effectiveness of individual measures. Factors such as delayed market response and implementation challenges also contribute to reducing the combined effects of the policies.
The results of further analyses indicated that participation in autonomous vehicle pilot projects significantly accelerated the adoption of electric vehicles. According to the authors, this effect occurred because the integration between these technologies reduces the total cost of ownership of electric vehicles. Furthermore, the interaction between electric vehicles and the electrical grid, through V2G technology, showed potential for increasing the stability of the electrical system, providing financial benefits to vehicle owners. The analysis of advanced battery technologies demonstrated that evolution in this sector played a fundamental role in accelerating the adoption of electric vehicles. Improvements in energy density, reduced charging time, and battery longevity directly contribute to the adoption of these vehicles.
Regarding the qualitative analysis involving manufacturers, consumers, and policymakers, it was observed that financial incentives are valued, but their effectiveness depends on factors such as infrastructure and driving experience. International comparisons show heterogeneity in the strategies adopted by countries to encourage electrification. While China focused on scale, Norway opted for comprehensive incentives, the United States adopted decentralization, and Japan prioritized market stability. These experiences suggest that hybrid policies may be more effective in expanding the global adoption of electric vehicles.
- Lessons in Public Policy
This article presents several empirical approaches to identify how the adoption of incentive policies has influenced the expansion of the EV market in China. The results indicated that policies focused on subsidies, charging infrastructure development, and regulatory incentives contributed significantly to the adoption of these vehicles. Furthermore, the integration of new technologies, such as autonomous vehicles and systems for interaction between vehicles and the electricity grid, also proved relevant in accelerating this process. Comparative analysis with other countries showed that different policy combinations result in variations in electric vehicle penetration, highlighting the importance of the design of the strategies adopted.
The evidence presented in this article helps to understand the factors driving the adoption of EVs and provides relevant information for the formulation of public policies aimed at transitioning to a more sustainable transportation system. Given the positive impact of the policies analyzed, coordination between different forms of incentives can contribute to consolidating electric mobility as a viable and accessible alternative.
References
AVCI, B.; GIROTRA, K.; NETESSINE, S. Electric Vehicles with a Battery Switching Station: Adoption and Environmental Impact. management science, v. 61, no. 4, p. 772–794, apr. 2015.
NESHAT, N.; KAYA, M.; GHABOULIAN ZARE, S. Exploratory policy analysis for electric vehicle adoption in European countries: A multi-agent-based modeling approach. Journal of Cleaning Production, v. 414, p. 137401, Aug. 2023.
ZHAO, X. et al. Policy incentives and electric vehicle adoption in China: From a perspective of policy mixes. Transportation Research Part A: Policy and Practice, v. 190, p. 104235, Dec. 2024.
