Promoting the purchase of electric cars by adapting incentives

The electrification of the car fleet is one of the solutions proposed to combat greenhouse gas emissions. Swiss economists have assessed the financial incentive schemes available when purchasing new electric vehicles.

“The current approach to encourage the transition to electric cars is not efficient. Our calculations, based on the canton of Bern, show that you can do more with the same amount of money, or the same for less,” says Patrick Bigler, who conducted the study as part of his doctoral research at the University of Bern.

This work, which will be published in the Journal of the Association of Environmental and Resource Economists, evaluates four factors: public spending, the share of electric vehicles among new cars, household costs and social equity.

Restructuring incentives for greater efficiency

Bigler emphasizes the non-partisan character of the study: “Our aim isn’t to determine the best mobility for the future, but to understand how best to allocate public funds by considering anticipated car purchases.”

In the canton of Bern, the annual vehicle tax is currently calculated based on weight, with electric cars benefiting from a rate that is twice as low. New low-emission vehicles qualify for an additional reduction on the car tax in the first four years after purchase—which amounts to 60% for electric vehicles.

Bigler’s calculations indicate that replacing this reduction with direct purchase subsidies would increase the proportion of electric vehicles among new car sales. This reallocation of incentives could reduce annual CO₂ emissions in the canton of Bern by 70 tons.

However, the primary purpose of the annual vehicle tax is to finance road infrastructure, a priority compromised by this solution. The study explores alternative ways of sustaining road funds by combining subsidies with a bonus or a penalty on the vehicle tax according to the energy efficiency of new vehicles.

So, in addition to a purchase bonus, motorists choosing an electric car would benefit from lower car tax for four years. On the other hand, those opting for a petrol model benefit from lower taxes if they opt for a relatively efficient model but are charged increased annual taxes when purchasing a relatively inefficient vehicle.

Depending on the scenario, annual CO₂ emissions in the canton of Bern could decrease by 110 to 517 tons. Financial projections of public funds over 15 years indicate potential outcomes ranging from a loss of 1.5 million to a gain of 60,000 Swiss francs.

High-income households’ interest in electric vehicles goes beyond price

For this study, the team from the University of Bern analyzed household income data in relation to new car purchases to explore social impacts. “This unique data set enabled the research group to consider equity aspects, which had never been done before in this context,” says Doina Radulescu, the economics professor leading the research.

Radulescu and her team examined the combined effect of various policy instruments, including subsidies and alternate vehicle tax schedules, on households across different income groups. Their findings revealed that even in models placing greater emphasis on the utility of low-income households, high-income households receive a large share of subsidies.

This disparity is tied to the fact that affluent households are more likely to buy electric vehicles, independent of financial reasons. “Even when accounting for factors such as vehicle characteristics, homeownership and the availability of public charging stations, lower-income households adopt electric vehicles at a lower rate than affluent ones,” Radulescu notes.

“Our data does not fully explain this resistance to electric vehicles by lower-income groups. There are likely psychological or sociological barriers at play,” suggests Bigler.

Even without knowing the full reasons behind these preferences, the study predicts the influence of different financial incentive policies on public funds, consumers’ wallets and CO₂ emissions. “These scenarios offer policymakers a scientific basis for decision-making,” concludes Radulescu.

While the optimal approach remains a matter of debate, the research highlights multiple pathways to increase the proportion of new electric vehicles.