Should BEVs be subsidized or taxed? A European perspective based on the economic value of CO2 emissions

https://doi.org/10.1016/j.trd.2017.07.017Get rights and content

Highlights

  • The WTW CO2 emissions from BEVs and non-BEVs are analysed at the EU level.

  • The economic difference over the lifetime of a car ranges from −€1133 to +€3192.

  • It depends mainly on the mix of national energy sources and car segments considered.

  • The economic value of CO2 emissions can rationalize the national incentives for BEVs.

Abstract

Battery Electric vehicles (BEVs) are generally considered as potentially contributing to the reduction of CO2 emissions. Consequently, many countries have promoted (or are in the process of promoting) policies aimed at directly or indirectly subsidizing BEVs to accelerate their market uptake. The aim of this paper is to assess whether BEVs’ subsidies are justified (and by what amount) with reference to the carbon component, distinguishing by car segments and countries. To address these research questions, a simulation model is developed, based on the most recent and reliable data available. The model estimates and monetizes the Well-to-Wheel CO2 emissions of six car segments in 28 European countries. The monetary value of the difference of the CO2 emissions between the non-BEVs and the BEVs ranges from −€1133 (tax) to +€3192 (subsidy), depending on the car segment and on the nation considered. These results are then compared to the policies about alternative fuels adopted by the single EU countries, suggesting in some cases the necessity to rethink such incentives.

Introduction

In 2014, transport was the largest energy-consuming sector, accounting for roughly one third of final energy consumption. This generated about 22% of global energy-related greenhouse gas (GHG) emissions (IEA, 2015). In comparison to the 1990 levels, a relevant increase of such emissions is evident (+23%; EU, 2014). This is in contrast with all international agreements against climate change, such as the 21st Conference of the Parties (COP21) to the United Nations Framework Convention on Climate Change (UNFCCC), which set the objective to limit global warming to less than 2 °C. This objective is difficult to achieve without a major contribution provided by the transport sector.

Carbon dioxide (CO2) is the most important of GHGs, as it counts more than 78% of total anthropogenic GHG emissions (IPCC, 2014, p. 6). There are several ways to reduce CO2 emissions from transport without curbing mobility (Bristow et al., 2004). They include the promotion of freight and passenger modal split towards less polluting systems, the adoption of technical and regulatory constraints (e.g., standards and prohibitions) and appropriate financial means (e.g., taxes, charges and tolls), as well as increasing the attractiveness of existing alternatives. Although it is not sufficient if applied alone, the improvement of the efficiency and the proliferation of vehicles powered by alternative sources can contribute to this aim (Dray et al., 2012). Aware of this potential, the Paris Declaration on Electro-Mobility and Climate Change envisions the global deployment of 100 million electric vehicles (EVs) by 2030 (UNFCCC, 2015).

As of December 2016, more than two million EVs have been sold worldwide, the most active markets being China and Europe. This has been possible due to reduced costs and the application of incentives for the purchase and supply of EVs. As far as the first point is concerned, battery costs for the Chevrolet Bolt are estimated at $145/kWh and are expected to drop below the $100/kWh mark by 2022 (IEA, 2016). Regarding the incentives in the USA, EVs enjoy tax credits capped up to $7500 at the national level with states able to apply further purchasing incentives (AFDC, 2016). China applies an exemption from the purchase and excise taxes, normally based on engine displacement and sale price (Mock and Yang, 2014). The incentives range from $6000 to $10,000 (Lutsey et al., 2015).

Europe, which is committed to reduce its levels of GHG emissions by 40% by 2030 (EC, 2015), presents relevant differences with regard to the diffusion of EVs. Referring to the year 2015, in Norway the EV market share of new cars was close to 22.5% (almost 30% in 2016), the highest percentage globally (EEA, 2016). On the other hand, the dispersion of EVs was extremely limited in other countries, such as Latvia or Lithuania; in Bulgaria and Cyprus, no EVs were sold in 2015. Overall, the registration of EVs in the EU increased from 2000 in 2001 to about 150,000 vehicles in 2015. Despite this increase, the market share of new EVs was only 1.5% of new cars sold, with a total amount of EVs in circulation in Europe equal to 0.15% of all passenger cars.

The potential of EVs to reduce GHG emissions is related to the energy sources at the national level to produce the electricity necessary to power the vehicles. Also in this case, the EU countries present very different circumstances. Due to these policy and energy differences, the European situation is rather heterogeneous, making it difficult to reach the GHG targets previously agreed to. By considering the entire process of fuel and energy production and consumption, this paper aims to understand the contribution of EVs to the reduction of GHG emissions according to the specificities of the different EU countries, including their energy policies and the driving behaviours of their populations. Based on the economic valuation of GHG emissions that we have provided from previous papers (Nocera et al., 2015a, Nocera et al., 2015b), we compare the GHG contribution of EVs to other vehicles that would be optimal in each EU country. Furthermore, we calculate the incentives or the taxes (if emissions of EVs are found to be higher than those of traditional vehicles) that each EU country should apply to the purchase of EVs, in order to promote the reduction of GHG emissions.

The paper is structured as follows: Section 2 provides a literature review of the most important studies that deal with the issue of emissions caused by EVs and vehicles powered by traditional fuels. Section 3 presents a description of the methodology that we adopt to determine the social costs of CO2 emissions caused by vehicles, separated by classes and fuel/technology, and analysis for each EU country. Sections 4 Main findings, 5 Discussion and policy implications show the principal results of our analysis, expressed in terms of average emissions per class of vehicle by EU countries and the related CO2 social costs and compare them to other studies. The conclusions illustrate the policy implications regarding subsidies or taxes for EVs in comparison to other types of vehicles.

Section snippets

Literature review

There are a large number of papers comparing the energy and environmental performance of vehicles powered by different fuels. Hawkins et al., 2012, Hawkins et al., 2013a review 55 studies from peer-reviewed and grey literature, providing environmental, energy or material assessments. They find that very few studies report full Life Cycle Assessment, including both the fuels and the vehicle itself. Rusich and Danielis (2015, Table 1, p. 4) summarise the results presented in 35 recent papers

Methodology

This section describes the methodology used to estimate the cars’ CO2 emissions and their economic value. It includes a simulation model whose graphical illustration is provided in Fig. 1.

Main findings

Since results are reported in 30 × 28 matrices, country-specific values are shown in Appendixes. In this section, the main considerations are presented at the aggregate European level. Table 5 displays the average CO2 emissions per mile (in grams) for each car segmentengine technology. In the small car segment, G_ICEVs have the highest average CO2 emissions, followed by the D_ICEVs. HEVs have much lower values. On average, PHEVs are slightly lower than BEVs, although, depending on the country,

Discussion and policy implications

The results presented in the previous section and in the appendixes A-D show that the European panorama is rather varied. A specific technology cannot provide optimal results in terms of reduction of CO2 emissions. Indeed, a distinction should be made according to the vehicle class and the country considered.

However, despite such differences, some general considerations can be made. First, ICEVs are found to be more carbon polluting than other vehicles powered by alternative fuels. Second, the

Conclusions

The paper has assessed whether BEVs’ subsidies in Europe are justified in terms of carbon reduction and by what amount, differentiating by car segments and countries. In order to answer these research questions, a simulation model was developed, based on the most recent and reliable data available. The model estimates the WTW CO2 emissions of five car segments in 28 European countries and monetizes CO2 emissions making use of the available CO2 monetary evaluation studies. It was determined that

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