The Role of Government in the Market for Electric Vehicles: Evidence from China

Abstract

Governments in many countries have offered various incentives to promote the diffusion of electric vehicles (EVs). This study examines the effectiveness of various policy measures that underlie the rapid development of the EV market in China, by far the world's largest such market. The analysis is based on detailed data on EV sales, local and central government incentive programs, and charging stations in 150 cities from 2015 to 2018. The empirical framework addresses the potential endogeneity of key variables, such as local policies and charging infrastructure, by using a city‐border‐regression design and instrumental variable approach. We find that consumer subsidies for vehicle purchases accounted for more than half of EV sales in China. Nevertheless, investments in charging infrastructure were much more cost‐effective than consumer subsidies. An inexpensive policy that merely provided EVs with a distinctive, green license plate was strikingly effective. These findings demonstrate the varying efficacy of different policy instruments and highlight the critical role of the government in promoting clean technologies.