Beneficial effects of electric bike subsidies

Electric bikes are an effective alternative to cars in urban areas, but it is unclear how effective they are in reducing carbon emissions. This column found that a 2018 Swedish e-bike subsidy program has succeeded in persuading people to buy an e-bike and there was ample option to ride a bike. However, for the program to be affordable, the social costs of carbon often exceed the আলো 50 to $ 100 estimate discussed. Other social benefits, such as encouraging adoption, promoting health, or reducing traffic congestion, are needed to encourage these interventions.

About 29% of total US greenhouse gas (GHG) emissions are accounted for by emissions from transportation, making it the largest contributor to global warming by sector.

According to the U.S. Environmental Protection Agency, within the transportation sector, cars alone account for 58% of all transportation emissions. In addition to electric vehicles, electric bikes or pedlex (e-bikes) are a potentially important tool in tackling global warming (Holland et al. 2015). With the help of rechargeable batteries that enable them to travel long distances, they can replace car trips for work in dense and increasingly urban areas around the world.

Since e-bikes are relatively expensive, policymakers have introduced subsidies to stimulate adoption and speed up adoption. However, the welfare analysis of these e-bike subsidy programs is challenging for several reasons:

  • Events: A welfare analysis requires measures on how subsidies are allocated between consumers and producers. When supply is relatively resilient, producers compensate for the high demand.
  • Redundancy: Outside of surplus sharing, policymakers are concerned that programs attract additional users and do not only benefit those who have converted, even without a subsidy (Joskow and Marron 1992, Boomhower and Davis 2014).
  • Replacement From driving: The second point also raises the question of whether a family who buys an e-bike will necessarily reduce their driving or replace the bike with other means of transportation.

Sweden e-bike subsidy

To address these issues, at Anderson and Hong (2022) we collect administrative, insurance and survey data from a large-scale Swedish e-bike subsidy program from 2018. The program, which offers a 25% discount on the purchase price, is similar. Run the program in the framework and recommended in other countries. It was very popular. The one billion kroner ($ 115 million) program was intended to run for three years, but in its first year it sold nearly 100,000 e-bikes, exceeding the annual spending limit. The subsidy was 25% of the retail price, with a limit of 10,000 kroner (or about $ 1,100).

Events

To assess the impact of subsidies on prices, we combine subsidy data with sales data from a leading insurance provider for Swedish bicycles, obtaining sales data both during and outside the subsidy period.

Figure 1 Plot price and volume of 38 top-selling e-bike models sold across 49 largest retailers in the country, obtained by matching two data sets. The bold line shows the average price, which rarely changes before and after the introduction of the subsidy. The average price is driven by the devaluation of the currency (and a host of other specific effects that we consider). We see that the entire subsidy given through subsidies has gone into the hands of consumers.

Figure 1 Average price and quantity of best-selling e-bike models around 2018 subsidy

Redundancy

The gray bars of Figure 1 show the effect on the quantity, where the darker shades indicate the subsidy period. Consistent with the overall reported increase in volume, we find that about 70% more e-bikes were sold during the subsidy period. We also use the SEPA survey, which asked people to evaluate the importance of subsidies and found that about two-thirds of consumers would not buy an e-bike without a subsidy.

Replacement from driving

For the final part of the analysis, we need driving behavior data before and after buying an e-bike. Travel behavior data is available in the SEPA survey. We find meaningful changes in driving behavior. About two-thirds of our sample reports use some amount of car to travel before buying an e-bike, and more than half use it on a daily basis. After purchasing e-bikes, only 4% continue to use cars every day and 54% use cars less frequently (in this next group, 23% stop using cars completely for commuting). The change in driving behavior is more pronounced than other modes of transport such as regular biking or public transport. Interestingly, we found that subsidy pick-ups were relatively large in less populated areas and not in larger cities.

Carbon reduction

For the final part of the analysis, we put our results together. The average cost per unit for the subsidy is about $ 500, but since it is also given to additional users, it increases to $ 766 per additional unit sold. Changed driving behavior data allows us to calculate the average reduction in car usage for additional users. Multiplying the average lifespan of an e-bike and considering the carbon footprint of the e-bike, we see an average total carbon reduction of 1.3 tons per additional e-bike. To break down to $ 766, the social cost of carbon would have to be between $ 600 per ton, far from the $ 50 to $ 100 estimate often discussed by economists (Nordhaus 2017). The bottom line is that e-bike subsidies cannot be justified on the basis of the social costs of carbon alone.

Discussion

Our estimates do not include the potential side effects responsible for reduced traffic congestion, driving safety, improved health effects, or peer impact and increased rates of adoption. Subsidies in big cities speak out against an inconsistent pick-up subsidy as an effective tool to reduce congestion. Driving safety and health are not only difficult to measure, but can go both ways. Drivers make up 42% of our additional user sample. For them, driving safety may be reduced, although their overall health is positive. There are signs that the adoption rate is increasing. Although Figure 1 shows the slowdown in direct purchases after subsidies, sales grow faster in subsequent times. Counterfactual is difficult to estimate, but an increased conversion rate as a result of subsidies may be an important motivation for subsidies that have not entered our calculations.

We document a relatively large gap between costs and benefits based on carbon emissions emissions and leave it to future research to incorporate these other social benefits into the analysis.

References

Anderson, A & H Hong (2022), “The Beneficial Impact of Electric Bike Subsidies: Evidence from Sweden”, NBER Working Paper w29913.

Bumhauer, J. and L. W. Davis (2014), “A Reliable Method for Measuring Inframerginal Participation in Energy Efficiency Programs”, Journal of Public Economics 113: 67-79.

Holland, S. E. Mansour, N. Mueller and A. Yates (2015), “Analyzing the Environmental Benefits of Driving Electric Vehicles”, VoxEU.org, 09 August.

Joskow, PL, and DB Marron (1992), “What Does a Negative Really Cost? Evidence from the utility preservation program “, The Energy Journal 13 (4).

Nordhaus, WD (2017), “Reconsidering Social Costs of Carbon”, Proceedings of the National Academy of Sciences 114 (7): 1518-1523.

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