Elsevier

Energy Policy

Volume 73, October 2014, Pages 722-732
Energy Policy

China’s electric vehicle subsidy scheme: Rationale and impacts

https://doi.org/10.1016/j.enpol.2014.05.022Get rights and content

Highlights

  • China’s phase I and phase II electric vehicle subsidy schemes were reviewed.

  • Major electric vehicle models in China’s vehicle market were reviewed.

  • The ownership costs of five defining electric passenger vehicle models were compared.

  • Policies to promote electric vehicle deployment in China were discussed.

Abstract

To promote the market penetration of electric vehicles (EV), China launched the Electric Vehicle Subsidy Scheme (EVSS) in Jan 2009, followed by an update in Sep 2013, which we named phase I and phase II EVSS, respectively. In this paper, we presented the rationale of China’s two-phase EVSS and estimated their impacts on EV market penetration, with a focus on the ownership cost analysis of battery electric passenger vehicles (BEPV). Based on the ownership cost comparison of five defining BEPV models and their counterpart conventional passenger vehicle (CPV) models, we concluded that in the short term, especially before 2015, China’s EVSS is very necessary for BEPVs to be cost competitive compared with CPVs. The transition from phase I to phase II EVSS will generally reduce subsidy intensity, thus resulting in temporary rise of BEPV ownership cost. However, with the decrease of BEPV manufacturing cost, the ownership cost of BEPV is projected to decrease despite of the phase-out mechanism under phase II EVSS. In the mid term of around 2015–2020, BEPV could become less or not reliant on subsidy to maintain cost competitiveness. However, given the performance disadvantages of BEPV, especially the limited electric range, China’s current EVSS is not sufficient for the BEPV market to take off. Technology improvement associated with battery cost reduction has to play an essential role in starting up China’s BEPV market.

Introduction

China is facing severe environmental and climate challenges (Guan et al., 2008). Road transport emits around 8% of China’s total energy related greenhouse gas (GHG) emissions (IEA, 2013) and the share is increasing very fast with the boom of vehicle stock (Hao et al., 2011d). As EVs offer the potentials to address oil security, air pollution and climate change, China took EV deployment as an essential strategy to tackle local pollution and GHG emissions issues. In the “Energy Saving and New Energy Vehicle Industry planning” issued in 2012, the accumulated sales of battery electric vehicle (BEV) and plug-in hybrid electric vehicles (PHEV) were projected to reach 0.5 million in 2015 and 5 million in 2020. To accomplish this target, China has launched comprehensive programs and policies to promote EV market penetration. Among all the policy instruments, vehicle purchase subsidy plays an essential part in starting up China’s EV market.

Vehicle purchase incentives for EVs, notably subsidies and tax credits, have been adopted in many countries. In the U.S., activated by the Energy Policy Act of 2005, a maximum of $3400 tax credit was provided to hybrid electric vehicle (HEV) purchase between 2006 and 2010. The incentive for PHEV and BEV purchase started in 2010, which offers $2500–$7500 tax credit to PHEV and BEV purchase depending on vehicle’s battery capacity (Internal Revenue Service, 2011). In Japan, the “Green Vehicle Purchasing Promotion Measures”, which was passed by the Japanese Diet in 2009, provides purchase of environmentally friendly vehicles with up to 100,000 Yen subsidy and a combination of tax reduction and exemption incentives (JAMA, 2010). Under the “Clean Energy” subsidy program, EV purchase is eligible for a maximum of 850,000 Yen subsidy in 2013. As the world’s most determined EV propellant, China launched the Electric Vehicle Subsidy Scheme (EVSS) in Jan 2009, followed by an update in Sep 2013, which we named phase I and phase II EVSS, respectively. The two-phase subsidy scheme specifies the subsidy duration, scope, standard, phase-out mechanism and pilot cities for both public and private EV purchase. It is one of the world’s most comprehensive and incentive-strong subsidy schemes.

Vehicle purchase incentive can pose a wide range of impacts on vehicle market. Existing studies have evaluated the impacts of vehicle purchase incentive on many aspects, with a focus on consumer purchase behavior and vehicle market penetration. These studies typically employ an agent-based consumer choice model to simulate the effect of cost and other non-cost factors on vehicle choice. Mueller and de Haan (2009) established a two-stage model of individual decision process to estimate the effect of energy-efficiency feebates on consumer choice of new cars, concluding that consumers can have different reactions to feebates, either switching to a smaller car or a more efficient car with the same class. Eppstein et al. (2011) developed a spatially explicit agent-based vehicle consumer choice model to study the various influences, including policy incentives, on PHEV market penetration. Their study indicates that a ready-estimate of ownership cost to consumers can significantly enhance the market penetration of PHEVs. Al-Alawi and Bradley (2013) examined existing EV market modeling studies, calling for an improved interface with federal and state policy and its effect on automotive markets. Several studies discussed vehicle subsidy in a strategy framework. Yang (2010) argued that subsidy alone is not sufficient for the commercialization of electric vehicles, while limiting conventional vehicles could be more effective. Skerlos and Winebrake (2010) argued that a consumer income and location of purchase specific subsidy policy would yield higher social benefits. Ross Morrow et al. (2010) compared the policies of fuel tax, fuel economy standard and vehicle purchase tax credit, concluding that vehicle purchase tax credit is expensive and inefficient at reducing emissions.

As vehicle ownership cost is the essential factor affecting vehicle choice, many studies have focused on the evaluation of vehicle ownership cost. These studies typically include a set of computer simulation based or real-world demonstration based fuel economy and cost estimates for alternative vehicles. Plotkin and Singh (2009) compared the ownership costs of several alternative vehicle powertrains for light duty vehicles, concluding that advanced CV and HEV powertrains are likely to offer better cost effectiveness for fuel saving. Burke and Zhao (2012), based on similar approach, projected the ownership costs of alternative vehicle powertrains through 2030, with an evaluation of the impact of battery cost uncertainty. Peterson and Michalek (2013) estimated the cost effectiveness of PHEV battery capacity, finding that low-capacity PHEV and HEV are the more favorable solutions. Several studies further investigated the effect of alternative vehicle penetration on the energy consumption and emissions of the whole vehicle fleet at a macro level (Al-Ghandoor, 2013, Al-Ghandoor et al., 2012, Geng et al., 2013, Hang et al., 2013, Hao et al., 2014a, Hao et al., 2011b, Hao et al., 2010, Huo et al., 2012, Ou et al., 2012, Zhu, 2010). In general, existing studies have established a mature framework for vehicle ownership cost analysis. However, there is a lack of studies on vehicle purchase subsidy and ownership cost in China’s context. Although China is providing intensity subsidy to EV purchase, their effect on consumer’s purchase behavior is unclear. In this study, based on a comprehensive review of China’s EVSS and market available EV models, we estimated the impact of EVSS on consumer’s vehicle ownership cost, with the purpose of providing a thorough vision into the economic aspects of China’s EVSS.

The following sections of this paper are organized as below. Section 2 investigates the rationale of China’s phase I and phase II EVSS in terms of private purchase subsidy and public purchase subsidy, respectively. Section 3 examines the available EV models in China’s vehicle market and their qualified subsidy under EVSS, with a brief discussion of the impacts of EVSS update on vehicle manufactures. Section 4 estimates the impacts of EVSS on vehicle ownership costs based on the comparison between China’s five defining BEPV modals and their counterpart CPV models. Section 5 presents the policy implication derived from the ownership cost analysis. Section 6 draws conclusions from the whole study.

Section snippets

Rationale of China’s EV subsidy schemes

Table 1 presents a comprehensive description of China’s phase I and phase II EVSS. In this section, we described China’s EVSS in the order of subsidy duration, scope, standard, phase-out mechanism and pilot cities.

Battery electric passenger vehicles

Table 3 summarizes the major BEPV models currently available in China’s vehicle market. For each vehicle model, its manufacturer suggested retail price (MSRP), curb weight, battery capacity, electric range, qualified subsidy under phase I and phase II EVSS, market entry time and sales in 2012 are presented.

With the update of EVSS, the qualified subsidies for most vehicle models have changed significantly. Fig. 2 presents the battery capacities and electric ranges of available BEPV models and

Impacts of EVSS on passenger vehicle ownership cost

Consumer’s vehicle choice is affected by several factors, among which the cost factor, which we measured using vehicle ownership cost, shows dominating impact. In research perspective, consumer’s vehicle choice has been widely modeled based on consumer choice theory, which relates preferences to consumption expenditures. Greene (2001) employed nested multinomial logit model, a kind of discrete choice model, to analyze the market penetration of alternative vehicles. Vehicles are fit into a

Policy implications

The major policy target of EVSS is to promote the EV market penetration. As Table 3 presents, the sales of BEPV models in 2012 ranged from fewer than 100 to more than 5000, with total sales of 12,085. Compared with the 15.5 million passenger vehicles sold in 2012 in China, BEPV accounted for less than 0.1% of total sales. That is to say, the implementation of EVSS did not successfully start up the BEPV market. In this section, we tried to discuss the reasons for the low sales of BEPVs.

Given the

Conclusions

In this paper, we presented the rationale of China’s phase I and phase II EVSS and estimated their impacts on vehicle ownership cost with a focus on BEPVs. We concluded that China’s EVSS is very necessary for BEPVs to be cost competitive compared with CPVs in the short term, especially before 2015. The transition from phase I EVSS to phase II EVSS will generally reduce subsidy to private purchase of PHEPVs and BEPVs. Thus, the ownership cost of BEPVs will temporarily rise at the beginning of

Acknowledgements

The project is supported by the Ministry of Science and Technology (2010DFA72760, 2011DFA60650, 2011AA11A288, 2012DFA81190, Z121100007912001, 2013BAG06B02), the China National Natural Science Foundation (71103109) and the China Automotive Energy Research Center (CAERC) program. The authors would like to thank the anonymous reviewers for their review and comments.

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