Subsidies, Standards, or Both? Trade-Offs among Policies for 100% Zero-Emissions Vehicle Sales
Jonn Axsen, Chandan Bhardwaj
Abstract
Numerous regions are committed to reaching 100% light-duty zero-emissions vehicle (ZEV) sales by 2035 or earlier. For the case of Canada, we explore two policy pathways toward this goal: (i) a stringent ZEV sales standard (or mandate) and (ii) a purchase subsidy-based strategy (of three different durations). The AUtomaker-consumer Model (AUM) is used to compare policy impacts on ZEV sales, GHG mitigation, vehicle markups and prices, and automaker profits from 2023 to 2035. The examined subsidy approach ($15k per ZEV) is ineffective, raising ZEV new market share to 44-69% by 2035, while increasing automaker profits in part due to 13-18% capture of the subsidy value (incidence). In contrast, the strong ZEV sales standard can induce 95-100% ZEV sales by 2035, while inducing more ZEV-supportive strategies by the automakers, including an average 22% reduction in the prices of ZEVs, a 6% increase in the price of conventional vehicles, and a doubling of ZEV-related Research & Development (R&D) investment. The ZEV standard decreases cumulative automaker profits relative to the baseline (2023-2035), though annual 2035 profits are still higher than annual profits in 2023. Finally, the combination of the subsidy and standard can achieve the same positive outcomes while somewhat mitigating profit losses.