Powering Up Electric Vehicles in China: The Role of Non-fiscal Incentives in Promoting Electric Vehicle Adoption amid Declining Fiscal Subsidies

Publication Type:

Conference Paper

Authors:

Haomin Fu

Source:

Gerpisa colloquium, Brussels (2023)

Abstract:

Electric vehicles (EVs) have gained considerable attention in recent years, as a promising solution to address the environmental and energy challenges posed by the transportation sector. In China, the government has been promoting the adoption of EVs through various subsidies, tax credits, and other incentives. However, with the decline in fiscal subsidies, the role of non-fiscal incentives in promoting EV adoption has become increasingly important. This study aims to examine the impact of non-fiscal incentives on EV promotion in China, against the backdrop of declining subsidies.

China has announced its intention to discontinue all fiscal subsidies for EVs by the conclusion of 2023, including purchase subsidies and vehicle tax exemptions. These subsidies have gradually declined since 2016, with subsidies per vehicle expected to decrease by over 40% by 2020, based on 2016 subsidies. Falling fiscal subsidies hit the Chinese EV market. But in the long run, China's goal is to decouple the growth of the EV industry from direct fiscal subsidies and make it more self-reliant. As a result, it is pertinent to explore alternative incentives that can power up the Chinese EV market, beyond fiscal subsidies. The study investigates whether non-fiscal incentives, such as "road priority" and "charging infrastructure construction," would have a positive promotion performance on EV sales in China in the context of declining fiscal subsidies.

The study is grounded in the context of the Chinese EV market, specifically focusing on EV promotion cities (clusters) in China. To assess the efficacy of non-fiscal incentives, a triple difference model (TD) is employed. The TD model utilizes three distinct groups of cities (clusters) to evaluate the impact of non-fiscal incentives on EV sales. Specifically, the study identifies promotion cities (clusters) that have implemented non-fiscal incentives as the treatment group, promotion cities (clusters) that have not adopted any subsidy policy as the control group 1, and promotion cities (clusters) that have not implemented non-fiscal incentives as control group 2. By utilizing two control groups, the study aims to eliminate industry and regional differences between the treatment and control groups, yielding a more robust estimation than the Difference in Difference model (DID). The study employs R, a statistical software, to implement the TD model and analyze the impact of implementing non-fiscal incentives on EV sales, while accounting for temporal and regional differences. Through this method, the study aims to identify and evaluate the effectiveness of non-fiscal incentives, such as "road priority" and "charging infrastructure construction," in promoting EV sales in China, especially in the context of declining fiscal subsidies.

This study seeks to offer valuable insights into the contribution of non-fiscal incentives towards the promotion of electric vehicle (EV) adoption in China, particularly in light of the decline in fiscal subsidies. The findings indicate that non-fiscal incentives, including "road priority" and "charging infrastructure construction," exert a positive influence on EV promotion. Further observation shows that the efficacy of such incentives is contingent on the traffic carrying capacity of different cities (clusters). These results will enable the identification of the most effective non-fiscal incentives and the comprehension of the factors driving EV adoption in China.

This study aims to contribute to the expanding of the existing literature on EV subsidies and non-fiscal incentives, with a specific focus on the role of non-fiscal incentives in promoting EV adoption in China. As subsidies for EVs in China are gradually decreasing, there is a growing need to investigate the effectiveness of non-fiscal incentives in promoting sustainable transportation. By conducting a comprehensive analysis of the impact of non-fiscal incentives on EV adoption, this study aims to provide valuable insights for policymakers and industry stakeholders in EV industry. The findings of this study will have practical implications for future policy decisions and strategies aimed at promoting the growth of the EV industry in China. Ultimately, this study will help inform sustainable transportation policy and contribute to the promotion of a low-carbon society in China.

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