Incentives impact on EV markets

Incentives impact on EV markets Report to the Electromobility project Dr. Frances Sprei, Chalmers University of Technology and Stanford University Dr. David Bauner, Viktoria Institute 2011

version 30 Dec 2011 Cover photos: Nils Kjellsson, Jämtkraft AB (car) David Bauner, Viktoria Institute (truck) 2

Sammanfattning Denna rapport omfattar en genomgång av elbilsincitament i Europa, en ekonometrisk studie kring effekter av dessa incitament (för 2010 och första halvan av 2011) samt en översikt av en mer omfattande studie för att förstå orsak och verkan av olika typer av incitament. Denna studie visar att försäljningen av hybrider och laddfordon är på stark uppgång och att incitamenten för lätta fordon har bidragit till detta i flera länder. Både incitament av typen ekonomiskt stöd för inköp av fordon samt t ex utbyggnad av infrastruktur för laddning spelar roll för att fordonen skall införskaffas och verkligen användas. Kostnadseffektiviteten av incitament har ifrågasatts, i synnerhet på kort sikt, endast en andel av försäljningen beror av incitamentet. Målet/-n med incitament kan skifta efter marknad; Tyskland ser produktionen av elfordon som ett viktigt mål medan Danmark vill balansera sin elproduktion genom bl a smart laddning. Det innebär också att incitamentsstrukturen ser olika ut i dessa länder, liksom värdet och kostnaden av incitamentet mellan 200 och 20 000 Euro per fordon i olika länder i Europa. Busstrafik i synnerhet sådan som kommer ifråga för el- eller hybriddrift handlas oftast upp av en stad eller region, och incitament i sådana fall får utformas annorlunda.trafik med bussar med olika typer av elektrisk drivlina har fått stöd via nationella program eller EU-projekt. För elektrifierad långväga godstrafik krävs infrastrukturutbyggnad ett incitament i sig - och ett omfattande standardiseringsarbete innan t ex ekonomiska incitament riktade mot fordonsanvändare kan komma ifråga. Även utbyggnad av infrastruktur för laddning av lastbilar för stadsdistribution kan fungera som incitament. Hybridisering av arbetsmaskiner är i ett tidigt skede för de flesta applikationer och stöd till tekniktest och demonstrationsprogram kan vara sätt att närma sig större utbud och efterfrågan inom detta område. 3

Summary This report comprises a policy overview of European EV incentives and an econometric study on the significance of incentives for electric drive vehicles. It also outlines the development of a more comprehensive model for understanding the utility and effect of incentives. The study shows that sales of hybrids and plug-in vehicles are increasing rapidly and that the incentives have contributed to these sales in several countries. Both economic support for the purchase and operation of vehicles as well as development of charging infrastructure play a role for the vehicles to be purchased and also used. The cost efficiency of incentives has been questioned, especially in the short term; only a part of sales can be attributed to the incentive. The goals with incentives shift depending on the market; Germany sees industrial development and the production of electric vehicles as important goals while Denmark wants to balance its electricity generation through e.g. smart charging of EVs. This implies that the structure of direct incentives differs between countries, and also the cost from 200 to 20 000 EUR per vehicle in different countries in Europe. Buses especially in types of use where electric drive is feasible are usually procured by a city or region, and incentives must be tailored differently. Procurement of buses with different types of alternative drivetrains has received support from national programs or EU projects. For electric long-haul goods transport, infrastructure development is required an incentive per se and comprehensive standardization must precede incentives aimed directly to vehicle users. Also development of infrastructure for charging city distribution trucks may serve as an incentive. Hybridization of off-road vehicles and construction machines is in an early stage for most applications and support for technology verification projects and demonstration programs can be a means to increase supply and demand in this area. 4

List of abbreviations BEV EV FCEV GDP HDV HEV ICE ICEV LDV MNL PEV PHEV RP SP dedicated Battery Electric Vehicle, i.e. only storing energy in battery. Electric Vehicles, i.e. vehicles that all or in part draw their energy from the grid Fuel Cell Electric Vehicle Gross Domestic Product Heavy Duty vehicle Hybrid Electric Vehicle, a vehicle with both a thermal engine (ICE) and an electric traction motor, but no charging from the electric grid Internal Combustion Engine Internal Combustion Engine Vehicle Light Duty Vehicle Multinomial Logit Model Plug-in Electric Vehicles, i.e. same as EVs Plug-in Hybrid Electric Vehicle, a vehicle configured like a HEV, but that draws part of its traction energy from the electric grid Revealed Preferences Stated Preferences 5

Content Introduction... 3 A regime shift to electric drive... 3 Summary of previous work... 5 Incentives... 6 National strategies... 7 Econometric model for incentives for electric LDV... 15 Overview of models used in the literature... 15 Description of data... 17 Model specification... 20 Limitations... 22 Economic considerations... 23 Incentives for electric and hybrid HDV... 25 Case Studies... 28 Ethanol vehicles in Sweden... 28 MAUT in Germany... 29 Conclusions... 30 Next step: Conceptual framework for extended market model... 33 References... 35

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Introduction The Electromobility project involves the Swedish car industry, its suppliers and three agencies, namely the agency for Innovation systems (VINNOVA), the Swedish Energy Agency and the Swedish Transport Administration. The project aim is to facilitate the move for the car industry towards Electromobility, electric drive vehicles, and the synchronization with other sectors of society in moving towards electric drive. As part of that work, this document is the report from an analysis on the cause and effect of incentives for the introduction and use of new vehicles and infrastructure. The Viktoria Institute, together with Chalmers University has developed this study and the adjoined econometric model. The project consists of three parts: the development and different runs of a regression (econometric) model of incentives in different countries this project report and analysis, in part drawing on the results of the econometric model provisions for the development of a more comprehensive, agent based model analysis As a result of this project, it is intended to develop the latter to a full-fledged model analysis as a separate project when the present phase is concluded. The outline of such a project is presented on page 33. The report is written with a view to the European vehicle market, sometimes using data and examples from USA and Japan for comparison. Sweden is in some sections given special consideration. Japan is not included in the econometric study, since it introduces heterogeneity in the model that reduces its accuracy and relevance from a European perspective. The underlying model for the discussion on the cost of incentives in Norway is slightly different from how other EU countries are discussed. A regime shift to electric drive When technological change may imply changes far beyond that of the technology itself, it is apt to discuss change in terms of introducing a new technological regime, a concept discussed by the economist Joseph Schumpeter and coined by Nelson and Winter (1982), working in part in his tradition. It is likely that fossil fuels as dominant propellant for passenger cars as we know it will not make it past the present century, and one of the pretenders to the throne is electric drive vehicles. The elements of this new regime, or the actors in the competence bloc (i.e. the suppliers of vehicles and relevant infrastructure products and services, financing institutions, governments and, last but not least, the customers) would have to find a way to profit from the new regime in order for it to come into existence (Eliasson & Eliasson, 1996). This profit is still some ways ahead, and the incentives discussed in this report are broadly meant to move development towards a state where subsidies would not be needed. The new technology may for some (e.g. battery manufacturers) mean new opportunities, while some (e.g. manufacturers of belt drives, and fuel injectors) might have to modify their offer to the market. Incentives are meant to bring out these new forces and usher a change that is more or less inevitably coming. 3

While not in the direct scope of this analysis, the first question that arises when studying the conditions for a regime shift towards electric drive for road vehicles is the rationale for such a transition. The answer may be different on different markets, since electric drive vehicles address a number of sustainability issues in modern society: propulsion energy supply, energy efficiency, environmental concerns such as emissions of regulated pollutants and greenhouse gases and noise. As part of a more general discourse on the decoupling between economic growth and the use of natural resources, shared electric vehicles is an element in the discussion on freeing up urban space (parking) and reducing investment by moving from individual vehicle ownership to having access to pertinent on-demand transport services. Also different forms of guarantees and types of ownership are discussed as a part of the transition, albeit car sharing is increasing also before the dawn of EV mass deployment. It thus seems like electric drive vehicles, if introduced and used properly, can facilitate a transition towards more sustainable mobility. The challenge is to curb a possible rebound effect due to lower driving cost and thus the risk to increased congestion, energy use and elsewhere emissions. Electric road vehicles are a new feature in the market place this century. The learning curve is still very steep and it is difficult to predict the shape and form of the system which will include the new technology. It is probable that only when different technology combinations have been tried with different user groups in larger scale, e.g. thousands of vehicles in operation in a given area, will we see the emergence of more sustainable patterns of an electric drive vehicle regime (Bauner, 2010). The starting point of this study is then that technologies, boundary conditions and business models are changing at the same time, which unfortunately makes for a most unpredictable outlook when it comes to uptake of these new technologies in different markets. To achieve a transition, there must be a reasonable local balance of supply and demand of the different components that, in coordination, constitute an electric drive road transport system. For a long time, perhaps forever, such a system would indeed be co-existing and complementing the conventional combustion engine, fuel cell or other technology regimes, and each component of the system as a whole would be a moving target, as the new market matures. The lack of coordination between and information on these new elements (supply of vehicles, transport quality, financial instruments, infrastructure, second hand value), and the higher total cost over the lifetime of the vehicle for the new users, can be seen as externalities, and incentives may thus be needed to support the transition by reducing the risk and adding comfort for investors, entrepreneurs and new users. 4

Summary of previous work Table 1 summarizes 15 studies that have analyzed the effect of policies on sales of hybrids, PHEV or EV (seven focus on hybrids, seven more on either BEV or PHEV, and one on hybrids and PHEVs). Most of the studies on policies for hybrid vehicles are based on empirical data, since hybrid vehicles have been on the market for a number of years and thus data on sales are available for a number of states, countries or regions that differ regarding the kind and amount of support provided. Most studies look at the US where subsidies vary per state making it possible to compare sales rates and thus evaluate the policies. One study looked at Canada (Chandra et al, 2010) and one at sales in Switzerland (De Haan et al, 2007). All studies expect Diamond (2009) find that subsidies have had an effect on the sale of hybrids. Both Chandra et al (2010) and Berenstau & Li (2011) find that roughly 25 % of the sales can be accredited to the subsidy and similarly De Haan et al (2007) find that tax rebates give 25 % higher sales rates for the Toyota Prius. Gallagher and Muehlegger (2011) look more in detail on the type of subsidy and conclude that sales tax waivers are up to 10 times more effective than tax credits. While the studies find that the subsidies do contribute to increased sales of hybrids the cost-effectiveness of the measures is more doubtful (McConnell & Turrentine, 2010). Besides subsidies, high gasoline prices are also seen as a driver for sales of hybrids (Berensteanu & Li, 2011; Diamond, 2009). For PHEV and EV the policy evaluation is made through simulation models, scenarios or general guidelines based on experiences with other alternative vehicles. One general conclusion throughout the studies is that subsidies will help to promote PHEVs and EVs. This result is not surprising since the higher price of these vehicles is seen as one of the major barriers for the consumers. Sullivan et al (2009) concludes that without subsidies ten years from now PHEV will constitute less than 1 % of the car fleet. Mabit and Fosgerau (2011) mention the need of the PHEV and EVs to have similar characteristics as the conventional car in order to achieve a considerable market share. Hidrue et al (2011) find that the current US rebate of 7500 USD covers the Willingness To Pay gap for EVs, however only in the case of battery cost (consumer) of 300 USD/kWh which is much lower than today s costs. Future (around 2030) market penetration rates differ between the studies ranging from 2-3 % (McConnell & Turrentine, 2010) to up to 70 % (50 % EVs and 20 % PHEV, Kloess & Muller 2011). The level of subsidy varies in the studies but they are all lower or around the current subsidies, i.e. around 5000 Euro (see Description of data). Margit and Forsbau (2011) that look at Denmark have a higher subsidy; this mirrors the Danish case of EVs being exempt from the high registration fee. Other suggestions that arise from the studies are: To keep gasoline prices high relative electricity prices (Eppstein, 2011; Kloess & Muller, 2011) Provide consumers with easy estimates of life time costs of vehicle (Eppstein, 2011) Support R&D program (Altermotive, 2010 ) Initiate demonstration programs and stimulate niche markets (Altermotive, 2010) 5

Table 1 Summary over conclusions of studies about policies for hybrid, PHEV and EVs. Article Place Conclusions Vehicle technology Altermotive EU Recommends support for R&D programs, initiate EV (2010) demonstration programs and stimulate niche markets Beresteanu & Li USA Gasoline prices explain 14 % hybrid sales and tax Hybrid (2011) incentives 27 % Chandra et al (2010) Canada 26 % of hybrids sold thanks to tax rebates Hybrid De Haan et al (2007) Switzerland Tax rebates give 25 % higher sales rate for the Prius Hybrid Diamond (2009) USA - Gasoline prices most significant for increased Hybrid sales of hybrids - Weak relationship between monetary incentives and market share of hybrids Eppstein (2011) Simulated area (USA - Rebates and tax credits found important for increasing sales of PHEV PHEV similar data) - Keep electricity prices low relative to gasoline prices - Provide consumer with easy estimates of life time costs of vehicle Gallagher &Muehlegger (2011) USA - Sales tax waivers up to 10 times more effective than tax credits - HOV lanes non-significant in sales (only in Virginia) Hidrue et al (2011) USA A rebate of 7500 USD is sufficient to close willingness to pay gap for EVs at a battery cost of 300 USD/kWh Kloess& Muller (2011) Austria With high fuel taxes and tax reductions for electrified vehicles BEV reach a market share of 50 % in 2030 and PHEV 20 % Leiby& Rubin (2003) USA Subsidies and learning by doing can create a viable HEV market Mabit&Fosgerau Denmark Lower registration tax for EVs can create market for (2011) EVs (however characteristics must be similar to conventional vehicles) McConnell &Turrentine (2010) USA A subsidy (~2000 USD) increases the share from 25 % to 33 % for hybrids and from 2 % to 3 % for PHEV in 2030 Austin, A price reduction of PHEV (by 4100 USD) gives a 6 % Texas of fleet composition in 2034 Musti&Kockelman (2011) Pfaffenbichler(2011) Austria Direct subsidies of the vehicle price have a significant potential to increase market shares especially during the transition from pilot production to mass production Sullivan et al (2009) USA Without subsidies, the current policy case would result in a fleet penetration of less than 1 % in ten years Hybrid EV PHEV & EV Hybrid EV Hybrid & PHEV PHEV EV & PHEV PHEV Incentives To reduce CO 2 emissions in the transport sector, carbon taxes on all fuels may be optimal. Carbon/fuel taxes have the advantages of being cost-effective and to address both the efficiency of the vehicles as well as distance travelled and they have played a major role in curbing fuel use in the EU (Sterner, 2007). Their main drawback is that they are not always politically feasible, at least not to the extent that might be required to achieve major shifts in the market due to market barriers and 6

inertia in the transport sector. Other incentives might thus be sought for and warranted. Standards, such as the CAFE standard in the US and the CO 2 targets set in EU are one possible alternative. Incentives may address a number of market imperfections, such as compensating for market failures, improving the exploitation of a technology potential, inducing a learning curve leading to better technology, educated users and lower cost. Lately feebates, i.e. when low emission cars receive a rebate while cars with higher emissions are subjected to a fee have often been brought up in debates (Kågesson, 2011). They have been highlighted to be income neutral for the state if designed properly. Other measures are labeling of cars based on their fuel consumption or CO 2 emissions, taxes and fees based on vehicle emissions/ fuel consumption, technical and economic support for the introduction of infrastructure or even entire vehicle systems 1. In this report we focus on incentives that are aimed particularly at promoting the sales of EVs and PHEVs. Examples include Banning circulation of ICEVs Purchase price reduction Tax reduction (road tax, fuel electricity etc) Congestion tax alleviation Public (free) parking and charging Fast charging points availability Permitted to use bus/hov lanes Navigation help to and booking of available charging (normal and fast) posts National strategies Several countries have the available economic resources, and see an advantage in developing solutions for alternative vehicle propulsion such as Electromobility in their respective road vehicle fleet, infrastructure and often also national vehicle industries. On the basis of theory similar to what is described above, these countries have in general come to the conclusion that too little of regime change towards Electromobility will take place without means of support regarding infrastructure development, information and support for vehicle deployment in different ways. The electric vehicle when compared to today s ICEV s has a potential to reduce dependency on fossil fuels, reduce energy use and in many cases both local (regulated) and greenhouse gas emissions. However, there are also inherent drawbacks such as limited range (hybrid vehicles, fast charging and battery exchange can be partial solutions here), high investment cost (public incentives for vehicle purchase and infrastructure installation, and again hybrid vehicles, can help here), high operating cost (tax breaks, incentives/support for battery purchase and leasing can help here). As can be seen, in addition to financial support, the supply of appropriate vehicle technology and infrastructure can both work towards reducing thresholds for each type of barrier to technology uptake. On a regional and local level, national and regional funding have given more targeted support both on district and per-project level, ranging from procurement to infrastructure evaluation and development projects. Incentives can be evaluated from which level of impact a given type and level of incentive has on the introduction or use of EVs, and also by the fiscal or other cost of the incentive in place, e.g. per vehicle, per person-km or per year. 1 such as the recently introduced public car sharing system EV Autolib in Paris 7

For each country, a number of incentives on national level such as tax breaks and investment support have been introduced. Each of these incentives has a cost to the providing entity, and in many cases the funding comes from taxes. The cost and usefulness of these incentives is discussed in a separate section. Below, the current, and in some cases also planned, incentives are presented per country, together with a discussion on the rationale in the respective case. Sweden Market shares are increasing in Sweden for both electric vehicles and other alternative fuel vehicles such as biogas cars. Environmentally enhanced vehicles are exempt from annual vehicle tax for 5 years. The procurement incentive supermiljöbilspremien was presented in September 2011 after rounds of dialogue, and reduces the purchase price of environmentally enhanced cars (with tailpipe emissions of maximum 50 g/km CO 2 e, i.e. only electric vehicles for now) with 40 000 kronor for private owners and 35 percent of the premium cost of such a car for companies (such as car pools) during the three last years. A prolongation of the validity of the present reduction by 40 % of the fringe tax value (max 16 000 SEK) for leased company cars is discussed. National vehicle production As to the supply of vehicles, Volvo Cars will start to sell a plug-in hybrid version of its V60 model by the end of 2012. Volvo Group already offer hybrid city buses and trucks and looks into charging systems for coming models. Scania has a number of hybrid electric buses in demonstration. National and regional initiatives The national EV procurement project 2, which has just reached one of the milestones; a test fleet of 50 vehicles is becoming operational in the next few months. The project claims to have Speeded up the introduction locally of several types of BEVs Create good conditions and in some cases reduced tag prices to the participant institutions Enhanced the interest of ordering electric vehicles National support to purchase price reduction of 1000 vehicles Reduced the workload for the public sector by coordinating procurement Electric vehicles (including hybrids) bought before 2009 are exempt until July 2012. Fast charging stations have been inaugurated in Göteborg and Östersund. A fast charging station is planned in Hammarby Sjöstad in Stockholm. Norway Norway has a target of having 200 000 electric vehicles on the road in 2020. So far 4 278 electric vehicles have been sold, making it the country in Europe with the largest fleet of EVs. The share of new sold cars is also the highest (see section Econometric model for incentives for LDVs). The strategy for promoting EVs in Norway has been to facilitate the purchase and usage or EVs. In this strategy the construction of charging stations has been included, as of June 2011 there are close to 3000 of them. The majority of the charging stations are in the capital Oslo, but chargers have been installed even in the most Northern provinces 3. 2 www.elbilsupphandling.se 3 www.grønnbil.no 8

The Norwegian total market for electric vehicles is the third largest in the world (after USA and Japan). In the Norwegian taxation system biodiesel and conventional cars are taxed more than both electricity and electric cars. This has resulted in a competitive shift towards electric cars from biofuels. Norway thus has the largest fleet of EVs in Europe but also the most generous incentive system for anyone choosing to buy an EV: No registration tax. The tax is based on three characteristics of the vehicle: weight, engine power and CO 2 emissions. E.g., a car weighing 1300 kg, with an 100 kw engine and 140 g/kmco 2 emissions would have a tax of 98 300 NOK 4 Low annual registration fee. This amounts to 2840 NOK for vehicles under 7500 kg. 5 No VAT (normally is 25 % of retail price) Exempted from road tolls such as those to enter Oslo Free parking in publicly owned parking spaces Access to bus lanes Free admission on national road ferries for the car (not the driver) Increased mileage allowance (NOK 4 / km instead of NOK 3.50 / km) Only 50 % taxable benefit if used as a company car National production and demand for EVs While not traditionally a car manufacturing country, Norway has sported two EV producing companies: Think, (previously PIVCO A/S and Th!nk) and Pure Mobility (previously ElbilNorge AS). PIVCO was established in 1991, has had a number of owners, among them Ford and has gone out of business 4 times 6. In its most recent reconstruction, in the summer of 2011, it was bought by a Russian mogul and there are plans to resume production of its main electric vehicle the Think City (TeknikensVärld, 2011) in 2012. Think city is a small 2+2 seater vehicle with a top speed of 110 km/h and a city range of 160 km/h. Think and its predecessors have produced 29 % of the EVs on Norwegian roads 7. Pure Mobility produced the Buddy, a small electric urban vehicle, i.e. it is not allowed to drive in the highway. Buddy has three seats a range of 80-120 km and a maximum speed of 100 km/h. 26 % of the EVs sold in Norway were a Buddy. Pure Mobility went out of business at the end of October 2011 and it is still not clear if the company will be reconstructed. The strong push for EVs has been motivated as a strategy to reduce CO 2 emissions from the transport sector (Statens Vegvesen, 2010), however this has been criticized for being a very expensive strategy (OECD, 2011). According to Econ Pöyry (2009) the cost range is between 25 000 to 30 000 NOK/ ton CO 2 reduced. There are other benefits of EVs that are not considered and there is also a strategic element, i.e., the need to start building up a fleet for future major reduction potentials. It may still be questioned if a subsidy to the extent that has occurred in Norway is warranted. 4 http://www.toll.no/templates_tad/registrationtax.aspx?id=79&epslanguage=no 5 http://www.toll.no/templates_tad/topic.aspx?id=194976&epslanguage=no 6 www.wikipedia.org 7 www.grønnbil.no 9

A tale of incentive impacts The Norwegian EV company PIVCO (Personal Independent Vehicle Co.) was bought by Ford in 1999 and integrated into Th!nk, constituting Ford s electric vehicle branch and including different types of electric drive vehicles, including the PIVCO range of smaller EVs, other so-called NEV s, Neighborhood electric vehicles and even some electric bicycles. CEO Jac Nasser sent a letter to the Norwegian state, acknowledging the fact that Ford had invested 2 billion dollars and was making Norway a vehicle producing country. In return, he asked the country to contribute to development, both regarding direct support to the company, procurement in the public sector and incentives for clean vehicles. The Norwegian government answered in July 2002 that by January 2003, there would be a set of incentives to bolster the introduction of EVs in Norway. The following chain of events was very unfortunate for the Norwegian EV industry in general and Ford in particular. With customers waiting for the favorable economic conditions of the new year, no EVs were sold in the following months. Th!nk ran into financial trouble and for this and other reasons, the Norwegian Th!ink operations were sold in 2002. In 2003, the California Air Resources Board rolled back its requirement that 10 % of all cars sold in California must be zero emissions. This essentially stopped electric car development by most manufacturers who saw their 100 000 cars per year market evaporate. By now, however, the Norwegian incentives were in place and in-use vehicles were moved from use in California to Norway to profit from incentives, increasing the fleet. The company was restructured and in time found new capital. Since then, unfortunately, Think Norway has since gone bankrupt in 2008 and again in 2011. National and regional initiatives Trondheim is part of the Sundsvall-Östersund-Trondheim Green Highway, a system of linked charging stations to enable longer trips. Fast charging stations are also part of the concept. Ample parking space with available charging posts has been established in Oslo and elsewhere. Germany Partially due to high CO 2 emissions from electricity generation, and thus little emissions reduction on a national basis when introducing Electromobility, Germany were long reluctant to give initiatives for the individuals on a national level. Instead the government was quick to fund R&D and local and regional initiatives. Now however, as part of the National E-mobility Strategy from 2012 to 2020, with the goal to put one million electric drive vehicles on German roads, the individual customer can get an exemption from the yearly car tax, which is based on the weight of the vehicle. For a car weighing 1500 kg the tax equals 45 Euro 8. National and regional initiatives The national strategy has two more parts, supporting the development of vehicle production and infrastructure development. 8 http://www.kfz-steuer.de/kfz-steuer_elektrofahrzeuge.php 10

Modellregionen Elektromobilität, where 130 MEUR state funds are allocated to support industrial actors and cities in eight regions 9 for the development of infrastructure and demonstration projects. An example is Berlin, one of the leading E-Mobility showcases in Germany. From an R&D perspective there is a budget of 4.4 billion EUR State funding for 6 focus areas between 2012 and 2020; batteries, drive train technology, charging infrastructure and grid integration, ICT, recycling and resource efficiency and mobility concepts. Denmark The IEA (2011) cites two sources and EV targets for Denmark for 2020: 200 000 according to the Danish Energy Agency (ENS Denmark) and 50 000 according to EVI (Electric Vehicles International). The main consumer incentive in Denmark is the exemption from the registration tax for EVs under 2000 kg. This exemption does not apply to hybrid vehicles. Registration tax is 105 % on the price of the vehicle up to 70 000 DKK, thereafter 180 % 10. EVs also are not subjected to a green ownership fee (grønejerafgift), which depends on the fuel consumption of the vehicle with a maximum rate of 9000 DKK 11. These incentives should make EVs competitive with conventional vehicles, at least from a price perspective. Still the sales have been moderate so far. One explanation could be that the price comparison between a conventional vehicle and an EV is not as promising as at first glance. The prices of EVs have been reported to be higher in Denmark than in other countries (Ingeniøren, 2011). At the same time conventional vehicles have the lowest pre-tax prices in Europe (EU, 2011). National and regional initiatives EVs have also been granted free public parking (and in some cases charging) in major cities such as Copenhagen, Odense and Fredriksberg 12. However, the legality of this subsidy has been questioned and it is thus temporarily withdrawn 13. Denmark was chosen by BetterPlace to be one of the pioneer countries for the establishment of battery exchange (or battery swapping) stations. The first station was opened this summer outside of Copenhagen, and 20 more are planned for the following 9 months. A network of battery exchange stations would allow for extended autonomy and serve as an incentive. A test scheme for electric vehicles was established in 2008 with an allocation framework totaling 35 million DKK through 2012. The appropriation was divided into 10 million DKK annually for 2008-2009 and thereafter 5 million DKK annually for 2010-2012 (ENS Denmark, 2008). Denmark has the highest share of renewable energy in its electricity consumption in the EU, when large scale hydro is excluded (EEA, 2011) and the major source is wind. There is thus an interest in finding technology that can stabilize the electricity network. One of the projects that have been funded is the Edison project 14 established to develop smart charging of EVs, i.e., that improving 9 Hamburg, Bremen/Oldenburg, Berlin/Potsdam, Rhine-Ruhr (Aachen Düsseldorf), Rhine-Main (Mainz - Kassel), Saxony (Dresden Leipzig), Stuttgart and Munich 10 http://www.skat.dk/skat.aspx?oid=1817292&vid=0 11 http://www.tax.dk/pjecer/groen_ejerafgift.htm 12 http://www.danskelbilkomite.dk/elbiler_og_lovgivningen.htm 13 http://www.dr.dk/nyheder/indland/2011/06/29/230637.htm 14 www.edison-net.dk 11

communication between the vehicle and the net and planning charging and discharging of the EVs in order to handle the intermittency of renewables, such as wind power. United Kingdom Purchasers of electric vehicles and plug-in hybrid vehicles with CO 2 emissions below 75 g/km receive a premium of 5000 (maximum) or 25 % of the value of the vehicle 15. Electric vehicles are exempt from the annual circulation tax. This tax is based on CO 2 emissions and all vehicles with emissions below 100 g/km are exempt from it. Electric cars are exempt from company car tax for a period of five years from the date of their first registration. Electric vans are exempt from the van benefit charge for a period of five years. National and regional initiatives EVs are exempt from congestion charging in London ( 10/day Mon-Fri) 16 A large regional initiative is the Project Source London, where 1300 charging points from different manufacturers are to be installed in London. This in itself is a large incentive measure, providing charging for a number of cars, both regarding regular night charging and as a lifeline to increase comfort. In North-East England, store and car park owners etc can receive half of the cost for purchasing and installation of a charging post, and full funding of the cost for installation of a quick charger through the program Charge your car managed by the Skills Academy for Sustainable Manufacturing and Innovation. London Transport is carrying out trials of hybrid buses in order to procure 300 more buses in 2012 17. Japan The Japanese government has decided to continue the present tax breaks until 2015. A buyer of a hybrid vehicle sees vehicle acquisition tax reduced from 5 % to 2.2 %, implying a reduction of about 300 EUR. The annual tax is reduced for EVs and hybrids, so that e.g. a Prius owner would save a little under 100 Euro per year. There is also a tax break and the possibility of loans for corporate fleets. The purchase incentive for eco-friendly vehicles that were suspended in September 2010 will also be resumed for one year. An earlier subsidy of several thousand Euro has now been reduced. The amount is calculated on the basis of vehicle weight and environmental performance, and would for a Prius amount to around 1400 Euro. The government targets, however, remain unaltered, and prescribe a transition to up to half electric drive vehicles by 2020 ( Table 2). 15 must meet a series of eligibility criteria (for example, min. range 70 miles for electric vehicles, 10 miles electric range for plug-in hybrid vehicles). See http://www.dft.gov.uk/pgr/sustainable/olev/grant1/ 16 http://www.tfl.gov.uk/roadusers/congestioncharging/6733.aspx 17 http://www.tfl.gov.uk/corporate/projectsandschemes/2019.aspx 12

Table 2. National targets for next generation vehicles in Japan. 2020 2030 Conventional vehicles 50-80 % 30-50 % Next generation vehicles 20-50 % 50-70 % Hybrid vehicles 20-30 % 30-40 % EVs & PHEVs 15-20 % 20-30 % Fuel-cell vehicles <1 % <3 % Clean diesel vehicles <5 % 5-10 % National and regional initiatives There is a wealth of technology tests and cooperative initiatives to introduce vehicles and infrastructure throughout the country. Around 800 fast charging stations are installed in Japan, albeit many of which at vehicle manufacturers and dealers where they would not play a role to enhance the driving range for regular users. A recent move which could increase utility of EVs is the initiative by a number of companies to establish fast charging spots throughout Japan 18. A number of companies, including carmakers, have teamed up to increase the fast charging network in line with recent findings that such stations increase the attractiveness of EVs and reduce range anxiety. Tokyo has also been the host of tests with battery swapping as part of a Better Place project 19. As one example of local cooperation, Honda and the local authorities have agreed to test and promote electric vehicles scooters, plug-in hybrids and BEVs in the city of Saitama during 2012. Also a home system developed by Honda, involving a local gas-driven power plant, solar panels and EV charging, will be tested 20. USA There is a federal income tax credit of up to 7500 USD for EVs purchased in or after 2010. The exact credit amount depends on the vehicle s battery capacity. National and regional initiatives The Recovery Act Awards for Electric Drive, Vehicle Battery and Component Manufacturing Initiative 21 started in 2009. As a part of the program, around 0.6 billion USD is distributed for initial investment in charging infrastructure and demonstration fleets. The initiative has several goals. The initiative is expected to Create a market of enough size to identify the utility of EVs and PHEVs for the transport needs of US citizens Collect data for future development of vehicles and infrastructure, and to facilitate urban planning and future incentives and support measures. Push for standardized battery charging solutions 18 http://connevted.blogspot.com/2011/11/japan-to-create-fast-recharging-network.html 19 https://betterplace.com/the-company-pressroom-pressreleases-detail/index/id/tokyo-electric-taxi-project 20 http://world.honda.com/news/2011/c110523e-kizuna-project/index.html 21 President Obama Announces $2.4 Billion in Grants to Accelerate the Manufacturing and Deployment of the Next Generation of U.S. Batteries and Electric Vehicles The White House 2009-08-05 13

Establish an infrastructure which makes electric vehicles attractive for a larger group of consumers Make provisions to establish a market for mass production of batteries and other components needed for electric drive vehicles. Besides the federal incentive for electric vehicles 16 states offer incentives such as access to carpool lanes (in six states), income tax credits, purchase rebates and sales tax exemption. Incentives vary between $750 in Utah to $6000 in Colorado. Table 3. Overview of state level incentives for BEVs and PHEVs in the US, described by type of incentive and amount of incentive (Source: Plug in America, http://www.pluginamerica.org/why-plug-vehicles/state-federal-incentives) State Type of incentive Amount of incentive Arizona California Lower licensing fees for EVs Access to carpool lane Purchase rebate Access to carpool lane for BEVs up to $5000 (BEV) until July 2011 - after $2500 up to $3000 (PHEV) Colorado Income tax credit for BEVs and PHEVs up to $6000 District of Columbia Florida Georgia Hawaii Illinois Louisiana Excise tax exemption and reduced registration fees for BEVS and PHEVs Rebate for conversion to PHEV Access to carpool for PHEV and BEV Income tax credit for BEVs Access to carpool lane for BEVs Purchase rebate for BEVs and PHEVs State rebate BEVs, PHEVs Income tax credit BEVs, PHEVs $5000 up to $5000 up to $5000 up to $4000 up to $3000 New Jersey Sales tax exemption for BEVs Access to carpool lane up to $4000 Oklahoma Income tax credit for BEVs and PHEVs 50 % cost Oregon Income tax credit up to $5000 (PHEV) up to $1500(BEV) South Carolina Income tax credit for BEVs and PHEVS up to $1500 Tennessee Tax rebate for BEVs $2500 Utah Income tax credit for BEVs and PHEVs Access to carpool lane Washington Sales tax for BEVs and PHEVs up to $750 14

Heavy vehicles Calstart, a member organization in California with the goal to develop, implement and commercialize clean, efficient transport solutions, have established the Hybrid, Electric and Advanced Truck Users Forum (HTUF) 22. The main aim is to provide a forum for vehicle and component producers and fleet operators to discuss and improve the conditions for commercialization of electric trucks and other advanced drivetrains. Sets of key performance requirements are established and have helped reach production for smaller hybrid trucks. HTUF also develops policy, e.g. in the form of white papers. The findings of HTUF workshops suggests that commercial fleets of e.g. electric trucks has a very different set of requirements as to service and infrastructure, and potentially also as to monetary incentives, compared to consumer owned cars 23. Econometric model for incentives for electric LDV Overview of models used in the literature Table 4 gives an overview of studies that have modeled the demand for hybrid, PHEV or electric vehicles, based on model type and data set used. For a more comprehensive study of different types of models used for car demand see De Jong (2004). The type of model will depend on the scope of the study and the data set used. Roughly the models can be divided into three different types: 1. Discrete choice models: the data set consists of surveys carried out either to collect stated preferences (SP) for car models or actual car purchase behavior, revealed preferences (RP). Discrete choice models (often multinomial logit models) are used to analyze the data. 2. Cross-sectional or time-series models: the data consists of sales statistic (and other sociodemographic data) over time and/or various geographical areas. Various econometric models are used, e.g. log-log models, logit-models or market equilibrium models with demand and supply side. 3. Simulation models: input may be survey data, demographics or sales statistics that is used to simulate agents in a car market. An agent can be a household, a company or an individual. 22 http://www.calstart.org/projects/hybrid-truck-users-forum.aspx (not entirely updated) 23 Meeting minutes from HTUF 2011 E-Truck Task Force workshop, October 11, 2011 15

Table 4. Overview of studies analyzing the demand for hybrid, PHEV and EVs, based on their scope, model used and empirical data. Article Scope Model type Empirical data 1. Discrete choice models Axsen et al (2009) Study the neighborhood effect on hybrid sales Combining SP and RP and Multinomial logit model (MNL) Surveys in California and Canada with actual car purchases Bolduc et al (2008) Include perception and attitudes in discrete choice models Hybrid choice modeling simulated maximum likelihood Survey data Brownstone et al (2000) Combine revealed (RP) and stated preferences (SP) in a model for car choices Multinomial logit (MNL) and Mixed logit Survey in two waves (SP) and actual car purchases (RP) 2. Cross-sectional and time-series models Altermotive (2011) Analyze policy scenarios to promote alternative fuels and vehicle technologies Econometric analysis (log-log model) and simulations based on elasticity estimates Time series of sale statistics and fuel intensities in European countries Beresteanu & Li (2011) Analyze the role of gasoline prices and tax credits in sale of hybrid vehicles Market equilibrium model with demand and supply side Three data sets: new vehicles sales, sales in metropolitan area and household demographics Chandra et al (2010) Study the effect of tax rebates on HEV sales in Canada (econometric) Logit model Vehicle sales statistics COWI (2002) CO 2 reduction effect of changing taxation for cars in EU Discrete choice model logit model Sales statistics and sociodemographic data (mainly income per type of household) Diamond (2009) Study the impact of policies on HEV sales in the US across different states Cross-sectional model; loglog specification Sales statistics, vehicles miles traveled and incentives Gallagher & Muehlegger (2011) Analyze the role of different type of incentives in US states Regression analysis, fixed effect, log-linear Sales statistics for US states 3. Scenario and simulated models Eppstein et al (2011) Include spatial and social effects on simulating HEV and PHEV uptake Agent based modeling Simulated agents Mau et al (2008) Integrate dynamics of consumer preferences ( neighbor effect ) in energy economic model Energy economic model with inputs from MNL Survey on HEV and HFCV adoption (different survey design depending on market penetration scenario Mueller & Haan (2009-I) Develop agent-based microsimulation of car purchase for policy evaluation Two stage agent based micro-simulation Agents based on Swiss demographics; discrete choice model; sales statistics (for validation) 16

Description of data The econometric analysis is based on data, for 2009, 2010 and the first half of 2011 from the USA and 13 European countries: Austria, Belgium, Denmark, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, and the UK. The countries were selected based on their importance as car markets but also to include a spread of strategies to promote EVs from very low economic support to large scale and multifaceted incentives. The data, for each country, consists of sales statistics for EVs (and PHEVs) and for all cars, income (in the form of GDP per capita), prices for gasoline and diesel, prices for electricity and incentives to consumers. Table 5. Number of EVs sold per country and year. (Source: EU monitoring and JATO (2011 figures); USA Hybridcars.com) Country 2009 2010 Jan-Jun 2011 Austria 39 112 347 Belgium 0 54 85 Denmark 20 30 283 France 10 152 953 Germany 158 119 1020 Ireland 1 19 36 Italy 50 66 103 Netherlands 0 53 269 Norway 331 611 850 Portugal 0 18 93 Spain 0 77 122 Sweden 15 40 111 UK 179 116 599 USA? 345 6707 The number of electric vehicles sold in Europe and the USA has dramatically increased from 2009 to June 2011. In 2009, 803 EVs were sold in Europe. During the first half of 2011, European EV sales in several EU countries exceeded this number and the total sales were 4871 EVs. While still representing a very small share of the car market, this is a notable (tenfold) increase. The sales increase in Germany is particularly interesting considering that the level of incentives for the individual customer is very low (only roughly 200 Euros). In 2009 and 2010 Norway had the largest number of vehicles sold, outnumbering the other countries. During the first half of 2011 Germany, France and the UK have caught up in the number of sales. The UK and France have rebates for the consumer but not to the same extent as Norway. However, the size of the car market is much larger in Germany, France and the UK and thus looking at shares (Figure 1) Norway is still the leader. Denmark, with high incentives yet a low number of EVs sold, still has a share of EVs above average, since sales figures even for conventional vehicles are low. Norway and Denmark have the highest economic incentives for the purchase of EVs, both around 20 000 Euro. Seven European countries; Austria, Belgium, France, Ireland, Portugal, Spain and the UK, have incentives between 5000 Euro and 10 000 Euro. Germany, Sweden and Italy have either very low incentives or none. However, Italy and Sweden will have incentives in place in 2012. 17

Table 6 Consumer incentives for purchase of EVs per country and the calculated monetary value in Euro Country Type of incentive (in 2010 and 2011) Calculated tot monetary value (EUR) Austria - 5000 Euro rebate if vehicle charged with green electricity; 2500 Euro with conventional electricity 6000 - Exemption from vehicle tax Belgium - Tax credit of 9000 Euro or 30 % of the value of the car 9000 Denmark - No registration tax and owner tax 17000 - No green ownership fee (grønejerafgift) France - 5000 Euro rebate 5500 - No registration fee (carte gris) Germany - 5 year exemption form car tax 225 Ireland - 5000 Euro rebate 7500 - Reduction of registration tax Italy - None (but will be in place 2012) Netherlands - Exemption from car tax 3485 - No registration tax (bpm) Norway - No registration tax 20000 - No VAT (25% of retail price) - Lower annual registration fee - Exempt from road charges, access to free parking and bus lanes Portugal - 5000 Euro rebate 6000 - No registration tax - 1500 Euro extra if traded in with petrol car Spain - 7000 Euro rebate 7000 Sweden - 5 year exemption from annual vehicle tax 200 - Exempt from congestion charging in Stockholm - Reduction by 40 % of fringe tax value (max 16000 SEK) UK - Subsidy on 25 % of vehicle price max 5000 pound 6500 - Exempt from road tax - Exemption from congestion charging in London USA - Federal tax credit up to 7500 USD 5650 - Other incentives at state level The monetary values indicated in table 5 represent the sum of all the available incentives in each country. In many countries vehicle taxes are based on car characteristics that are not always applicable for electric vehicles such cylinder volume and tail-pipe CO 2 emissions. It is thus not obvious what the actual savings for the buyer is, i.e., what car would he/she have bought instead. In these cases the tax or fee for an average car was calculated and considered to be the incentive. The logic behind this method is that it would be the average saving given a random consumer (however it is possible that the early adopter will not have the same preferences as the average population). Exemption from price related measures (such as VAT) were derived from an average car price. Nonmonetary incentives and local incentives such as exemptions from congestion charging and access to buss and HOV (high occupancy vehicle) lanes were not included. Thus the actual economic saving for an individual customer may vary from the figures above. As an example, for California residents the federal tax credit of 7500 USD is complemented with a state purchase rebate that until July 2011 was of 5000 USD (later it was reduced to 2500 USD). 18

Figure 1. Share of electric vehicles sold (line) and consumer incentive (in Euro) per country in 2011 Norway had the largest share of EVs sold, slightly over 1 %. Denmark and Austria are the second and third around 0.2 %. Portugal, France, The Netherlands, Sweden, Germany and the UK have shares between 0.05 % and 0.1 %, while the remaining countries have shares under 0.05 %. Sources Sales statistics were collected from the EU monitoring for the member states for 2009 and 2010, exempt from Norway and the USA where national registration data was used. The EU monitoring data was double checked with national sources when these were available. EV sales up to June 2011 came from JATO for the European countries (including Norway) and hybrid cars digest (specify) for the USA. For sales numbers of all cars ACEA records were completed with sales of JAMA cars. KAMA sale records were not available and thus the share of KAMA vehicles was based on previous years share. EV sales numbers do not include demonstration fleets since such vehicles are not sold on the regular market and are not subjected to sales incentives. Energy prices are taken from OECD - IEA Statistics, Eurostat and Energy EU. Income data is collect from Eurostat and the World Bank. Information about the incentives has been collected from national websites. Sources for the incentives are national webpages (when this information was not available, Altermotive (2010) and the Tesla website 24 was used). 24 http://www.teslamotors.com/goelectric/incentives 19

Model specification Based on data availability and the objective of the study a cross-sectional model was chosen, expressing market share per country as a function of socioeconomic variables and the monetary value of the incentive. The model specification is given as: log s it = α + logβ 1 y it + β 2 logpf it + β 3 logpe it + β 4 r it + ξ it (1) The subscript i denotes the specific country and t the year observed; y is the income; pf the price of fossil fuels (taken as the average between gasoline and diesel); pe the price of electricity; r the monetary value of the incentive to the consumer (see Table 2); and ξ is a random term. Considering that the development of an EV is still in a dynamic phase a variable that captures other development from 2010 to 2011 (yr) was included in some of the runs. A dummy for Norway was also added for specific runs. Due to the log specification, sales shares from 2009 were not possible to use (a lot of null-values). Sales shares from 2009 may also not be representative since in many fewer models (if any) were available for sale. The choice of the specification was based on model fitness. A level-level specification showed sign of heteroskedasticity and low F-values when robust estimation was performed, as well as omitted variable bias. The specification described in equation (1) was found significant even during robust estimation and the Ramsey test for omitted variables failed to reject the hypothesis of no omitted values (p: 0.296). The level specification of the incentive was chosen because the specification gave more plausible results, i.e., with the log specification an increase from very small incentives to slightly higher was overvalued. Results The regression results show that the incentive has a positive significant impact on the share of EVs sold (see Table 5) and the value of the coefficient is fairly constant (slightly lower when the Norway dummy is added). The interpretation of the coefficient in a log-level specification is: a raise of one Euro of incentive increases, in percent, the sales shares of EVs by the coefficient times 100, given all other variables are constant. Exemplified, 1000 Euro higher incentive would give 12 % increase in shares of EVs, within the same year and with the same energy prices and income. Since the specification is linear, the increase in percent of the share will be independent of the size of the incentive. Using data for Jan-Jun 2011, and presuming that the following 6 months would give the same number of cars sold, we can make some simple calculation. E.g., in Sweden an increase in incentive by 1000 Euro would give, during one year, an increase in sales of roughly 25 EVs (the total sales of EVs would be around 250). For the case of France it would give an additional 250 EVs. It should be noted that these are not predictions, but an attempt to illustrate the marginal effect of the incentives. The calculations are also presuming that all other conditions remain constant and econometric analysis presumes a steady state while the market for new vehicle technology is highly dynamical. 20

The other variables are not consistently significant and vary quite a lot depending on the exact specification of the model. Income is in some cases significant and has the expected the sign, i.e., countries with a higher GDP per capita have a higher probability to have a higher share of EVs sold. The coefficient for the price of fossil fuels also has the expected sign, positive, i.e., if prices for fossil fuels increase sales of EVs increase as well and is significant in two out of four cases. The price of electricity does not vary much between the countries and does not have a significant effect on the share of sales of EVs. Table 7. Results from the regression with share of EVs sold as dependent variable; the basic model (1) as described in equation (1), with only year added (2), with only a dummy for Norway added (3), with year and Norway added (4). (1) (2) (3) (4) VARIABLES Basic With year With Norway dummy With year and Norway dummy Income 1.117 0.986* 0.935 0.639 (0.745) (0.490) (0.797) (0.489) Gas & diesel 3.064** 1.385 2.656* 0.515 (1.248) (1.023) (1.322) (0.984) Electricity -0.895-0.271-0.666 0.197 (0.945) (0.645) (0.991) (0.502) Incentive 0.000111*** 0.000120*** 8.75e-05 7.65e-05** (3.67e-05) (2.64e-05) (5.34e-05) (2.91e-05) year 1.639*** 1.748*** (0.333) (0.300) Norway dummy 0.945 1.758** (1.023) (0.690) Constant -22.79*** -37.13*** -20.32** -33.48*** (7.402) (4.872) (8.207) (4.717) Observations 28 28 28 28 R-squared 0.493 0.767 0.505 0.808 Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 The coefficient for the variable year is significant and positive illustrating that there has been an increase in sales that is independent of the other variables (as can be seen in Table 7). This captures changes between the years, such an increased number of EV models available, more knowledge and other factors and trends that are hard to quantify. A highly significant constant is a sign that there are effects, even at country level that the model does not capture. Limitations of the analysis are discussed in the next section and a framework for a more comprehensive model is discussed in last section Next steps. Norway is the country with the highest share of EVs sold and is also the country with the most extensive incentives. The monetary value of the Norwegian rebate has been hard to quantify since their approach has, besides pure monetary subsidies, also included access to bus lanes, exemption from road tolls, free parking and charging in some cities. To take into account these other incentives a dummy is introduced for Norway (model 3 and 4 in Table 7). In the model without year none of the 21

coefficients are significant but in the model with year, the incentive, year and Norway dummy are significant. The magnitude of the incentive coefficient is roughly the same, even if slightly lower, implying that some of the effect is captured by the Norway dummy instead. The coefficient for the Norway dummy is positive and significant, as expected. Using the coefficient for the incentive in model (4) would imply for Sweden that an additional 1000 Euro subsidy would result in 15 additional EVs sold instead and in France roughly 70 additional EVs sold during a year. The regression analysis was expanded to include two possible sources of heterogeneity between countries that might affect sales of EVs: environmental awareness or concern and the level of urbanization. In order not to lose degrees of freedom the two price variables were replaced by the ratio of the price of electricity versus the price of fossil fuels (pe/pf).the share of votes for the green party in the latest election served as a proxy for environmental concern/awareness. However, adding this variable did not significantly change the value of the other coefficients and the coefficient itself was non-significant. The same holds for a regression where the level of urbanization, variable taken from CIA World fact books, was introduced instead. Limitations The sales data itself might not always be reliable. E.g., in the official monitoring there are no sales of electric vehicles in Denmark in 2009 and 2010, despite their being a fleet of approximately 400 vehicles. Additional searches have been made and for some countries conflicting numbers of sales have been found. Thus the sales numbers used are not always the exact same as in the EU monitoring. Sales number at this early stage of the market may not at all be governed by incentives and economic factors but rather from the availability of models and supply side constraints. In many countries the electric vehicles are small city type vehicles that might not satisfy the expectations of the consumer. In Sweden the fact that flex-fuel vehicles were available in the most common car segment facilitated their market penetration. For diesel vehicles the large increase in sales also corresponded with more models achieve better drivability and being fitted into popular car models such as Volvo station wagons (Sprei, 2010). Supply side constraints have also a limiting effect on the market sales (GM has claimed this has been the case for slow sales of Chevy Volt in the US during the summer of 2011, however, this has been questioned). It should still be kept in mind that this is the market environment that these early incentives are functioning in and thus this study can give some insight of how they function under these circumstances, i.e., it gives insight of the effectiveness of the rebates despite these constraints. One question that might be of interest is how the OEMs react to consumer incentives. Does it spur the production and launching of new vehicles? In the US, the States where the Nissan Leaf and the Chevy Volt were launched corresponded with the States that had incentivized the sales of Hybrids previously. A dynamic supply side model would however need a much more detailed dataset than what was available for this study. Unobserved attribute preferences may differ between countries, i.e., an average Italian values attributes of a car differently from the average Swede as the differing national car fleets witness. At the same time diffusion studies find similarities among early adopters in many different cultural setting (Rogers, 2003), thus it is plausible that this group of customers have more in common than the average consumer. 22

The role of infrastructure and charging stations is not at all captured, primarily due to lack of data. The case of Norway, where a lot of effort has been put in to charging stations gives an example of its importance. However, since home charging is the main alternative for most business models, the future role of public normal and fast charging stations, respectively, is not yet clear. Another model that with a spatial dimension might be more suitable for analyzing the role of charging infrastructure. Economic considerations To calculate the costs of the direct incentives to the consumer for a number of countries we multiply the calculated subsidy in Table 4 with a proxy for all the electric vehicles sold during a year. The approximation used in this calculation is a doubling of the amount of EVs sold Jan-Jun 2011. This gives an idea of the size of total incentive costs, including revenue loss due to exemptions from registration taxes. The latter type of revenue loss may sometimes be hard to calculate when the tax value is based on characteristics that are not applicable for EVs (such as cylinder volume and tailpipe CO 2 emissions), since it is not possible to know what car the EV has replaced, i.e., what car the customer would have bought instead. The average car tax here serves as proxy. If the measure is purely fiscal, such as VAT or based on the sticker price of the car, then the exact cost could be calculated if detailed sales statistics and price info would be available. However this was not the case and thus average prices have been used instead. The results of the calculations are presented in Table 8. High incentives to EVs could easily sum up to high amounts if the market takes off, however most governments have capped either by the total amount designated for the subsidy or by the total amount of vehicles that may receive the subsidy. Fuel taxes are a large fiscal income for many countries and thus a shift to electric vehicles would imply that part of this revenue would be lost. Based on average fuel consumption of new vehicles and average vehicle kilometers traveled per vehicle an estimated loss of revenue from the cars sold during one year are calculated. These are net losses, i.e., the increased income from electricity taxes is subtracted. The losses are also not from the entire EV fleet but for only those sold during one year. Since the calculations are linear, they can easily be increased to the total revenue loss. For Austria, e.g., if the fleet is roughly 1500 EVs the fuel loss would be approximately 500 000 Euro. The losses and costs for the countries are summarized in Table 8. Since taxes are quite similar in each country the loss of revenue from fuel taxes is mainly due to number of vehicles sold. The cost and benefit of local and regional initiatives such as free parking, use of bus lanes or the presence of infrastructure are difficult to calculate consistently but certainly do exist. We do an attempt for Sweden below. Exemption from congestion tax is calculated as the maximum fee for one day, times the working days of a year. 23

Table 8. Overview of costs during a year for the EVs sold during that year subsidies plus losses due to lost revenue from fuel taxes Country Vehicles sold Subsidy Cost (Thousand EUR) Net fuel tax loss (Thousand EUR) Austria 694 4200 230 Belgium 170 1500 43 Denmark 566 9600 260 France 1906 10500 640 Germany 2040 500 910 Ireland 72 500 32 Italy 206 0 80 Netherlands 538 1900 280 Portugal 186 1100 50 Spain 244 1700 60 UK 1198 7800 650 The results from the econometric analysis can be used to calculate the marginal price for each added vehicle if e.g., the incentive would increase with 1000 Euro. The marginal price, 9 300 Euro, is the same for all countries since the percentage increase of sales shares is the same. The marginal price is calculated on the presumption that the other EVs would be sold by the old level of the incentive, however they still receive the new higher incentive. The increased cost is thus 1000 Euro times all the EVs sold, but it is only the net increase in vehicles that is actually the result of the larger incentive, we thus divide by the marginal increase in vehicles (in the case of Sweden 25). 9 300 Euro is quite a high subsidy; still it might be warranted at an introductory phase of a new technology. It is also cheaper than the government directly buying the vehicles for demonstration fleets, which may be an alternative to make EVs visible. There are likely dynamic effects from incentives, especially combinations of incentives as discussed later in the study; incentivizing by building infrastructure which actually works with the fleet being introduced has positive dynamic effects, in that what is built actually gets used. Reduction of the purchase price has the opposite effect the more efficient the incentive, the more expensive it gets. Sweden and the new incentive supermiljöbilspremien For the case of Sweden we calculate the effect and the cost of the recently approved incentive supermiljöbilspremien, i.e., an increased incentive of 40 000 SEK for the purchase of an EV. Based on our calculations 300 EVs will be sold during a year if the new subsidy is introduce, leading to total annual expenses of 12 million SEK in direct subsidy. There is also a loss of revenue from the 5 year exemption of registration tax. This loss ranges from 100 000 SEK to 200 000 SEK per year depending on if it is calculated based on what an EV would have to pay or to the tax paid by the average car. The net loss of income from fuel taxes during a year (but taking into consideration that the income from the tax on electricity) is in the magnitude of 1 million SEK (based on average vehicle kilometers travelled during a year and average fuel consumption). If we look at the cost of a local incentive such as the exemption from congestion charging, the first challenge is to calculate how many cars will be using the incentive. In a high cost estimation we 24

presume that the geographical distribution of EVs will be same as for conventional vehicles and that the vehicle would use the maximum amount for passing during a day, i.e., paying 60 SEK, 5 days a week during 45 weeks (thus allowing for 7 weeks vacation). The loss of revenue would be 500 000 SEK during a year if all the EVs sold to Stockholm city (i.e., 41 based on our calculations) would use it and roughly the double if we instead count the cars that would be sold in the whole Stockholm region (län). Of course these calculations are only to give an idea of the magnitude of the loss of revenue rather than be taken as actual numbers. During a year the total estimated costs for the incentives for EVs in Sweden is 15 million SEK. These figures do not include the cost for infrastructure or any kind of RD development. This means 50 000 SEK per car, i.e., 10 000 SEK more than the pure subsidy. Cost for incentives in Norway We have chosen to look a bit more in detail in the Norwegian case since the level of subsidies are so much higher here than in other countries and since the subsidies have many different characteristics. The calculation of the total costs is not straightforward since incentives are based on tax exemptions and not direct subsidies. The taxes will depend on characteristics of the vehicle, not necessarily applicable for an EV, which leads to the question what vehicle has been substituted by the EV. Given the special characteristics of the EVs offered, it is not evident that buying the EV is a substitution, i.e. the consumer might have refrained from buying any other vehicle). The organization Grønnbil made a calculation considering that the alternative car was a WV Polo Bluemotion (i.e., a low emission diesel) and 1500 EVs sold during a year, the loss of income to the state would then be 81 million NOK (Grønnbil, 2011). If instead the level of incentive used in this study is considered (calculation based on an average car instead) the loss of income would be 150 million NOK instead. Grønnbil also compute what the net loss from fuel taxes (i.e., also considering there is an income from electricity taxes) and find this to be around 8 million NOK. The loss of revenue due to exemption from road tolls and free parking summed up to 51 million NOK. The total loss of revenue, during one year, is thus in the order of 140 million NOK. There have also been direct investments in charging stations. Transnova, the new Government agency assigned for sustainable transportation, received investment money in the magnitude of 50 million NOK for this purpose (Grønnebil, 2011). Another study estimates the total loss of revenue from public parking between 2012 and 2020 to be between 267 and 356 million NOK (Eriksen & Hansen, 2010). Incentives for electric and hybrid HDV It is important to pursue alternatives for the propulsion of heavy-duty vehicles (HDV) for several reasons. Road transport (together with waterborne transport) is the type of transport most dependent on fossil fuels, and heavy transport is increasing more than passenger car traffic on our roads. Time is of the essence, since heavy-duty vehicles supply a lot of European transport services. Further, since two of the world s large producers of heavy-duty road and off-road vehicles are based in Sweden, there is also industrial relevance in the development of alternative propulsion systems (energy source energy carrier distribution vehicle market) for these vehicles. 25

A total of 816 000 buses and 34 million trucks operate in the EU (EU, 2010). Heavy duty vehicles may, from a market perspective be divided into five main segments. Inner city buses Peri-urban traffic buses Heavy city distribution Trailer tractor Off-road vehicles Even more than for light-duty vehicles, it is important to note that the different vehicle types show different patterns as to type of ownership and operation. Incentives for the respective categories likely must be designed differently, even though the incentive cost per vehicle should be aligned as far as possible. Heavy passenger and goods transport is the category with the highest dependency on fossil fuels and especially goods transport is increasing more than passenger cars in vehicle miles (and ton-km). Apart from some urban public transport, most heavy vehicles are fueled with diesel and used only commercially. Commercial conditions mean that the total economy (investment + operations + end of life) is monitored closely, and that there is a focus on uptime. Demand for a given model is less guided by soft factors compared to light vehicles, although such factors will influence selection (Sköld, 2007). Further, off-road (construction) machines is a complex area, even if the discussion is limited to wheel loaders. Such vehicles have two separate power systems, one for propulsion and a hydraulic system for the bucket or similar. The electrification of heavy road vehicles have been discussed for most segments, albeit with very different means; city distribution with battery electric small trucks, public transport with fast charging or long-haul road transports with continuous electric supply. Demand, and thus incentives, for these vehicles can thus originate in climate change mitigation, improved local environment, industrial development, or, in time, reduced availability of fossil fuels. In Table 9, an overview of the characteristics of ownership and other factors for each category, regarding conventional diesel fuel vehicles, is presented. A shift to electric drive for each category would likely alter or even eliminate the second-hand markets (e.g. phase 3 and 4), which could affect second-hand value. Table 9. Vehicle manufacturer s association view of the life span of a heavy-duty conventional truck or trailer tractor 25 Usage phases Period Use Note 1st phase first 2 3 years Optimization, intensive use, international routes 2nd phase 2 3 years Regional routes to 8 10 years 150 000 km/year Engine renovation (the truck may have un 1 million km by then) 3rd phase 10 12 years Local use or exportation (1.2 million km) The truck may be totally rebuilt and used for different purposes 4th phase Up to 20 years Minor use during the last two phases 25 Press statement, 27 March 2005 by CCFA, the French Committee of Automobile Manufacturers 26

Hybrid buses and trucks, just as (full) hybrid passenger cars, do not require any special infrastructure, so the present focus on hybrid buses does not require infrastructure development. A typical urban driving cycle includes a lot of acceleration, deceleration and complete stops, and around half the time at standstill, which would permit underway charging. For distribution vehicles, the loading bay could be made into an inductive (or conductive) charging zone. The development of infrastructure, compared to passenger cars, could be managed on a more local basis for several segments, allowing for development of several systems according to local demand, for later judgment by the more laggard market actors. Hydraulic, flywheel, and battery/supercap energy storage is possible. For longhaul transport, electrifying the highways either by overhead cables (like trolleybuses) or by conductive or inductive continuous supply from the road itself is discussed. The incentive of established electric highways must in this case precede the development of a market, a step which is nowhere close to being taken, while this option is closely monitored on several markets. One of the factors that facilitate technical change for buses is that, especially when compared to trucks, the vehicle has the same owner and location/route throughout a major share of its useful life, which reduces the importance of residual value and ownership of battery and infrastructure. Diesel hybrid buses are now on sale through regular channels, albeit in limited numbers 26. The Swedish bus manufacturers discuss the market for hybrid buses during the present decade in tenths of percent it is even argued the conventional bus may become extinct as to sales. During the same period, demand for electric drive buses is expected to reach 5 % of the market, while electric drive trucks see a potential of around 10 %. The low forecast depends on the difficulty in establishing sustainable incentives, the new regime/technology remains costly and fuel price levels are not expected to deviate substantially from the general trend of the last few years 27. Demand is more driven by direct demands, such as the city of New York, where requirements for fleet operators have yielded a few thousand hybrid buses, but also by the better fuel economy and environmental performance which may outweigh the higher investment. A briefing during the HTUF conference in Baltimore in October 2011 presented the results of a study among potential hybrid truck buyers that suggests that incentives of 50 % of the incremental investment cost would suffice to attract buyers to the new technology 23. Since ownership for heavy-duty trucks is split both over time and often geographically, plug-in trucks or any type of infrastructure must be well developed to reduce economic risk and insecurity around the residual value of the vehicle. The more intense energy use per heavy truck or bus may facilitate the shift to a more cost effective fuel. For off-road and construction machines, the market is not yet established as to electric drive. Hybridization could be done using the hydraulic system of e.g. an excavator, and there is a host of topologies that yet have to find their way to the market (Filla, 2008). It is assumed that at present, incentives for electrification of off-road vehicles and construction machinery could be managed through funding specific RD&D projects and developing e.g. emission regulation that promotes clean vehicles. 26 http://www2.rejmes.se/default.asp?id=14109&ptid=1406 (in Swedish). 27 Interview with Nils-Gunnar Vågstedt, Scania and Niklas Thulin, Volvo AB, 2011. 27

Case Studies There are several examples where alternative fuels and environmentally enhanced vehicles have received subsidies and incentives of different kinds, and where the appetite of the customers as well as the interest of fuel industry to provide infrastructure has led to market success. The lessons learned from these are not easily included in a model in mathematical terms, but can be important for understanding the rationale of different actors also regarding Electromobility. Ethanol vehicles in Sweden During the 1990s, as electric vehicles were promoted in a national program in Sweden, also a national R&D + demonstration program on biofuels was carried out in Sweden, involving about 100 vehicles. In 1998 the City of Stockholm initiated a national procurement round for flex-fuel vehicles. The project created 3000 potential vehicle sales and Ford Focus was selected in 2002. Less than 1000 were actually sold, but Ford claims they would not have brought the vehicle type to Sweden without the project. The Ethanol vehicles were given an environmental seal, a form of incentive, on the basis that they were fueled with ethanol, and the term environmental vehicle or environmentally enhanced vehicle (miljöbil) was coined. Their right to use the label was later withdrawn as it was found that a lot less ethanol was sold than needed for the cars in circulation to actually be driving on E85, the ethanol fuel. From 2003 to 2010 the number of E85 fueling stations increased from 40 (Pohl &Sandberg, 2005) to 1000, in part due to a legal requirement from 2006 for all larger fueling stations to offer at least one type of alternative fuel. E85 was the cheapest option, and thus the offer of ethanol was greatly enhanced. Ethanol fuel is exempt of fuel tax (the brunt of the price at the pump for fossil fuels) but the Swedish demand for fuel ethanol is still very volatile and depends on gasoline price, import duties and the price of imported ethanol. If the per-km price for gasoline is lower, demand drops quickly. Demand also goes down in winter, since ethanol can make cars difficult to start in the cold. 600000 500000 400000 300000 200000 100000 30000 25000 20000 15000 10000 5000 Bensin E85 0 2011-09 2011-07 2011-05 2011-03 2011-01 2010-11 2010-09 2010-07 2010-05 2010-03 2010-01 2009-11 2009-09 2009-07 2009-05 2009-03 2009-01 0 Figure 2. E85 and Gasoline Co-variations, 2009-2011. (Source: Swedish Petroleum and Biofuel Institute, www.spi.se) 28

Between April 2007 and July 2009 cars classified as environment-friendly received a SEK 10 000 rebate. The cars included were conventional cars with CO 2 emissions under 120 g/km, cars that can be driven on alternative fuels and electric vehicles. While the stated purpose was to promote energy efficiency and limits were set on fuel consumption for flex-fuel and gas vehicles (Government Offices of Sweden 2009), these limits were so generous that all models available on the market received the rebate. The large share of environment-friendly cars sold (almost 35 % in 2008) could be interpreted as a success of the policy in terms of being a driver for sales of environment-friendly cars. However, 70 % of the environment-friendly vehicles were flex-fuel cars and 67 % of these were sold to so-called juridical persons, i.e., not private owners and thus not to persons eligible for the rebate. Flex-fuel cars have also received other subsidies, such as parking subsidies, in about 40 municipalities, including the three major cities (Stockholm, Gothenburg and Malmö) and exemption from congestion charges in Stockholm. Regression analysis has shown that these subsidies have had a significant impact on sales-statistics (Sprei, 2009 and Best, 2009). Flex-fuel vehicles have received subsidies at different levels; thus it is hard to attribute the high sales numbers to a single policy. The combination of subsidies has probably also increased the number of free-riders (see for example Chandra et al, 2010). Compared to 2008 the sale share for flex-fuel vehicles have decreased from 23 % to 12 % in 2010 (Trafikverket, 2011). This decline could be attributed to the change in incentives as well as the difference in media attention. The 10 000 SEK rebate has been shifted to a 5 year exemption from the annual vehicle tax. Many of the municipalities that previously had free parking for flex-fuel vehicles do not offer any more this incentive. At the same time the environmental friendliness of the ethanol has been questioned in the media, following amongst other high global food prices. As to heavy vehicles, cities and organizations procuring both passenger cars and ethanol buses received climate Investment grants (KLIMP) to introduce the new technology between 2003 and 2008 28. This is also a form of incentive, seen as an important step to mitigate emissions of climate gases. MAUT in Germany The toll system for trucks on German highways was designed to compensate for road wear and check environmental impact from both national and foreign traffic has been in place since 2005. Foreign traffic constitute about a third of total volumes in Germany. The fee is charged all trucks above 12 tonnes, based on distance and vehicle emission class. Class A, the lowest tariffs, is for vehicles certified as EEV (Environmentally Enhanced Vehicles) in the EU. EU has proposed that in time the system should encompass all vehicle classes in a harmonized European Electronic Toll Service according to directive 2009/750/EG. A makeover of the transfer system was made in 2009, harmonizing the system according to the earlier EU directive 2004/52/EG, increasing the fee span between high (Euro I) and low emitting vehicles (Euro V) to the maximum allowed 100 %, and distributing the 600 MEUR revenue from the toll to relevant areas such as reduction of other vehicle taxes, to support investment in EEVs, etc. 28 http://www.naturvardsverket.se/documents/publikationer/978-91-620-8468-4.pdf 29

The German government has found that the fee has brought two types of effects. One is that the number of trips performed without payload has been reduced. The other is the stimulation to invest in cleaner trucks. However, it has not contributed as expected to shift freight traffic to other modes of transport. A secondary effect is that traffic has diverted, where possible, to roads that are not included in the MAUT system. During the first 18 months of operation, the toll system in the period from 2005 to 2006 alone the proportion of truck mileage on German motorways accounted for by low-emission, pollution standard Euro 5 trucks rose from one to six per cent. The proportion of total mileage driven by Euro 1 and Euro 2 trucks (older vehicles with less strict emission requirements) decreased by almost exactly the same amount. While there were other reasons for changing to vehicles with lower emissions, such as access to environmental zones in cities, the toll is assumed to have contributed both to acquisition of new vehicles and reduced use of the older vehicles. According to BAG (the German freight transport agency), many companies that used their vehicles for long-haul transport, i.e. on MAUT roads, had shifted over to Euro V in 2006, whereas some companies with more local traffic had continued to purchase new Euro III vehicles, e.g. to be able to operate on the cheaper biodiesel fuel, that is not compatible with Euro V technology (BAG, 2006). Conclusions Conclusions are drawn those from the different parts of this study: the econometric model runs, policy overview analysis and the case studies, ending with a final synthesis. econometric study The econometric analysis shows that the consumer incentives have a significant positive effect on the sales of EVs in the studied countries. Regression results show that 1000 Euro of increase of incentive would give 12 % increase in share of EV sales, within the same year and with the same energy prices and income. Given these numbers, the implementation of the subsidy for EVs that is planned for Sweden would imply that an additional 100 EVs would be sold during a year. The total sales number for a year would thus be around 300 EVs. It should be noted that these are not predictions, but an attempt to illustrate the marginal effect of the incentives, and the calculations are also presuming that all other conditions remain constant. Previous estimations of future sales of e.g. ethanol vehicles in Sweden largely underestimated the impact of incentives on sales (Sprei, 2009). Econometric analysis and other economic models often presume a steady state while the market for new vehicle technology, and often its incentives, are highly dynamic. There are also a number of other issues such as consumer preferences and attitudes, media attention, model availability that play an important role and may boost (or decrease) sales numbers. These are not captured in our analysis. policy overview analysis Studies that have analyzed the effect of consumer incentives on the sales of hybrid LDVs find that they played and attribute around 25 % of the sales to subsidies. While subsidies may boost sales, their cost-efficiency has been questioned. High gasoline prices are also found to be important for increasing the electrification of the vehicle fleet. Looking at subsidies for PHEVs and BEVs, the analyzed studies highlight these as an important (and in some cases necessary) element to facilitate the market introduction of these vehicles. 30

Other incentives than purely monetary subsidies also play a role. In our econometric analysis, when a dummy variable was introduced for Norway, in order to capture the large number of incentives, this turned out to be significant. Surveys in Norway have also shown that the access to bus lanes was important for their choice to purchase an EV (Prosam, 2009). Access to fast charging station seems to help increase the utility, and over time maybe also the attractiveness of EVs. While studies in the US give relative little importance to the access to carpool lanes for hybrid vehicles, it is possible that more research is needed to identify the utility of non-monetary subsidies. The cost for the incentives vary between 10 million Euro to 80 000 Euro, depending mainly on the magnitude of the subsidy for the consumer. For Sweden the new incentive for EVs would yield costs around 15 million SEK, including revenue loss from fuel taxes. We have not looked into the specific cost-effectiveness of the subsidies, while studies in the US have questioned the economic efficiency of subsidies for hybrids. Subsidies and incentives to consumers may create free riders and considering the technology to be quite an expensive one (even when the subsidies are taken into consideration) these incentives could be seen as yet another way to support the richer part of the population. The question is also what the objective of the incentive is, e.g., if solely CO 2 emission reductions are the goal than a carbon tax would be the cost- efficient measure, at least in the short run. Incentives for new technologies might be warranted to facilitate and accelerate their introduction. From a national perspective their might be other interest for promoting EVs. In the case of Norway the existence of two national EV producing companies might have played a role, as for other car producing countries. Both Denmark and Germany see the potential for an EV fleet to balance a grid that is continuously more and more dependent on renewables. For buses, the present development tiered environmental regulation could function as an incentive also for electric drive vehicles if designed also to regard new drivetrains and fuels. For goods transport, to fund technology verification projects (e.g. demonstrators) and in time infrastructure development and may be a means to introduce new technology and reach a phase where more regular per-vehicle incentives would be functional. case studies The MAUT system in Germany shows that also through truck tolls, technical change has been enhanced. One can assume that if German highways, and elsewhere where the road would be modified to continuously supply electric or hybrid vehicles with power, this would be reflected in the tariffs and speed up the introduction. Drawing from the case study on ethanol, it is also likely that hybrid users will be more eager to charge their vehicles if the cost for electricity+ tax+ battery leasing or depreciation cost per km will be significantly lower than the cost per km for gasoline, even if it is questionable that customers will be making very detailed calculations. The market for flex-fuel cars in Sweden was in part artificially driven by incentives, and sales have been cut to half as incentives were reduced. It is also possible that the discrepancy in cost per km driven between electricity and fossil fuels will be a driver for increased EV and hybrid sales. Municipalities have also received grants to invest in new technology regarding e.g. public transport. 31

synthesis Both our econometric analysis and literature review show that consumer incentives will most probably have a positive effect on the sales of EVs. However the cost-efficiency of these measures is questionable, at least in the short run. There are still questions on how to be able to create an independent market that will not have to rely on subsidies, and also how a transition could take place is still an open research question. In order to address these questions and to get a more comprehensive view of how a transition of the vehicle fleet can be achieved, other issues such as non-monetary values, consumer attitudes and concerns such as range anxiety, as well as structural issues such as the availability of charging infrastructure have to be included. In the next section we outline a conceptual framework of a model that would be able to come closer to addressing these issues. 32

Next step: Conceptual framework for extended market model When deliberating upon the purchase of a vehicle, the agent (here considered a household) will choose the vehicle that provides them the highest utility (U). The utility that household i derives from vehicle j can be specified as U(ζ j, ξ j, κ i, ν i, δ). Where ζ j are the characteristics of the vehicle j; ξj are the economic issues related to vehicle j; κ i are the characteristics of the household i; ν i are the perceptions and attitudes of the household i; δ are the geographical characteristics of the country or region that the household i lives in (see Fig. 1 for further specifications of the characteristics). Household i will choose vehicle j if and only if its utility is larger than all other vehicle s: U(ζ j, ξ j, κ i, ν i, δ) U(ζ r, ξ r, κ i, ν i, δ), for r = 0,1,.J. The alternative zero represents the alternative of not purchasing a car. Characteristics of vehicle (ζ): - Power - Inner space - Range -. Characteristics of household (κ): - Number of members - Income Economy (ξ): - Capital costs - Fuel costs - Incentives -. Utility of vehicle Geography (δ): - Charging infrastructure - Urban structure Perceptions and attitudes (ν): - Environment - New technology - Social benefits -. Media Social networks Figure 3. The utility a household derives from a vehicle depends on: characteristics of the vehicle, economy of the vehicle, characteristics of the household, their perception and attitudes and the geographical characteristics of the region they live in. The media and the household s social networks influence perception and attitudes. This chart is under development. 33

The aim of the study is to formalize the utility function and the interactions depicted in Fig. 1, i.e., characterize how the terms: ζ j, ξ j, κ i, ν i, and δ, affect U. For each term, the salient characteristics are defined and specified. Influences are mapped: both between the specified terms and from exogenous factors, e.g. perceptions and attitudes are influenced by the media and the social networks of the household. This will be done with the help of the results from this report and from a review of the concerned literature of behavioral economics, adoption theory, and choice models. The purpose is to better understand and model more accurately the adoption process in order to evaluate the influence of policies and identify policies that might be needed to stimulate the sales of new technologies in the vehicle market. Characteristics of the vehicle include consumer amenities such as acceleration capacity (possibly approximated with maximum power) and passenger space. For evaluating EVs the range of the vehicle is also important, for PHEV and range extended vehicles it is possible that a distinction should be made between pure electric range and total range, refueling time, fuel consumption/emissions. There are also a number of attributes that are not that easily quantifiable but that plays an important part in car choice, such as design, status, brand related special features and symbolic value of the car brand/model (Heffner et al, 2006; Sprei&Wickelgren, 2011). Economy include the capital costs for the purchase of the car (for an EV it is possible this may include charging equipment as well); depreciation value of the car (possibly in the form of resale value), fuel costs for various types of fuels (gasoline, diesel, electricity and possibly even other fuels such as ethanol blends and natural gas), maintenance and insurance costs. Here is also were the incentives may enter the model, both monetary and non-monetary (see Table 6 for an overview on type of incentives). Geography groups inputs such as population density, charging infrastructure (number of charging stations and their distribution, convenience and type of charging, charging speed and type, e.g. if it is battery swapping, access to public transportation. Characteristics of the household include number and age of the members, income; commuting distance, characteristics of previous car. Relevant perceptions and attitudes are the households view/level on the environmental concern, propensity to new technology, perception of the social benefit of e.g. EVs, concern about energy security or oil dependency. These may be influence by the social surrounding, thus effects of clustering, not only geographically but also connected to the personal network and work environment, or so called neighborhood effect should be considered. The media also plays a role in influencing the attitudes and perceptions, also price sensitivity and rationality of the consumer. This is an ideal list of input factors. It is possible that some of these are redundant. Models should be kept as simple as demanded while still trying to capture as much as the dynamic as possible. Need of a lot of data input even in the form of survey data for the attitudes and perception 34

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