How effective are subsidies for electric vehicles? An evaluation of Czech policy

• Thesis title in Czech: Jak efektivní jsou dotace na pořízení elektromobilu? Vyhodnocení opatření v ČR
• Thesis title in English: How effective are subsidies for electric vehicles? An evaluation of Czech policy
• Key words: Elektromobilita, Pobídky, Dotace, Slevy, Vyhodnocení opatření
• English key words: Electromobility, Incentives, Subsidies, Rebates, Policy evaluation
• Academic year of topic announcement: 2020/2021
• Thesis type: Bachelor's thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: Petr Pleticha, M.Sc., Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 19.07.2021
• Date of assignment: 19.07.2021
• Date and time of defence: 08.09.2022 09:00
• Venue of defence: Opletalova - Opletalova 26, O206, Opletalova - místn. č. 206
• Date of electronic submission: 02.08.2022
• Date of proceeded defence: 08.09.2022
• Opponents: Mgr. Milan Ščasný, Ph.D.

References

Bjerkan, K. Y., Nørbech, T. E., Nordtømme, M. E. 2016. “Incentives for Promoting Battery Electric Vehicle (BEV) Adoption in Norway.” Transportation Research Part D: Transport and Environment 43: 169–180
Gallagher, K. S., Muehlegger, E. 2011. “Giving Green to Get Green? Incentives and Consumer Adoption of Hybrid Vehicle Technology.” Journal of Environmental Economics and Management 61 (1): 1–15
Jin, L., Searle, S., Lutsey, N. 2014. “Evaluation of State-level U.S. Electric Vehicle Incentives.” The International Council on Clean Transportation
Künle, E., Minke, Ch. 2020. “Macro-environmental Comparative Analysis of E-mobility Adoption Pathways in France, Germany and Norway.” Transport Policy
Mersky, A. Ch., Sprei, F., Samaras, C., Qian, Z. 2016. “Effectiveness of Incentives on Electric Vehicle Adoption in Norway.” Transportation Research Part D: Transport and Environment 46: 56–68
Tietge, U., Mock, P., Lutsey, N., Campestrini, A. 2016. “Comparison of Leading Electric Vehicle Policy and Deployment in Europe.” The International Council on Clean Transportation

Preliminary scope of work in English

Research question and motivation
The issue of environmental protection is burning like never before. One of the economic fields subject to the biggest change in its history is the automotive. The latest Regulation (EU) 2019/631 sets annual emission targets for car manufacturers who are forced to decrease the average emissions of their produced vehicles. Every year onwards, these target levels will be stricter and will demand a higher share of low-emission vehicles in the producers’ fleets. As automotive plays an irreplaceable role in the Czech economy, the official governmental support for the outset of electromobility is necessary.
Countries all over the world provide different types of incentives to promote electric vehicles (EV) sales. These may include vehicle purchase subsidies, license tax or fee reductions or parking free of charge. Several studies of the effect of incentives on sales of the electric vehicles have been conducted during the last decade. For instance, Lingzhi Jin, Stephanie Searle and Nic Lutsey found 5 of the measures significant when conducting a regression of the EV sales on the state-level vehicle incentives in the United States of America. Apart from subsidies and annual fee reduction these also included an emissions testing exemption and an access to high-occupancy vehicle lanes which are reserved for vehicles with more passengers.
There have been already five EV subsidy programs organized by the Ministry of Industry and Trade of the Czech Republic in recent years, all of them designed for companies. The Czech Ministry of the Environment similarly support EV purchases in the public sector. In my thesis, I would like to examine and evaluate these policies to determine their significance on the rising share of EV on total car sales.

Contribution
Similar research to those conducted in other states on the issue of EV incentives is missing in the case of the Czech Republic, to the best of my knowledge. The results of proposed regression models might determine the effectiveness of existing policy measures. Along with foreign incentives description and evaluation it might also have substantial implications for future incentive programs promoting EVs.

I will focus on the evaluation of the previously mentioned EV subsidy programs provided by the Czech government in my thesis. The first grant call of the Ministry of Industry and Trade of the Czech Republic was announced in March 2016 with the receipt of applications from April 2016 until July 2016. 80 000 000 CZK was allocated for the electromobility promotion by the Ministry and all the projects accepted had to be finished by the end of 2018. Similar calls had been announced before the fifth (and also the latest one) came in the end of 2019. Applications had to be reported during the first seven months of 2020 and the term by which promoted vehicles should be purchased is the end of June 2021. The budget of all the provided subsidies was set to 150 000 000 CZK. In these calls, only companies are encouraged to register their project. For municipalities, regions, and other public entities (public universities and others) the subsidy program provided by the Ministry of the Environment of the Czech Republic is analogous. The last one of totally four up to this date with 100 000 000 CZK at stake finishes at the end of 2021.

The aim of this policy should be an increase in low-emission vehicles sales share and therefore in the case these measures are effective, they should have a significant role in the properly built econometric model of EV sales in time. I would like to use a similar structure in my models as Lingzhi Jin, Stephanie Searle and Nic Lutsey used in the already mentioned study of state-level EV incentives in the United States of America. Specifically, they conducted a stepwise regression expressed by the equation:
Log(EV sales) = ß0 + ß1log(total benefit for EV owners) + ß2log(total vehicle sales) + ß3log(percent income >$100k)
Afterwards they broke the total benefit for EV owners into separate incentives such as direct subsidy, annual fee reduction, emissions testing exemption or an access to high-occupancy vehicle lanes. I would differentiate from this model by using some more independent variables with an influence on EV sales, but I intend to get a similar set of results based on the models specifying whether direct subsidies play a significant role. Other studies examine the incentives in Norway such as the one by Avi Chaim Mersky, Frances Sprei, Constantine Samaras and Zhen Qian, who used local demographic data in the regions a lot in their regression model and I can use parts of their methodology as well.

Last but not least, the discussion of other factors influencing the rising EV sales might be necessary. In the mentioned study the total vehicle sales and the income variables were included in the regression model. However, there are many other of them such as gasoline price change, EV infrastructure improvements or batteries development enabling a greater range of the cars. Specifically in the case of the Czech Republic, the domestic manufacturer Škoda Auto and its products influence the market a lot with a share around 35 %. Hence, the launch of the new model Enyaq iV might increase the EV sales and this might also be captured by proposed regression models.

Methodology
In my thesis I would like to work with time series data for electric vehicle sales in the Czech Republic which are published by the Car Importers Association monthly. EV subsidies data will need to be processed manually as no monthly statistics of subsidies paid is available. In the grant calls published by ministries only total budget of subsidies and the implementation period are specified. Thus, in the proposed linear regression models with OLS estimates this independent variable might be included as a time dummy. Several models are to be created to compare the results as different factors may influence the total EV sales, such as total vehicle sales, change in wealth, gasoline price, or other incentives provided. Afterwards, I would test the hypothesis of significance of the governmental subsidies in order to evaluate this policy and determine whether it has the desired effect on the electromobility spread.

Outline
Abstract
Introduction
Literature review
Electromobility and its promotion in the Czech Republic
Description of data used for econometric models
Econometric models results, hypothesis testing and interpretation
Conclusion