The Impacts of Incentive Policies on Energy Efficient Vehicle Demand and Price: An International Comparison

Significant efforts to incentivize energy efficient vehicles (EEVs) are evident across the globe. Given EEV marketplaces are dynamic and that demand may fluctuate in response to incentives, this may also affect market forces to influence prices. An analysis of EEV incentives, therefore, must account for possible endogeneity between demand and prices. Here we estimate the effects of several different incentives on EEV demand and price premiums across 15 regions between 2008 and 2012. Using error components three-stage least squares (EC3SLS) regression, we dis-entangle the endogeneity between EEV demand and price, finding that increased price premiums lead to reduced marginal demand (MD) and aggregate demand (AD). In turn, increased MD leads to lower price premiums. Upfront subsidies (Type A incentives) are found to increase MD and AD, however, unlike other incentive types, also appear to lead to higher price premiums. We also find fuel price increases lead to higher MD, AD and price premiums. QC 20160509