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 Indiana University Bloomington

Economy edges out environment for governments plugging electric vehicles

July 17, 2013

Contrary to common belief, many of the world's most powerful nations promote the manufacture and sale of electric vehicles primarily for reasons of economic development–notably job creation–not because of their potential to improve the environment through decreased air pollution and oil consumption.

This is among the main findings of a study by researchers at the Indiana University Bloomington and the University of Kansas that analyzed policies related to electric vehicles in California, China, the European Union, France, Germany, and the United States–political jurisdictions with significant automotive industries and markets for EVs.

"Billions of dollars are being invested despite doubts that some express about the viability of electricity as a propulsion system," said John D. Graham, IU SPEA dean and co-author of the study. "The objective of many of these national and sub-national governments is to establish a significant position–or even dominance–in the global marketplace for these emerging, innovative new technologies."

Examining each jurisdiction's use of risk-management policies (e.g., those designed to reduce environmental and security risks due to oil dependence) or industrial policies (e.g., designed to boost fortunes of a specific technology or sector and increase market competitiveness) indicated the entire lifecycle of making and using EVs is viewed by policy makers mainly as an economic development opportunity. Specific findings include:

  • China: No carbon price has been established in China, where electricity is generated by high-carbon sources and fuel prices are relatively low; thus, its EV policies are geared toward establishing a competitive position in an emerging global EV industry. Unlike other developed nations studied, China is not already heavily motorized; since it can't penetrate the existing gasoline vehicle market outside China, it seeks to produce a large market share of its own future vehicle population and a growing share of the global EV market.
  • United States: As with China, the U.S. has no carbon price and relatively low fuel prices, so policies lean toward boosting market competitiveness, and massive economic-recovery investments have been made across the EV supply chain. But rapid growth in EV sales in the U.S. will not necessarily bring environmental progress, which is partly why EV policy in the U.S. is not seen as risk-management policy. Risk-management objectives such as energy independence and mitigating pollution are being achieved through regulation of other elements in the U.S. energy sector, such as diesel fuel refinement.
  • Germany: The least committed to EVs of the jurisdictions studied, Germany is nonetheless engaging in an industrial policy of hedging to protect the market share and viability of its premium car industry should electric propulsion gain a foothold in the worldwide premium car market
  • The European Union: The only entity studied that acts as a supranational regulatory state, the EU is also the only one where pure risk management related to EVs occurs. This may be because it lacks direct authority over any one country or because of potential political pressure from some member states to introduce policies that will benefit some states at the expense of others. That said, the EU appears to have a technology-neutral approach and has made some investments in research and development support for industry innovation.
  • California and France: California is the largest market for motor vehicles in North America, with 40 million residents and limited mass transit. In addition, its considerable pollution problems, created largely from the automobiles in the 1960s and '70s and particularly acute relative to other U.S. locations, make it an ideal market for EVs. Thus, it is motivated to promote EVs by a substantial blend of industrial policy and risk management–the same approach taken by France. Further, France already has a large amount of "green" energy from domestic nuclear production (about 70 percent of its domestic production share). Both California and France have made significant advancements in risk management policies, having the strongest voices among their peers for mitigating the effects of economic and industrial development that lead to urban air pollution, congestion, and climate change. At the same time, each jurisdiction is home to significant players in the EV industry (including investors) who will benefit enormously from a vibrant global EV industry. Thus, France and California see EVs as a technology that can foster economic development and environmental progress.

"The economic development potential largely lies in creating jobs and establishing an international foothold in a relatively young industry," said co-author Sanya Carley, an IU SPEA professor and specialist in energy policy. "Plus, going green for green's sake has always been a tough sell politically, which contributes to the focus on economic development in these policies."

The researchers didn't include two major players in the EV industry–Japan and South Korea–because of their well-known history in using national industrial policies to establish a dominant position in battery-technology, conventional hybrid engines, and EVs.

"Given the extent of industrial policy we uncovered, we urge scholars of competition law and trade to look carefully at these policies," said co-author Bradley Lane, an assistant professor in the School of Public Affairs and Administration at the University of Kansas. "Any semblance of commitment to trade liberalization seems to be lost when governments offer direct financial assistance to producers of batteries and electric vehicles, inducing an 'arms race' of public subsidies of products sold in a global marketplace."

"Government Promotion of the Electric Car: Risk Management or Industrial Policy?" (an article about this research) appears in the current edition of the European Journal of Risk Regulation.

John Graham
▲ John Graham

"Billions of dollars are being invested despite doubts that some express about the viability of electricity as a propulsion system," said John D. Graham, IU SPEA dean and co-author of the study. "The objective of many of these national and sub-national governments is to establish a significant position–or even dominance–in the global marketplace for these emerging, innovative new technologies."

Sanya Carley
▲ Sanya Carley

"The economic development potential largely lies in creating jobs and establishing an international foothold in a relatively young industry," said co-author Sanya Carley, an IU SPEA professor and specialist in energy policy. "Plus, going green for green's sake has always been a tough sell politically, which contributes to the focus on economic development in these policies."