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  5. EVs and Solar Panels: The Effect of Subsidies, Tariff, and Regulatory Risks
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EVs and Solar Panels: The Effect of Subsidies, Tariff, and Regulatory Risks

Paper Session

Saturday, Jan. 8, 2022 3:45 PM - 5:45 PM (EST)

Hosted By: Econometric Society
  • Chair: Panle Jia Barwick, Cornell University and NBER

Attribute-Based Subsidies for Energy Efficient Products with Market Power

Panle Jia Barwick
,
Cornell University and NBER
Hyuk-soo Kwon
,
Cornell University
Shanjun Li
,
Cornell University and NBER

Abstract

Attribute-based subsidies are commonly used to promote the diffusion of energy-saving technologies such as electric vehicles (EVs), solar panels or more efficient home appliances. Markets for these products often exhibit market power. The effectiveness and welfare impacts of these subsidies hinge not only on consumer preferences for product attributes and firm costs but also on the interaction of the subsidies with the market power. This paper examines consumer demand, product attribute choices, and welfare consequences under different subsidy designs. We first develop a stylized model to illustrate the interaction of attribute-based subsidies with market power and it implications on optimal policy choices. We then estimate an equilibrium model of vehicle market with endogenous product attributes using comprehensive data on China's vehicle market where EV subsidies are based on driving range.
Our analysis shows that relative to flat subsidies, range-based subsidies incentivize automakers to downsize EVs, leading to a modest environmental gain at the expense of a large consumer welfare loss. In contrast, subsidies based on battery capacity or vehicle weight could have a large welfare gain by reducing the under-provision of these attributes due to market power. Our paper highlights the importance of incorporating market power considerations in designing attributes-based policies.

Strategic Avoidance of U.S. Solar Panel Tariffs

Bryan Bollinger
,
New York University
Todd Gerarden
,
Cornell University
Kenneth Gillingham
,
Yale University
Drew Vollmer
,
Duke University
Daniel Yi Xu
,
Duke University

Abstract

This study examines the effects of a series of tariffs imposed by the United States on imported solar panels in 2012, 2014, and 2018. To do so, we bring together data on solar panel manufacturing, imports, and pricing. We first present evidence of tariff avoidance behavior by solar panel manufacturers, including strategic offshoring of production. We develop a “strategic tariff” measure that accounts for this tariff avoidance behavior, and we find that strategic tariff rates differ substantially from statutory tariff rates. In particular, they are much lower than statutory rates in 2012 and 2014. In contrast, avoidance of the 2018 tariffs was more difficult due to their broad-based nature, and this is reflected in higher strategic tariff rates. We embed these strategic tariff rates in a model of manufacturer competition to quantify the real impacts of tariffs on solar panel prices, solar panel adoption, and heterogeneity in manufacturers’ responses.

Evaluating Supply- and Demand-Side Subsidies in California Electric Vehicle Pricing

David Rapson
,
University of California-Davis
Marc Rysman
,
Boston University
Reid Taylor
,
University of California-Davis
Shuang Wang
,
Boston University

Abstract

The growing market penetration of electric and alternative fuel vehicles is one of the most visible and closely watched developments in the decarbonization of US fuel use. The increasing adoption of electric vehicles is driven in part by long-term changes such as technological development and customer acceptance and in part by explicit government subsidies to both consumers and manufacturers. This paper seeks to evaluate the role of these subsidies in the price and sales of automobiles. We focus on the extensive subsidization schemes in the state of California. These subsidies take the form of consumer subsidies for purchasing alternative fuel vehicles that vary by income and other characteristics. In addition, California imposes the ZEV mandate, which creates a tradeable permit that is awarded to producers of fuel-efficient vehicles and must be purchased by producers of fuel-inefficient vehicles. The ZEV mandate acts as a subsidy to electric vehicle manufacturers and can range above $10,000 per vehicle. We believe that our paper is the first in economics to study the ZEV mandate program.

We obtain data drawn from the California Registry of Motor Vehicles that reports the number of vehicles sold of each make, model, and year of production for each census tract and quarter of the year for five years leading up to 2018. We also obtain data on vehicle characteristics and manufacturer-suggested resale price. Our data are aggregate in the sense that we cannot match sales to the purchaser’s demographics but, at the same, with more than 8,000 census tracts in California, sales at the quarterly level are zero for most models and are almost always in the single digits.

We develop a model of demand that integrates over consumer types defined by variables such as household size, income, and home type (which affects whether a consumer can build a charger for an electric vehicle). To do so, we calibrate our simulation of consumers both to the census reports of the marginal distribution of these variables at the tract level and to the correlation of these variables across households as indicated by the Consumer Expenditure (CE) survey, albeit at a higher geographic level of aggregation, accounting for the number of households in a census tract. Our model predicts the probability of purchasing each possible quantity of each car, and so predicts a positive probability of zero sales. For a given set of parameters, we predict the expected number of sales of each vehicle in each tract, which we compare to the observed number to form a GMM estimator. We additionally impose “micromoments” drawn from the CE, covering relationships such as the correlation between household size and car size and housing type and electric vehicle purchase. Our specification allows consumers to respond differently to MSRP and to consumer subsidies as well as to fuel costs.

Our estimation delivers realistic parameter estimates of demand for both conventional and alternative fuel vehicles. We use a Berry-Levinsohn-Pakes (1995) type of first-order condition to infer the marginal cost of each product from our demand estimation. We adapt their approach to our setting of census-tract level demand with statewide pricing. We decompose marginal cost into an element due to traditional determinants of marginal cost and an element due to the ZEV tax or subsidy ZEV. Using our model and estimates of demand and supply, we simulate the market outcomes without consumer subsidies and without the ZEV program. We find substantially higher market prices and substantially lower sales of electric vehicles. Thus, we find that explicit subsidization plays a large role in the current adoption of electric vehicles.
JEL Classifications
  • L1 - Market Structure, Firm Strategy, and Market Performance
  • L5 - Regulation and Industrial Policy