Do Electricity Prices Affect Electric Vehicle Adoption?

Research Team: Erich Muehlegger (lead), David Rapson, and James Bushnell

University: UC Davis

Problem Statement: Although the upfront costs of purchasing an electric vehicle (EV) exceed those of a comparable conventional vehicle, the operational costs of an electric vehicle are lower than those of a conventional counterpart. These lower operational costs are often cited by manufacturers, EV advocates, and policymakers as a significant benefit of driving EVs, and in some cases, sufficient to justify the higher upfront cost. Yet, the question of how consumers value the future operational costs of driving an EV has been largely unexplored. Most drivers have extensive experience using and purchasing gasoline for conventional vehicles, and the academic literature largely finds that consumers incorporate the future operational costs into their purchase decisions in a rational way. But few drivers have experience with charging and using electricity as a transportation fuel. Research suggests that the typical consumer has a poor understanding of their home electricity bill and the marginal price they face when consuming electricity. And attempts to “educate” prospective EV buyers using savings calculators based on nation-wide electricity costs may provide a poor guide for buyers in parts of the country (like California) where electricity is significantly more costly. Whether consumers accurately assess the costs (or benefits) of using electricity as a transportation fuel has important implications for EV adoption and plans for deep decarbonization of the transportation sector through electrification. As carbon policy increasingly involves tradeoffs between energy sources, the relative prices of these sources, and consumer responses to them, becomes a critical component of that policy.

Project Description: This project examined highly disaggregated data on battery electric vehicle (BEV) purchases in California over the period from 2014-2017, when the BEV fleet in California tripled in size, growing by roughly 200,000 vehicles. The researchers used a novel identification strategy to measure the degree to which consumers incorporate future electricity costs into their vehicle purchase decisions. They then compared the rate of BEV adoption of households that live in census block-groups along the boundaries of the three major investor-owned utilities in California, where residential electricity prices are among the highest in the nation: Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric. Yet, in neighboring municipal electric utilities, residential electricity prices are often a fraction of those in the investor-owned utilities. To understand how consumers value electricity prices when purchasing EVs, the researchers compared the purchase decisions of similar households with similar commuting patterns of those who face very different electricity prices by virtue of falling on one side of the utility area boundary or the other. The found that fuel prices do indeed influence vehicle technology choice, although not to an equal degree. While consumers appear to be influenced by both gasoline and electricity prices when making adoption decisions, the influence of gasoline prices is roughly four to six times stronger, relative to operating costs, than is the electricity price. This asymmetry could be due to a combination of customer confusion about their marginal electricity price and the translation of that price to vehicle operating costs, relative to conventional vehicles. From a policy perspective, the results suggest that prospective EV buyers have a relatively poor sense of the true operational costs of a BEV, and as a result, may underweight the potential operational cost savings associated with purchasing a BEV.

Status: Completed

Budget: $61,160

Project Partner(s): California Air Resources Board

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Policy Brief(s):
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