Electric Cars from a Policy Perspective
Most questions about the adoption of electric cars cannot be answered without mentioning the role of policies.
Electric cars have the potential to solve a lot of problems. Governments intervene to stimulate electric mobility because it's their role to defend public interests.
Table of Contents
Public health policy
Air quality is a serious challenge in many cities today.
Traffic is the biggest source of air pollution in cities. It's responsible for 25% of particulate matter in the air. In fact, 50% of NOx emissions can be attributed to motor vehicles.
Because electric vehicles are emission-free and silent, they significantly improve the ambient air quality and the liveability of cities.
This is especially important given that more than 50% of the world’s population currently live in cities and that, between today and 2050, that number will increase by 2.5 billion.
Climate Change Policy
The threat of global warming is another reason why governments are interested in emission-free electric mobility.
In addition to NOx and particulates, ICE vehicles emit massive volumes of carbon dioxide (CO2) which is by far the biggest contributor to man-made global warming.
In 2015, 196 countries adopted the Paris Agreement, an international treaty which aims to limit global warming to 2 degrees Celsius, compared to pre-industrial levels. Within this framework, many countries made electric mobility commitments.
Some object that electric cars may cause indirect emissions at the site where electricity is produced. That is true but it's much more cost-efficient to remove CO2 from the flue gas of a large power plant than to handle the distributed emissions of millions of vehicles on the road.
And even if electricity is made from coal, the well-to-wheel emissions of fully electric vehicles are still lower than those of vehicles using fossil fueled internal combustion engines.
Moreover, as electricity is increasingly generated from renewable energy resources, the carbon footprint of the electric power system itself is gradually decreasing.
Governments are also concerned with the long-term security of energy supply. That is why they stimulate the exploitation of renewable energy resources (hydro, solar, wind).
Electricity from these sources is emission free in both generation and end-use. Unfortunately, the supply is variable. The amount of sunlight, water flow and wind vary by season and day.
A power system with a large share of variable renewable sources needs a lot of flexible standby capacity to cover for periods when sun, wind and hydro cannot deliver.
However, standby generation capacity is often gas-powered, which is both expensive and unsustainable.
The alternative is to match the variations in the supply of electricity from renewable sources with end users' demand flexibility.
Such a strategy requires substantial demand elasticity from the end users. However, as more and more household functions rely on electricity, we see that elasticity is decreasing...
This is where EVs come in. Smart charging (i.e., grid-to-vehicle) unleashes a huge flexibility potential on the demand side by controlling battery charging in response to the fluctuating supply of electricity from renewable sources.
At the same time, the combined batteries of EVs represent a substantial storage potential which means that vehicle-to-grid (V2G) services are also possible. The batteries can supply power to the grid during times when renewable sources fall short.
In this vision of the future, EVs are active components of a new infrastructure system that merges the power, transport, and ICT infrastructure systems.
Transport of people and goods is a key factor of economic value creation. Hence, transport policy makers want to know how EVs will change mobility patterns.
In modern societies, car use a key element of individual freedom. Any interference with this freedom is politically sensitive.
Yet, policy makers are challenged to accommodate future mobility needs in a responsible way, that is: efficient, clean, affordable, and inclusive.
However, using a car does not necessarily imply owning a car. The young urban generation is increasingly inclined to car sharing and to using Uber-type services, if they are not walking, biking or using public transport.
This trend may be re-enforced by autonomous EVs which allow cities to reduce the space reserved for automotive mobility.
The future of e-mobility holds a lot of promise for the liveability of cities.
Another area of interest is economic policy which has traditionally aimed to create more welfare for society by driving economic growth.
However, in view of the challenges posed by climate change and the transition to a sustainable energy system, the new objective has become “green growth”.
It is in this perspective that policies to support e-mobility are designed. For example, the European Commission launched the European Battery Alliance (EBA) in 2017 to establish a strong European technology position in battery technology. The large investments in battery manufacturing facilities contribute to economic growth, job creation and industrial resilience.
Altogether, electric cars solve a great variety of problems where public interests are at stake.
However, it's difficult to design policy instruments in support of more than one specific policy goal. Not only different policy domains are involved, but also different levels of government (supranational, national and local level).
This situation results in a variety of policy instruments being applied.
Policies and Policy Instruments
In view of the nasty health effects of NOx and particulate matter in the air we breathe,
these and many other compounds are subject to air quality standards.
Enforcing air quality standards requires an extensive monitoring effort on a national scale.
For example, the Netherlands has a fine-meshed national monitoring network for air quality, which provides regional, city-level and even street-level data on important air quality parameters, such as particulate matter, NO2, and ammonia.
On top of all the local and national monitoring, environmental data is collected with satellites. Below is an atmospheric map of NO2 pollution in Europe.
As you can see, the highest tropospheric NO2 concentrations are found in big cities and industrial manufacturing areas.
To reduce the emissions, governments want to curb road traffic and stimulate cleaner transportation.
California was the first, in 1990, to install Zero-Emission Vehicle (ZEV) regulation. It is still expanding that effort to meet its air quality and emission reduction goals. By 2050, 87% of cars on the roads of California must be ZEVs.
Municipal governments have many options to choose from in developing clean and smart mobility strategies.
One option is to offer extensive zero- or low-emission public transport options by expanding the rapid transit systems (tram, metro, train) and electrifying the bus fleets.
Municipal governments also stimulate residents to walk and cycle, by allocating more public space to pedestrians and creating green corridors with walkways and cycling infrastructure.
In addition, many cities worldwide have established environmental zones where the most polluting cars are forbidden access.
On top of national stimulation measures, cities are also developing their own initiatives
to encourage zero-emission vehicles, such as subsidies, provision of free parking permits and aggressive expansion of the public charging infrastructure.
Policy measures are also developed at a higher level, for example emission trading systems.
In Europe, around 50% of GHG emission sources are covered by the European Emission Trading System (ETS), a market in which emissions are traded under a cap which is gradually lowered.
Company A has a surplus of emission rights as it pollutes less than the allowed emissions. Company B has a shortage of rights.
According to the ETS, company B will have to buy more emission rights in order to pollute more. These can be sold by company A in an auction.
The objective of the ETS is to create a system in which the reduction of emissions become an investment and a source of future income, instead of just a burden. Not complying with the ETS by polluting more than the allowed emissions results in strong fines.
However, emissions by vehicles on the road are not covered by the ETS. They are subject to state-level emission reduction targets defined by the European Commission.
With the Clean Mobility Package, launched in 2017, the European Commission aimed for a 30% decrease in average CO2 emissions for new cars and vans in 2030, compared to 2021.
A variety of policy instruments are employed:
Law and regulation
Monitoring and law enforcement
Technology development and innovation
In general, governments are reluctant to select one specific technology to support, so as not to distort competition in the market and put a potentially better technology at a disadvantage.
At some point, however, they must intervene in setting standards to accommodate a new technology, such as standards for public charging infrastructure in the case of EVs.
EVs in the Infrastructure System
The transport and energy infrastructure systems have evolved over centuries and become deeply embedded in the economic and social structure. Wide-spread adoption of EVs would mean rethinking these systems.
The electricity infrastructure was not designed as the integrated system that we know today. It evolved by constantly adapting to changing societal preferences, user needs, economic conditions and to the emergence of new technologies.
The technology of power generation changed from small scale generators to massive coal and gas fired power plants, to nuclear power plants and large-scale hydropower installations.
At this point in time, the dominant position of fossil fuels in the electricity system is no longer taken for granted. The concerns about long term energy security, global warming, and public health make us move in the direction of renewable energy sources.
Most of the technologies for harvesting solar and wind energy are relatively small scale. This implies that decentralized electricity production capacity is increasingly being developed, not only by established players in the energy market, but also by individuals.
The electricity value chain (generation, transmission, distribution, supply) used to be vertically integrated. However, the value chain has now been unbundled.
The distribution network generally is a regulated monopoly, whereas energy suppliers and aggregators are operating in a competitive market.
While EVs offer promising solutions to the challenge of accommodating the variability of renewable energy sources, they can also endanger the stability of the grid.
To make sure that does not happen, new practices and rules are needed. This is where institutions come in.
Institutions define the rules of the game: how resources are allocated, the roles and responsibilities of actors in the infrastructure system.
While higher level institutions define market rules and regulatory authority, lower level institutions define contracts, technical and operational standards.
The complex adaptive behavior of infrastructure systems is better understood if we recognize infrastructure systems as socio-technical systems.
An infrastructure is more than a physical network connecting generators. It is a system that connects millions of users with a multitude of producers. The system can adapt through the decisions of these social actors.
Complex adaptive socio-technical systems are characterized by co-evolution of social and technical systems. Institutions shape the interactions between these systems.
A complex system like electricity or transport infrastructure cannot just be redesigned overnight: it is characterized by path dependencies, which are re-enforced by the high capital intensity and long lifespan of infrastructure components.
The behavior of complex systems cannot be predicted. Yet, the emergent behavior of infrastructure systems shows remarkably consistent patterns.
Even though individuals behave differently, the aggregated pattern of road congestion and electricity demand during the day is very similar, with slight variations between working days and weekends, and with seasonal variations.
However, this feature of emergent behavior implies that we cannot really predict how the system will behave with the introduction of a new technology.
Hence, governments can only steer the ongoing evolutionary process into the direction dictated by new societal preferences, by tweaking the institutional framework.
Let's take a step back.
For an average electric car, driving 30 km on average per day, the annual electricity demand is of the same order of magnitude as the annual electricity demand of an average household in the Netherlands, which is around 3500 kWh.
That implies that residential electricity use, for an average household with just one car, will be doubled if the conventional car is replaced with an electric car that is mostly recharged at home.
Great news for the electricity suppliers but not so great news for the network providers. They fear substantial congestion in the distribution grid, if all drivers plug in as soon as they get home from the office, adding a substantial load to the usual peak load in the early evening.
One solution is to expand the grid capacity. This is very expensive. A cheaper option is to control battery charging according to available grid capacity and to the availability of cheap power. This provides a financial incentive for the electric car owner to co-operate with a scheme for controlled charging.
The flexibility of electric cars as smart components of the electricity system cannot be deployed without smart grids.
Hence, the massive adoption of EVs affects the physical electricity, transport and mobility systems but also introduces a lot of digital technology and software dependencies into them.
Besides the technical challenges implied, these changes deeply affect the social dimension
of the infrastructure.
The established systems include numerous actors (owners, planners, operators etc.) with vested interests that are likely to resist change which is not aligned with their own agendas.
Bringing a new technology, such as electric cars, into the system, also brings new actors, with new roles and interests, and will require established actors to adapt, if not make their roles obsolete.
Government plays an interesting role in this process, both as an established actor in critical infrastructure systems and as an enabler or agent of change.
Social Dimensions of EVs
The transition to electric mobility is more than just a technological revolution. It will have a profound impact on our society and the way we perceive mobility.
Like electricity and drinking water supply, mobility is essential for everyone and every business. Participation in society requires being connected.
That does not mean that everybody is entitled to ownership of a car. It does mean, however, that government provides the road network needed to move around in your city, between cities and regions and across national borders, and that it provides means of affordable public transport for those who cannot afford or choose not to have a car of their own.
In densely populated city areas, providing affordable public transport is a lot easier than in sparsely populated rural areas.
As a result, public transport services in rural areas are generally of a lower quality,
certainly in terms of frequency.
According to a study conducted UBS in 2017, fleets of self-driving electric taxis will bring unprecedented mobility at far lower costs. The mobility system may be disrupted.
Mobility services would become far more accessible and affordable for the rural population. The pressure on space for parking in urban areas would largely evaporate, so that more space can be made available for pedestrians, for recreation and social activities.
Air quality in urban areas will improve, and with less cars needed to satisfy our collective mobility needs, the global pressure on scarce material resources will be reduced.
It all sounds too good to be true and, indeed, we are not there yet. The question is how governments should deal with this unfolding technological revolution.
How can they ensure that it will indeed benefit society as a whole. Two aspects stand out here: the aspects of cyber security and privacy.
Due to their dependency on digital communications and navigation infrastructure, EVs are vulnerable to cyber-attacks, hacking, data manipulation, etc.
Cyber security breaches pose great risks for road safety, and bring privacy risks. For example, the data exchange that comes with EV charging, whether at public charging stations or at home, invades the users’ privacy and must therefore be subject to strict obligations of personal data protection.
The intensity of data exchange, and therewith the risk of potential privacy breaches, increases if the charging process is subject to demand response schemes that provide flexibility to the electric power system.
Indeed, in order to benefit from low electricity tariffs during off-peak times and avoid high tariffs during peak loads, the car user has to indicate personal preferences for when the car must be ready for use.
As such data are a strong indicator for personal routines, the EV owner must be able to trust the flexibility provider, that is the party that intermediates between him and the power system, to protect his private data.
The aspects of privacy and cyber security will only become more important as global companies like Uber and Google sit on the data that we generate with our mobility patterns.
The question that has not been adequately addressed yet by most governments around the world is the one of data ownership.
Principally, one may argue that the data belongs to the people who generate the data, and not be for anyone else’s use without my explicit permission.
The question of data ownership is becoming increasingly urgent, as we are enveloped by Internet-of-Things, smart meters and smart devices everywhere in smart cities.
At this stage of the mobility revolution, governments still act within the dominant paradigm of private car ownership, and struggle to change the preferred choice of car towards EVs.
New rules and regulations are needed to safeguard road safety and to protect our data.
At the same time, governments are designing and implementing stimulation schemes
to encourage car owners to buy an electric car.
In designing stimulation schemes for electric cars, governments have to be aware of potentially adverse social consequences, such as distributional effects.
Most financial incentive schemes for electric vehicles involve the transfer of tax payers’ money to a specific group of early adopters.
Both for private users and firms running a company car fleet, the decision to be an early adopter is a combination of image or status and affordability.
In practice, early private adopters are mostly found in the highly educated, relatively high-income segment of the population.
Depending on the duration and scale of income transfer to this privileged group, resistance may develop in the rest of the population.
It is therefore crucial to design an incentive scheme in such a way, that it is clearly limited in time and in the extent of income transfer.
Limited in time does not necessarily imply short duration, as innovative technologies that are in the interest of society as a whole may take many years to be embraced.
The duration of the financial incentive scheme should be aligned with the time needed to increase the efficiency of the new technology (through upscaling and incremental improvements) and it should be aligned with the time needed to reduce the costs to the extent that it is made affordable for the population at large.
All in all, the cost of an electric car, and the privacy and cyber security risks that come with it, will be balanced by the user with the private benefits to be gained.
These may be immaterial, such as a cleaner conscience for not polluting the air while driving, or they may be material, in terms of cost savings on the purchase costs and the costs of use.
Peer pressure is also a factor in the users behavior. The more of your friends and neighbours are driving electric cars and telling you how happy they are with it, the more you will be inclined to shift to an electric vehicle too.
Eventually, each user will weigh the various costs and benefits differently in deciding whether or not to buy an electric vehicle.