Speaker: Sujoy Bhattacharyya
Title: Driving to Electrification: Fuel Taxes, Purchase Subsidies, and Vehicle Choice in India
Abstract: To mitigate climate change, governments are increasingly using fuel taxes and electric vehicle purchase subsidies, but causal evidence in developing countries remains limited. We conduct difference-in-difference analysis of multiple state-level policies in India, the world’s largest two-wheeler market, using novel data on the universe of vehicle registrations, fuel taxes, and subsidy programs. We find that reductions in petrol-taxes caused substantial drops in electric two-wheeler shares, with an average tax cut of 6 Rs./L lowering EV shares over six months by 1.2 percentage points (39.5% below their estimated counterfactual). Leveraging the staggered adoption of state-level purchase subsidies, we find that a subsidy of 11,000 Rs. increased EV shares by 1.05 percentage points over six months. These effects correspond to elasticities of approximately 7.11 for petrol prices and −4.08 for electric vehicle purchase prices. Thus, while upfront subsidies are effective, future operating costs of competing fossil fuel vehicles play a large role in electric vehicle adoption. The findings reinforce the importance of considering multiple instruments when designing policies to encourage electrification.
