Study finds that German EV subsidies led to higher CO2 emissions

Taxes disincentivize people from doing or consuming whatever it is that is being taxed, whether it is investment or smoking. Indeed, much government policy, from cigarette taxes to carbon taxes, is based on this. This logic also underlies the use of subsidies, which are just taxes in reverse, to incentivise behaviors policymakers want to see more of.

But never forget what you might call Phelan’s First Law of Public Policy: the majority of the consequences of a given policy are unintended. A new study titled “Would you like to super-size your car? The effect of environmental subsidies on emissions” by economist Ilona Tsanko which studies “the impact of subsidies for Plug-in hybrid vehicles (PHEV) on carbon
emissions” illustrates Phelan’s First Law of Public Policy quite nicely.

“PHEV sales in EU have increased rapidly over the past years,” she writes, “from a market share of less than 1 percent in 2016 to a share of 10 percent in 2021. Part of this increase
is attributed to generous subsidy schemes for PHEV, which governments across the EU
offer.” This is the policy of subsidies working as intended.

But, she goes on,

With fully charged battery, PHEV reduce driving related carbon emissions to a third that of comparable internal combustion engine vehicles (ICE). However when driven uncharged, PHEV emit three times as much as officially claimed.

“I quantify the environmental benefits of PHEV adoption in Germany by taking into
account PHEV charging behavior,” Tsanko continues, “and evaluate the effects purchase subsidies had on consumers’ PHEV purchasing decision.”

She finds that people don’t charge their cars as they should. She also finds:

…that PHEV subsidies were used by consumers to purchase larger and heavier

“Taking into account the observed consumer behavior,” Tsanko writes,

I find that the elimination of subsidies for PHEV would have led to a yearly reduction of 167,139 tons of carbon emissions which are equivalent to the yearly carbon emissions 52,916 households emit due to energy consumption.

Overall, she shows “that subsidizing innovations without considering consumer behavior can harm the environment.”

So the initial effect — the increase in PHEV sales — is the policy working as intended. But, because the owners don’t charge them as necessary, we see, in fact, higher emissions and, through heavier cars, more wear and tear on the roads. These consequences may have been unintended, but they were consequences all the same.