Improving Incentives for Clean Vehicle Purchases in the United States: Challenges and Opportunities

In recent decades, federal and state policymakers in the United States have adopted a variety of policy incentives to induce drivers to purchase advanced clean vehicles aimed at reducing externalities within the transportation sector. Focusing on plug-in electric vehicles, I examine the challenges to and opportunities for improving these policies. Recent research raises concerns about whether the incentives actually reach the intended consumers because of eligibility restrictions, salience of instruments in consumer decision making, and the impact of incentives across consumers and producers. The targeting of different externalities complicates policy design choices, which are further limited because purchase incentives do not affect driving behavior. Finally, an emerging literature suggests that the efficiency and cost effectiveness of these incentives may be improved by strategically targeting specific types of vehicles and consumers, as well as by combining them with vehicle retirement incentives. (JEL: Q53, Q55, R40)