The right combinations of supply- and demand-side policies — involving both incentives and enforceable standards, or “carrots and sticks” — can lead to rapid growth in electric vehicle adoption, according to a new report by non-profit research group RMI.
The context: Now that EVs have gone mainstream in several markets, we have a clearer idea of which policies deliver results — and which don’t. Of course, every market has its own nuances, meaning what works in one country won’t necessarily work in another, but RMI has nevertheless developed a playbook that could come in handy as governments seek proven ways to decarbonise their transport systems.
The latest: “A comprehensive approach that integrates both supply-side and demand-side policies is crucial for the successful transition to zero-emission vehicles as it addresses the needs and challenges of both manufacturers and consumers,” RMI wrote in the report.
The countries that were furthest ahead in the shift to EVs in 2023 had a combination of sales mandates, fuel regulations, and/or emissions standards, the group found.
Lessons from the EU: The share of EVs in new car sales increased from 3% to 10% in a year after the bloc enforced carbon dioxide standards in 2020. The rules require manufactures to continually reduce CO2 emissions of new vehicles, with the aim of fully phasing out internal combustion engine cars and vans by 2035.
Meanwhile, many EU cities have introduced low emissions zones — areas where polluting vehicles are prohibited. On the demand side of things, some member states offer consumers purchase incentives.
In Norway, nearly all new cars sold are now electric thanks largely to a policy whereby buyers of large fuel-guzzling cars pay high taxes and essentially subsidise purchases of low-emissions alternatives.
The high tax rates on traditional vehicles make electric ones more affordable in comparison — for both consumers and dealers. “Once strong demand is established, incentives can be reduced as market forces take over,” RMI says.
In the US, some states are making steady progress despite the country being an electrification laggard.
In 2023, EVs accounted for 26% of new car sales in California — well ahead of earlier projections. That’s thanks to increasingly stringent emissions standards, which aim to ensure that all new passenger vehicles sold in the state produce zero emissions by 2035. Other states that have copied California’s regulations are also well ahead of the national average.
In China, where more than 50% of new cars sold are now electric, a “dual credit policy” requires manufacturers to meet annual targets for low-emission vehicles. If they don’t, they must purchase additional credits to remain compliant.
Carmakers must also meet emission standards targeting pollutants such as carbon monoxide and nitrous oxide, and some cities have implemented zero-emission zones to reduce air pollution.
On the other hand, China offers EV and battery manufacturers incentives such as tax breaks. For example, qualifying producers benefit from a reduced corporate income tax rate of 15%, compared to the standard 25%.
Thanks largely to these policies, China accounted for 60% of global zero-emission vehicle sales in 2023. The surge in domestic EV manufacturing has also benefited consumers, since most EVs in China are now cheaper than their internal combustion engine equivalents.
The national government previously offered EV purchase subsidies to consumers, but these were phased out by the end of 2022. However, it still pays drivers who replace their fuel-powered cars with electric ones, and some cities and provinces provide their own, additional incentives.
China’s rapid shift to electric vehicles and high-speed rail is already meaningfully curbing the world’s thirst for oil, recent data shows.
The bottom line: Globally, electric models are expected to account for around 20% of new vehicle sales in 2024. However, the numbers are skewed by frontrunners like China, whose strategies to accelerate the shift offer plenty of lessons for the rest of the world.
