What happened when Sweden introduced a 25% rebate on the cost of an e-bike for 12 months over 2017-18? Lucas Davis at the Haas School of Business reviews a study that digs into the consequences. Sales increased by 70%. E-bike prices remained steady, so the sellers didn’t simply raise prices to eat up the rebate. The study estimates that although a third of those sales would have “happened anyway” (i.e. no additionality) the remaining two-thirds were to customers converted to e-biking. After the purchase, behaviour change led to the new e-bikers reducing their driving in cars by an average of 1,146 km per year. That equates to the rebates costing $600 (€560) for each ton of carbon abatement. That’s a high figure, but the calculation does not include co-benefits like reduced pollutants, traffic congestion, and the boost to the spread of e-bike acceptability. If all the benefits are calculated, Davis believes that e-bike rebates should definitely be considered in locations where traffic congestion and local pollution are a costly challenge.

What do Sweden, Norway, Austria, France, Germany, Italy, Luxembourg, and Scotland have in common? They have all introduced subsidies for electric bicycles.

In this blog, I want to write about new research from economists Anders Anderson and Harrison Hong on e-bike subsidies in Sweden. Policies aimed at encouraging e-bikes have been proliferating rapidly, but this is the first economic analysis I’ve seen and the study does an excellent job laying out many of the key issues.

Pedal Power

Wanting to reduce carbon emissions, Sweden launched e-bike subsidies in October 2017. How does it work? Easy. Walk into an e-bike retailer in Sweden. Buy an e-bike. Fill out a form. Receive from the Swedish government a rebate equal to 25% of the price of the e-bike, up to a maximum of 10,000 Kronas (€940 / $1,100).

The policy was incredibly popular. In the first year, 100,000 cyclists received rebates for e-bikes. The policy became so popular that the budget for the program was quickly exceeded and the decision was made to end the policy prematurely in October 2018. As of today, the rebates have not yet been made available again, despite support from some Swedish policymakers.

Additionality 

The authors use administrative, survey, and other data to evaluate the policy. First, the authors ask about additionality. Did the rebates increase sales of e-bikes? Or, did the rebates go to people who would have adopted the technology anyway?

The figure below plots a representative sample of e-bike sales by month in Sweden. The dark grey bars indicate the 13 months the rebates were available, with additional months plotted before and after for comparison.

Sales of e-bikes increased by 70% during the months that rebates were available. The increase is especially pronounced during summer 2018, but even January and February 2018 experienced much higher sales than those same months in other years.

It is noteworthy also that sales dropped sharply when the rebates ended. Reminiscent of previous research on “Cash for Clunkers”, this sharp drop suggests that some sales may have been pulled forward in time to take advantage of the rebate.

Based on their analysis of the monthly sales data, as well as additional self-reported information from a large-scale survey, the authors conclude that about one-third of rebate recipients would have purchased an e-bike anyway (i.e., were non-additional), with the other two-thirds representing e-bikes that would not otherwise have been on the road.

Incidence, e-bike prices

The authors next examine e-bike prices. We might have expected e-bike sellers to capture some of the rebate by increasing prices. It turns out, however, that buyers kept close to 100% of the rebate.

The solid line in the figure above plots the monthly average e-bike prices. Average prices increase somewhat throughout the period, but there is no sharp change when the rebates were introduced, nor when the rebates ended, and thus no evidence that the rebate was captured by sellers.

This finding is consistent with supply of e-bikes being highly elastic. By 2017 there were already many different manufacturers and retailers in the market, and none of the supply chain constraints that are raising challenges today. It appears that sellers were able to fairly easily ramp up sales with little impact to prices.

Reducing carbon emissions, changing behaviour

Finally, the authors calculate that each e-bike reduces lifetime carbon emissions by 1.3 tons. This calculation is based on survey data in which rebate recipients provided detailed information about their transportation choices before and after buying an e-bike.

This part of the analysis requires strong assumptions but I found these results fascinating. E-bikes aren’t going to substitute for cars for long trips, but rebate recipients report significantly changing their commuting behaviour. Before the e-bike purchase, almost two-thirds of recipients used a car to some extent for commuting. After the e-bike purchase, only 4% keep using the car every day, and 54% use the car less frequently. The authors calculate that rebate recipients reduced their driving in cars by an average of 1,146 km per year.

Appropriately adjusting for non-additional participants, the authors find that Sweden’s e-bike rebates cost $600 for each ton of carbon abatement. The authors point out that this is higher than most estimates of the social cost of carbon, but I think this is not quite the right comparison. First, rebates are transfers – not economic cost – so this is not equivalent to $600 spent on other forms of carbon abatement. Second, this calculation ignores several additional potential categories of benefits.

Further study

I’ve enjoyed chatting with colleagues here at the Energy Institute about this new research, and I think we’ve come up with several additional potential categories of societal benefits that would be interesting to examine in future research.

• Traffic congestion. Traffic imposes large social costs and e-bikes might be able to help with this.
• Local pollutants. Less driving means lower emissions of nitrogen oxides, carbon monoxide, and hydrocarbons.
• Safety. I honestly don’t know whether more e-bikes on the road is good or bad for safety. I could see arguments going either way but this seems like a first-order issue.
• Producer learning-by-doing. As with any rapidly changing technology, there are innovation spillovers. This was probably even more important in 2017 than it is today, given that the e-bike market was just getting started.
• Consumer learning-by-doing. Getting on an e-bike, you might learn that you like it. Maybe that one-time-only rebate changes your lifetime transportation choices.
• Peer effects. Seeing all those e-bikes zipping around Sweden might inspire future adoption by others even without the rebate. This might partly explain the high e-bike sales in Sweden in 2019, after the rebate was gone.
• Human health. Just as carbon policy produces “co-benefits” in the form of lower emissions of local pollutants, could an e-bike rebate produce co-benefits in the form of better cardiovascular health?

These additional factors are not easy to quantify, but they tend to be benefits not costs so incorporating these other factors would probably strengthen the economic argument for e-bike rebates. My sense is that e-bike rebates are most valuable in locations where traffic congestion and local pollution are particularly problematic.

In short, Anderson and Hong answer some important questions, but raise even more – not only about e-bikes, but also about the entire emerging micromobility space. I look forward to more papers on this topic.

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Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley

This article is published with permission

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