Uppmärksamhet! New research digs into the economics of ebikes.
What do Sweden, Norway, Austria, France, Germany, Italy, Luxembourg, and Scotland have in common? They have all introduced subsidies for electric bicycles.
In today’s blog, I want to write about new research from economists Anders Anderson and Harrison Hong on ebike subsidies in Sweden. Policies aimed at encouraging ebikes 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.
Wanting to reduce carbon emissions, Sweden launched ebike subsidies in October 2017. How does it work? Easy. Walk into an ebike retailer in Sweden. Buy an ebike. Fill out a form. Receive from the Swedish government a rebate equal to 25% of the price of the ebike, up to a maximum of 10,000 Kronas ($1100).
The policy was incredibly popular. In the first year, 100,000 cyclists received rebates for ebikes. 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.
The authors use administrative, survey, and other data to evaluate the policy. First, the authors ask about additionality. Did the rebates increase sales of ebikes? Or, did the rebates go to people who would have adopted the technology anyway?
The figure below plots a representative sample of ebike sales by month in Sweden. The dark gray bars indicate the 13 months the rebates were available, with additional months plotted before and after for comparison.
Sales of ebikes 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 ebike anyway (i.e., were non-additional), with the other two-thirds representing ebikes that would not otherwise have been on the road.
The authors next examine ebike prices. We might have expected ebike 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 ebike 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 ebikes 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
Finally, the authors calculate that each ebike 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 ebike.
This part of the analysis requires strong assumptions but I found these results fascinating. Ebikes aren’t going to substitute for cars for long trips, but rebate recipients report significantly changing their commuting behavior. Before the ebike purchase, almost two-thirds of recipients used a car to some extent for commuting. After the ebike 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 kilometers per year.
Appropriately adjusting for non-additional participants, the authors find that Sweden’s ebike 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.
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 ebikes 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 ebikes 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 ebike market was just getting started.
- Consumer learning-by-doing. Getting on an ebike, you might learn that you like it. Maybe that one-time-only rebate changes your lifetime transportation choices.
- Peer effects. Seeing all those ebikes zipping around Sweden might inspire future adoption by others even without the rebate. This might partly explain the high ebike 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 ebike 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 ebike rebates. My sense is that ebike 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 ebikes, but also about the entire emerging micromobility space. I look forward to more papers on this topic.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Davis, Lucas. “Sweden and the Economics of Electric Bicycles” Energy Institute Blog, UC Berkeley, April 25, 2022, https://energyathaas.wordpress.com/2022/04/25/swedish-e-bikes/
Lucas Davis View All
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. He is a Faculty Affiliate at the Energy Institute at Haas, a coeditor at the American Economic Journal: Economic Policy, and a Research Associate at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.
The study doesn’t seem to speak to how many ebike purchasers were, or are upgrading from a traditional bike. I imagine most were already cycling. So the benefit accrued to people who already had a low carbon impact. The move to an ebike actually increased their carbon impact.
Jim Lazar “The best work on the total cost of driving (and thus the benefits of cycling) has been done by Todd Litman at the Victoria Transport Policy Institute. See https://www.vtpi.org/tca/tca00.pdf “
The trouble with Victoria Transport Policy Institute “cost of driving” type of analysis is that it does not include an adequate cost comparison with other modes. For example, it correctly states that the cost of motorcycle riding is high because of the number of crashes, but doesn’t seem to indicate this for cyclists. Nor does it have the cost of bike lanes, most that I have seen appear to have so few bikes on them as to have negligible use. It also distorts the cost of transit by non-sensical conclusions such as “Transit tends to have lower total costs under urban-peak conditions” but doesn’t compare transit cost when substantially empty. It doesn’t have the huge benefit of auto use that it allows people to live in much larger homes with gardens rather than in small high-rise apartments. It is not clear it calculates the cost of roads by subtracting the payment of gasoline taxes that pay much of the cost of roads. A better cost benefit analysis is required to determine cost per mile companions for various travel types.
Lots of interesting economics here. There is a weak case for subsidizing e-bikes in Sweden on carbon grounds, because more than 99% of mitigation benefits would accrue to other countries (see esp. Gayer and Viscusi’s REEP and Nordhaus and Yang’s 1996 AER). On the other hand, your other effects can be used to make a second-best case of said subsidies. These all rely on partially offsetting distortions in other markets (uninternalized local pollution, unpriced congestion, and the large moral hazard associated with medical insurance that subsidizes inactivity). Congestion is the trickiest of these since more bikes could conceivably slow traffic. But to the extent that much of urban congestion is due to subsidized parking, it is plausible that more bikes reduce congestion.
As Jim Lazar suggests, it is always useful to explore the first best solution (removing the distortion) before proceeding to the second-best case for offsetting the distortion. But in some cases (e.g. medical insurance) the first-best may not be feasible.
it would be interesting to have some thoughts on how these might affect public health.
UCD ITS made a presentation in March on a study it did on bike lending at Google, with similar impact results: https://its.ucdavis.edu/webinar/effectsofbike-lendingon-commuting-towork-thegoogle-case-study/
An important question is how dependent are the emission reductions on land use patterns. We found in Davis that 95% of the transportation emissions are from interurban travel that is not easily displaced by e-bikes (or transit), so this would seem to be an expensive solution addressing a small sliver of total emissions.
I’m not sure why rebates are only a transfer and not a cost in the calculation. That’s not an obvious conclusion and needs more explanation.
The benefits of moving transportation from automobiles and transit to e-bikes go far beyond the carbon emissions reduction.
The best work on the total cost of driving (and thus the benefits of cycling) has been done by Todd Litman at the Victoria Transport Policy Institute. See https://www.vtpi.org/tca/tca00.pdf
These benefits include, as Lucas mentioned, reduced congestion costs. Also reduced material usage ( a 20 kilo e-bike replacing a 2,000 kilo automobile or 1,000 kilos of transit vehicle). Dramatic amounts of land use no longer needed for auto parking. Reductions in noise pollution, water pollution, and roadway construction and repair costs. Reductions in travel time (door to door) for many. And, over time, avoidance of auto purchase / replacement expense.
That said, I’m not sure generous subsidies for E-bikes are the best solution. Proper pricing of carbon, parking, and congestion may produce a better set of results, including moving more transport into the virtual world. Governor Inslee proposed whopper incentives for EVs and E-Bikes in his 2022 legislative package; they were not enacted.
Confession: I was a bicycle commuter for nearly all of my professional career, from junior high school in Los Angeles in the ’60’s until I retired in 2020. Except for a period around my knee replacements, I never had a parking space at my office complex.
Dear prof. Davis, thanks for sharing this study, cool findings! Could you elaborate a bit on why these rebates are merely transfers and not economic costs? The rebates are transferred from other taxpayers to e-bike buyers, who would otherwise not have bought an e-bike. In addition, the other taxpayers, or the government on behalf of all taxpayers, cannot buy other stuff anymore with the rebate money. So is that other stuff not sacrificed in order to obtain the emission reductions from the e-bikes? Am I missing something here?
Thanks in advance!
It’s probably easiest to think about the non-additional recipients. These are people would have purchased an ebike anyway, so it doesn’t make sense to think about the rebates *causing* any carbon abatement. But at the same time, for non-additional recipients there is also less cost. These recipients value the subsidy 1-for-1, (i.e. it is just as good as cash), so this is a pure transfer, not economic cost, which makes it very different from typical investments in carbon abatement where there are real societal resources going into manufacturing and installing solar panels, for example. You still do have to think about the marginal cost of public funds, but we typically think of this as, e.g., 1.3, so you impose only 30 cents of economic cost in the form of distortions for each $1 of public funds that is raised. Judd Boomhower and I provide a conceptual framework for thinking about non-additional and additional subsidy recipients in our paper, “A Credible Approach for Measuring Inframarginal Participation in Energy Efficiency Programs”, Journal of Public Economics, 2014, 113: 67-79.
Thanks for the reply and the reference, the latter is an enjoyable combo of theoretical and empirical work. Obviously, fully agreed that rebates are 1-for-1 transfers to the non-additional recipients. When it comes to the additional recipients, however, this cannot be true, right? For intuition, I consider the new marginal buyer after introducing the rebate. To this additional recipient, his/her new ebike yields zero surplus, and the rebatement fully goes to covering the costs of the supplier in excess of the private benefits of the marginal buyer. Those covered costs are an economic costs to society of the program. The resources associated with those costs have only generated benefits to society in the form of reduced emissions. For the other additional recipients, their new ebike will obviously generate some surplus, such that the rebate is not a 1-for-1 costs of reducing emissions to society. But partly, it will be. In terms of Figure 1 of the paper, triangle B represents the increase in consumer surplus due to the rebate, and triangle C represents the abatement costs of the program. Or am I missing something?!
Exactly. A and B are transfers, and only C is economic cost. But the point I wanted to make in the blog is that these transfers make rebate programs different from typical investments in carbon abatement.