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 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.