Analysis: E-bike subsidies are more cost-effective than EV subsidies

The transition to electric personal mobility is here. Electric bikes, electric scooters, electric cars, electric cybertrucks – all are #trending, boding well for at least reducing CO2 and other pollution in the transportation sector. It is also good to see that the District, Maryland, and Virginia are investing in subsidies to help speed along the adoption of these vehicles, but in a world of constrained resources, DC’s proposed e-bike-only subsidy packs the most pollution-fighting power of the bunch.

Introduced by Councilmember Brooke Pinto on January 12, the subsidy would provide 3,000 instant rebates worth either $400 or $1200, depending on household income, as well as an extra $500 for those purchasing cargo bikes, which tend to be more expensive.

The value of money

Zero-emission vehicle (ZEV) adoption is critical to halting climate change. There are obvious externalities that need to be dealt with, of course: the elephantine size of America’s popular electric SUVs and trucks are a serious hazard to all road users, and their equally gigantic batteries suck up far more materials than electric sedans, let alone electric bicycles, prolonging shortages.

The International Energy Agency believes, however, in order to meet global climate goals of net-zero by 2050, 60% of new car sales need to be electric by 2030–yet the market is on track to reach just 22% to 35% in that time frame.

While it might be tempting to push ZEV subsidies even beyond the current $7,500 tax credit offered at the federal level, if removing gasoline-powered travel is the goal, that might not actually be the best option.

Demand for ZEVs in the United States far outpaces supply, with long wait times to purchase and higher costs. (This is exacerbated by the fact that US subsidies can only go to made-in-America cars, but that’s another story.)

The economic term for when demand goes up or down based on price is elasticity. As prices go down, demand goes up, and vice versa. The more demand responds to a price change, the more “elastic” that demand is. For instance, an elasticity of -2 means that a 1% decrease in cost leads to a 2% increase in demand.

The elasticity of ZEV demand is approximately -1.3. Putting it into dollar terms, a $1,000 subsidy for a ZEV will increase demand by about 2.6%. But ZEVs are a lot more expensive than e-bikes and, therefore, it takes a lot of money to meaningfully lower the cost of a ZEV compared to an e-bike. Last year, the Maryland General Assembly passed a subsidy bill providing $3,000 to buyers of ZEVs and $2,000 to buyers of plug-in hybrids (PIHs), with a total cap of $8.5 million in spending. Based on the pace of car sales as measured by state registration data, this funding should last for a bit more than two months and incentivize the purchase of approximately 170 new ZEVs and 45 new hybrids. That’s an increase of about 7.8% and 5.8% over what would have happened without a subsidy over the same timeframe, respectively.

Most of the money – around 93%! – will probably go to people who would have purchased a ZEV or hybrid anyway.

In contrast, e-bike demand is more elastic than that of ZEVs, at roughly -2 compared to -1.3 – and, because e-bikes are far cheaper than ZEVs, subsidizing them is equally inexpensive: while it takes a $1,000 subsidy to raise ZEV demand by 2.6%, it only takes about $100 to do the same for e-bikes. DC’s proposed rebate scheme would provide 1,500 subsidies worth either $400 or one-third of the e-bike’s cost, whichever is less, for higher-income families, and 1,500 subsidies worth $1,200 or three-fourths the cost, whichever is less, to lower-income families. Using a model from Canada, we can predict around 1,400 additional e-bike sales, or a roughly 15% increase in estimated annual e-bike sales. Remarkably, 44% of those sales would go to incentivized buyers who would not have otherwise purchased an e-bike. (The paper includes a model estimating baseline e-bike demand, which predicts about 9,300 e-bike sales per year in the District.)

Without the proposed cap of just 3,000 rebates, DC could expect to see around 8,000 additional e-bike sales, nearly doubling demand, rather than just 1,400.

The value of bicycling

Because e-bikes are not cars, it is tempting to dismiss e-bike subsidies as a waste compared to ZEVs. After all, most people drive for most trips, so that logic suggests that getting people into ZEVs is the most direct way of decreasing gasoline miles.

But researchers have found that e-bikes can displace gasoline miles quite effectively, too. When a household buys an e-bike, their driving (as measured by vehicle miles traveled, or VMT) decreases by more than a third. While not as much as a ZEV, which cuts 100% of gasoline VMT, the lower cost of stimulating e-bike sales with rebates more than makes up the difference. When that is taken into consideration, an e-bike subsidy is 2.9 times more effective per dollar at displacing gasoline miles than a ZEV subsidy.

That astonishing figure assumes the choice is between how a singular jurisdiction should spend its funds, but we can take the math one step further to compare Maryland’s in-place ZEV subsidy and DC’s proposed e-bike rebate. We can predict that Maryland, with its focus on ZEVs and hybrids, will displace 1.9 million annual gasoline VMT at a cost of around $4.42 per mile. Although DC residents drive only about half as much as Marylanders, and so the number of gasoline miles available to displace is lower overall, we can still predict that DC will displace around 2.6 million gasoline VMT per year with its e-bike rebates at a cost of around $3.10 per mile, a more cost-effective push that leads to roughly 1.4 times as many miles displaced as Maryland’s ZEV policy.

Putting it differently, if Maryland had invested its $8.5 million in e-bikes in the same way DC’s legislation proposes, instead of in ZEVs and hybrids, it would have saved almost triple the gasoline miles: about 5.7 million at a cost of just $1.50 apiece. The 1.9 million gasoline miles it will save under current law seems downright paltry in comparison.

This leaves aside all the other benefits of e-bikes, from health to the fact that they don’t require a garage for at-home charging. They have fewer externalities than ZEVs, including using fewer resources for batteries and putting less strain on a city’s asphalt. They pose less of a safety risk for bystanders than sedans with thousand-pound batteries. And they are easier on the electrical grid.

The threat of climate change demands that we leave no stone unturned as we struggle to hit net-zero by 2050. The world needs to end use of the internal combustion engine for everyday travel as soon as possible. Given the threat, and given the potential power of e-bikes to push us towards that goal, policymakers would be foolish to ignore them. As Annapolis and Richmond get started on their new legislative years, they should look at what DC is pursuing and push for the most effective, greenest subsidies tax money can buy: e-bike rebates.

This post’s methodology is available in this calculations appendix (PDF).