Saturday, March 24, 2012

Electric Vehicle Demand and Public Recharging Stations: Solving a "Catch-22"

When your car's fuel tank is near empty, you stop by a gas station and refuel.  This mutually beneficial trade requires no government intervention.  In the case of electric vehicles, a "Catch-22" emerges.   Drivers are less likely to buy an electric vehicle because they anticipate that they can't find the equivalent of a gas station to recharge their battery.  For profit gas stations do not invest in recharging stations for electric cars because nobody owns one.  In such a case, there is an externality justification for government to step in and provide public electric vehicle recharging stations.  The LA Times discusses a large capital investment project that will implement this.

If electric vehicles are powered by renewable power (or by natural gas fired power plants), then the carbon emissions from this mode of driving will be less than the carbon emissions from the same amount of driving using gasoline.  Given that carbon dioxide emissions represents an unpriced externality, I do see the logic behind subsidies of such public infrastructure. This investment will solve the "Catch-22" that I sketched above.

In my own past research, I have studied the complementarities between private and public investment.  I predict that if more households buy EV vehicles and if the state's PUC introduces more dynamic electricity pricing that more households will install solar panels for their homes and then charge their own EV vehicles using "excess" power.  I would support allowing these households to also be able to fuel neighboring home's EVs.

The interesting "free markets" question here is;  when we want to promote the "green economy" but we haven't passed a carbon tax ---  how do we achieve this goal at low cost while anticipating the necessary infrastructure that is required to launch this regime shift?

UPDATE:  Here is a NY Times Article on the EV.