Differential license plate pricing and electric vehicle adoption in Shanghai, China

Electric vehicles (EVs) are the most direct pathway to reduce greenhouse gas emissions in the transportation sector. Regulators worldwide have announced ambitious targets for EV adoption to replace internal combustion engine vehicles (ICEVs). A program of direct financial subsidy is a dominant policy to encourage adoption. This paper investigates an alternative policy based on differential license plate pricing across vehicle types in Shanghai, China's largest regional EV market. Using monthly vehicle registration data from Shanghai, we find that EV sales would increase by 56%-65% if the differential between ICEV and EV license plate costs rises by 1,000 yuan ($150). We compare differential license plate pricing with the purchase subsidy policy. With a fiscal-neutral policy scheme, differential license plate pricing is more effective for promoting EV adoption than direct purchase subsidies. We also discuss the implications of the ongoing policy change where the free license is no longer granted to plug-in hybrid electric vehicle (PHEV) buyers starting in 2023. We show that the new policy scheme could still be more effective than subsidies in encouraging battery electric vehicle (BEV) adoption. The new policy scheme, combined with relaxed price ceilings in the ICEV license auction market, will yield comparable or even larger adoption growth than the previous policy.