Published on 02/23/22
To encourage electric cars to scale up, the government can set up new infrastructure, such as convenient and affordable publicly accessible chargers, around popular regions. Regulations on construction can be written to stipulate that charging stations be incorporated into areas under new construction or renovation. "Range anxiety," or the fear that electric cars may run out of charge, imposes the need for publicly available charging infrastructure along roads and highways. By the end of July 2022, there were 3.9 million public and private charging pillars, an increase of 101.2% from the previous year (Wiedenbach). To further boost charging services for the adoption of electric cars, infrastructure development is emphasized in "Made in China 2025," aiming to erect 4.3 million private charging outlets, 0.5 million public chargers, 4,000 bus charging stations, 2500 taxi charging stations, 2500 special vehicle charging stations, and roughly 2400 city public charging stations (Sen). Significant public investments in new infrastructure lay the foundation of China’s zero emissions pathway. This makes the importance of streamlining processes that install EV charging stations via government funding and support all the clearer.
Benefits
1. Increase in national output
Government expenditure on public investments stimulates demand for electric cars in the domestic economy in the short run as the availability of public chargers makes the switch to electric cars easier. Referring to the aggregate expenditure model, an increase in government expenditure is a driving force of an increase in AE; shifting it to the right leads to a higher level of national output (Fig. 4). This indicates a rise in aggregate income and, therefore, better living standards. The theory is enhanced by the multiplier effect. The spending multiplier of government expenditure is likely to bring a proportionally larger impact compared to the initial injection of money, as the increase in employment may stimulate more consumption and growth in national output. Considering electric cars specifically, the green renewable energy spending multiplier is consistently higher than the non-eco-friendly energy multiplier at both short-term and long-term horizons (Batini).
2. Stabilizing the labor market
Public investments in infrastructure such as chargers and renewable energy generation create a safeguard for the interests of laborers by creating jobs to stabilize the labor market, ranging from job opportunities to work at the serving stations to technical positions that deal with advancements in technology and manufacturing. In the short run, structural unemployment may increase due to the need for specialized labor in the renewable energy industry, which might worsen the standard of living for laid-off workers resulting from a decrease in income and consumption. In the long run, however, as the government intervenes to provide training programs and promotes the transition to electric cars, the unemployment rate returns to the natural rate of unemployment, leading to an increase in labor productivity and a better standard of living overall. Relative to the fossil fuel business, investments in renewable energy generally create more jobs across the board. Workers in the clean energy sector of the United States, for instance, earn mean hourly wages that are between 10 and 20 percent higher than the national average; and their pay is more equitable, with lower-income workers earning up to 10 dollars per hour more than those in other occupations (Muro et al.). The emergence of new industries and the increase in the number of suppliers strengthen the bargaining power of workers.
3. Improvements in efficiency and long-run economic growth
Public investments ensure long-term economic growth. The spending brings a larger variety of capital goods that benefits the production of other goods and services through incentivizing corporate research and development in the EV industry. The decrease in average total cost benefiting from productivity growth pushes the economy to reach dynamic efficiency, where a better position of allocative and productive efficiencies can be achieved. Battery swaps for freight and long-haul transportation appear to promise, for instance, with China State Grid testing semi-manual bus and taxi battery swaps. Over the last decade, battery technology has advanced considerably, with costs dropping by 90% and weight decreasing, allowing for improved performance and range (Ben Dror). This has led to a significant drop in the price of electric cars, making green energy more accessible to consumers. These outcomes of improved efficiency, as suggested by the endogenous growth theory, enhance a nation's human capital through internal technological advancements within the economic system and efficient means of production, which ultimately contribute to long-term economic growth. The rapid pace of innovations in electric cars stimulated by public investments, under this circumstance, is regarded as beneficial internal processes.
Costs
1. Opportunity costs
Investing in infrastructure or collectively purchasing transportation certainly costs the government a considerable budget, meaning less support will be given to other merit goods, such as healthcare services and education. For the electric car market specifically, the initial investment in public chargers may only last for a short period. As common goods are likely to be over-exploited and lead to the tragedy of the commons, the government will have to consistently repair and upgrade the facilities to ensure effectiveness and efficiency. For example, China committed to public investments many years ago; from 2019 to 2020, the Chinese government spent more than $120 million on building new public charging infrastructures (Pan). This means that public investment might create a substantial financial burden in the long term.
2. Consequential inefficiency due to government failure and poor information
The government may not possess all the key pieces of market information to precisely measure the amount of investment required and predict its impacts and unintended consequences. In particular, inefficiency may occur because the government overpopulates charging stations in some areas while neglecting others. In the US, as seen in Fig. 5, existing charger installations following the location of early electric car sales tend to be in higher-income areas (Kampshoff et al.). Additionally, the number of electric cars on roads outpaced the number of public charging points, with about 18 electric cars per charging point in 2021, implying that consumers may waste time and effort in finding free charging spots (IEA). Therefore, public charging stations must be cost-effective, appropriately distributed, user-friendly, and connected to a reliable power grid.
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