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Energy & Greenhouse Gas Solutions

A transdisciplinary approach is taken to address the urgent issues of energy and climate change mitigation

In 2007 UHERO launched the Energy and Greenhouse Gas Solutions Program (EGGS). EGGS has the best collection of expertise in economics, energy, and the environment in the Asia Pacific Region. Economists, energy engineers, oceanographers, and policy experts, EGGS is made of leading researchers at UH and industry, including the Hawaii Natural Energy Institute (HNEI), and the School of Ocean, Earth Science, and Technology (SOEST), and the College of Social Sciences. This group’s skills, combined with Hawaii’s geography, energy infrastructure, and government data, allows for one-of-a-kind analysis.

 

The EGGS vision is to be the fundamental resource for those seeking solutions to the overlapping challenges of energy, environment, and economics. Our hallmarks will be robust, rigorous analysis; interdisciplinary, innovative teamwork; and accessible, relevant outputs. With a clarity of purpose, our mission is to analyze and tailor energy and climate change policy for Hawaii by assessing various technology options and the associated environmental and economic impacts

Projects within the EGGS Program are designed to support three research themes:

  • Profiling Hawaii’s economy, energy and GHG emissions
  • Modeling economic impacts of alternative energy systems and GHG reduction strategies
  • Improving energy, climate and economic literacy in the community

EGGS Core Goals

  1. 1. Engage in rigorous analysis that contributes to a global community of scholars.
  2. 2. Develop and maintain data and models on Hawai‘i’s energy, economy, and resulting greenhouse gas emissions.
  3. 3. Develop solution-oriented analyses for decision-makers and energy-related stakeholders.
  4. 4. Design interactive education and outreach programs for a variety of audiences.
  5. 5. Showcase Hawai‘i-based energy policy solutions that may benefit other jurisdictions, including other States, the U.S., and island areas.

 


 

ENERGY MODELING AND POLICY ANALYSIS

Summary: This project develops Hawaii-specific models of the electric sector and overall economy to assess the economic and greenhouse gas emissions impacts of various energy policy and planning initiatives at the state and federal level. Specifically, we quantify the relative cost-savings of utilizing a greenhouse gas emissions-weighted Clean Energy Standard (CES) in comparison to a Renewable Portfolio Standard (RPS).

An assessment of greenhouse gas emissions-weighted clean energy standards

By Makena Coffman, James P. Griffin and Paul Bernstein
Published in Energy Policy, 45 (2012), 122-132.

VIEW POLICY BRIEF

 

Funding provided by the U.S. Department of Energy (via the Hawaii Natural Energy Institute).


 

THE HAWAII ENERGY METRICS PROJECT

Summary: Hawaii has a variety of energy initiatives and goals with broad implications for the economy, and this project supports the development of a set of metrics which seek to track the progress and measure the impact of those initiatives and goals.

VIEW REPORT

 

Funding provided by the Hawaii Energy Policy Forum.


 

UH MANOA ENERGY AND GHG BENCHMARKING, MONITORING, AND ANALYSIS PROJECT (BEMAP)

Summary: EGGS carried out the reporting of UH Manoa energy use and greenhouse gas emissions to two national programs: The Climate Registry (voluntary commitment) and the Energy Star Building Portfolio Manager (required by Act 155 SLH 2009)

DOWNLOAD DATA PACKAGE

 

Funding provided by the UH Manoa Office of the Assistant Vice Chancellor for Facilities and Grounds.


 

LIFE CYCLE ANALYSIS OF BIOFUELS IMPLEMENTATION IN THE STATE OF HAWAI‘I

Summary: This project examines the use of renewable fuel oil and biodiesel biofuels in the power generation and transportation sectors in the state of Hawai‘i, by calculating the GHG emissions from the each step of the value chain - feedstock production, feedstock logistics, conversion, distribution, and end-use.

VIEW REPORT

 

Funding provided by the Pierre and Pamela Omidyar Fund at the Hawai‘i Community Foundation.


 

HAWAII BIOENERGY MASTER PLAN - TASK 8: FINANCIAL BARRIERS, INCENTIVES, AND OTHER FUNDING SOURCES

Summary: Act 253 (SLH 2007) called for the development of a Hawai‘i Bioenergy Master Plan, and as part of this plan EGGS evaluated financial incentives and barriers to developing and using biofuels in Hawai‘i, as well as identifying other sources of available funding.

VIEW REPORT

 
 
More information at the Hawaii Natural Energy Institute (HNEI) site.
 
Funding provided by the State of Hawaii Department of Business, Economic Development and Tourism (via the Hawaii Natural Energy Institute).

 


 

GREENHOUSE GAS EMISSIONS IN HAWAII: HOUSEHOLD AND VISITOR ANALYSIS

Summary: This project characterizes petroleum use and greenhouse gas emissions associated with economic activities in Hawai‘i. Data on economic activity, petroleum consumption by type (gasoline, diesel, aviation fuel, residual, propane), and emissions factors are compiled and analyzed. In the baseline year 1997, emissions are estimated to total approximately 23.2 million metric tons of carbon, 181 thousand metric tons of nitrous oxide, and 31 thousand metric tons of methane in terms of carbon-equivalent global warming potential over a 100-year horizon. Air transportation, electricity, and other transportation are the key economic activity responsible for GHG emissions associated with fossil fuel use. More than 22 percent of total emissions are attributed to visitor expenditures. On a per person per annum basis, emission rates generated by visitor demand are estimated to be higher than that of residents by a factor of 4.3 for carbon, 3.2 for methane, and 4.8 for nitrous oxide.

Greenhouse Gas Emissions in Hawaii: Household and Visitor Analysis

By Denise E. Konan and Hing Ling Chan
Published in Energy Economics, 32 (2010), 210-219.

Funding provided by Michael Saalfeld and Hawaiian Electric Company.


 

HAWAII GREENHOUSE GAS EMISSIONS PROFILE 1990 AND 2005

Summary: In the wake of the Hawaii Global Warming Solutions Act (Act 234 SLH 2007), EGGS produced a greenhouse gas emissions inventory for the state of Hawaii fro the years 1990 and 2005.

VIEW REPORT

 

Funding provided by Michael Saalfeld and Hawaiian Electric Company.

News

April 23, 2018 Should regulators fear bond-rating agencies?

It seems that our political and administrative leaders worry about the bond rating agencies. Their fear is understandable. The cost of capital looms large in all manner of infrastructure projects, and the cost of that capital depends on how risky investors perceive repayment to be.

The cost of capital also looms large for our investor-owned electric utility. HECO has a lot of capital to finance, some of it through corporate bond issues. It is also the sole “off-taker” for many independent power producers, so its financial health may affect the borrowing costs of these counterparties.

This worry was one predictably raised in response to a bill, now on Governor Ige’s desk, that would force the Public Utilities Commission to:

“…establish performance incentives and penalty mechanisms that directly tie an electric utility revenues to that utility’s achievement on performance metrics and break the direct link between allowed revenues and investment levels.

What does this mean?

It helps to know a bit about the convoluted underbelly of utility regulation. Here in Hawaii, and I believe every other state with investor-owned utilities, Public Utilities Commissions (PUCs) set an allowed revenue that utility companies can collect. That revenue comes from a formula that looks something like the following:

Fuel + Purchased Power + O&M + (Capital Investment) x (Allowed Rate of Return)

The utility has to justify these costs to the PUC, which it must approve. Most costs are basically a pure pass through to customers. The utility makes its profit, enough to provide dividends to shareholders, in basically two ways:

  1. 1. It can try to cut operation and maintenance costs and pocket the savings, although it may lose that allowed revenue in the next rate case.
  2. 2. The allowed rate of return on capital.
  3.  

If the allowed rate of return exceeds what the utility must pay in dividends to shareholders and/or interest rate payments, then utilities have a perverse incentive to tilt everything it does toward maximizing its own capital investment. The only check on the prudency of its investments is the PUC, which must approve most such expenditures.

The good thing about this strange profit mechanism is that, because it basically guarantees that the utility will earn a return on its investments, it’s quite easy for utilities to sell stock and bonds to finance the investment. All of which brings us to the bill on the Governor’s desk and our leaders’ fears of bond-rating agencies.

The bill tries to eliminate this perverse incentive, which basically rewards the utility for maximizing costs, by instead setting revenue based on performance metrics – outcomes that measure value to the utility’s customers and the larger community. These can be anything from measures that show better operation of its power plants to save costs, higher customer satisfaction, and better pollution outcomes.

Performance adjustments already exist in a limited form, but to my knowledge, performance outcomes are not used as the main source of return for any utility. The bill pushes for an unprecedented break from the status quo, and I gather that the Governor is worried (after very intense lobbying by certain interests) that if he signs the bill, HECO’s stock price and its bond rating could be punished by Wall Street.

So, two questions:

  1. 1. Is this fear of bond-rating agencies well justified?
  2. 2. Regardless of bond-rating fears, is this a good bill?

 

First, I think bond-rating fears are overblown. I don’t believe the bill casts reasonable doubt on the idea that the utility will be allowed to make a reasonable return on its investments. It just says that we need to break the “direct link” with capital investments. All manner of corporations easily raise capital monies with debt and equity issues under the expectation of an indirect link between the investments they make and the value of what they produce with those investments. I think it’s clear that this is the bill’s intent.

More pointedly: the PUC must, due to Supreme Court precedent, allow the utility an opportunity to make a fair return. If I were reading this bill the wrong way – and I think it’s clear that I am not – and the bill were to unfairly keep HECO from making a fair return, it would be quickly struck down by the courts. Wall Street knows this. The bond-rating agencies know this.

Incidentally, HECO’s stock price is up relative to a standard utility index since the bill passed the legislature.

Besides, bond rating agencies have a famously poor track record of predicting anything. (Anyone recall AAA stated-income mortgaged-backed securities?) The academic literature indicates that ratings changes mostly follow the market, with a long lag. Below is a graph from an early classic paper on the link between bond rating changes and stock market returns. It shows that upgrades follow good performance and downgrades follow bad performance. But the upgrades and downgrades have no apparent effect – or possibly even a countervailing effect — on returns after the rating change.

Source: Pinches and Singlelton, Journal of Finance, 1978

The literature shows that bond yields bear a similar relationship with rating changes. Some papers seem to show a subsequent effect for small firms with persistently low-rated corporate debt. But the size of the effect is small.

I’m not the only economist who is cynical about the bond rating agencies. Paul Krugman has noted how markets shrugged after US and Japanese debt got downgraded.

So, don’t fear the bond-rating agencies. Instead, look squarely at fundamentals. Which brings us to the second question: Is this bill a good idea?

Economists have long criticized rate-of-return regulation given its perverse incentive to maximize capital investment and the difficulty of the PUC in policing every investment decision. Here in Hawai‘i, our PUC has famously difficult staffing issues due to limited funding and a revolving door between them, the utility and other interests. Unsurprisingly, the utility pays higher salaries. It’s a challenging dynamic, to put it politely.

Worse, rate-of-return regulation gives the utility no incentive to find innovative solutions. If there is any advantage to having an investor-owned utility rather than a municipality or cooperative like KIUC (Kaui‘i’s electric utility), it is that they should have strong incentives to control costs and find innovative solutions to problems. Rate-of-return regulation undercuts that advantage.

This bill comes at a time when innovative solutions are increasingly important, capital investment is about to explode, and regulation is increasingly difficult. These changes are happening due to rapidly changing technologies and our transition toward 100% renewable energy. These changes expand the scope for innovation to better integrate and manage the variability of sun and wind resources. Many if not most of these opportunities involve investment by customers and independent power producers. Under rate-of-return regulation, these third-party investments can be efficient, but may be explicitly or implicitly resisted by the utility since they displace their own capital investment and source of profit. In other words, rate-of-return regulation causes more problems today than it has in the past.

So, the spirit of this bill is right on target.

The gaping hole in this bill is what it excludes: specific performance metrics that would replace rate-of-return and provide the new source of the utility’s revenue allowance. It kicks these details to the PUC.  Getting these metrics right for the utility of the future is critical. It’s also largely unchartered territory.

The PUC, of course, knows about all of these issues and could make all of these changes unilaterally. It doesn’t need this bill to change the way it determines the utility’s allowed revenue.  And just the other day the PUC opened a docket on performance-based regulation. The timing of the docket’s opening and the Governor’s decision about whether or not to sign this bill is unlikely a coincidence.

The PUC is telling Governor Ige: Don’t sign the bill! We got this!

But do they?

We have a laudable PUC and Consumer Advocate. These agencies are underfunded and overworked, and I think it is clearly evident that despite all the pressures they face, they do work tirelessly for the public interest. They are not captured by the utility.

But I do fear that the regulatory process is largely captured by the utility industry and the armies of consultants and vested interests that travel the country to testify on their behalf. And while change can occur within this process, it is slow. Very slow. With regard to this particular feature of regulation – the excessively high rate of return on the utility’s own capital investment – there appears to be a universal intransigence. To my knowledge, no PUC in the country has accomplished more than a tiny reduction in the allowed rate of return, much less a complete removal of the direct link and full reliance on performance metrics.

So, I gather that the PUC, and the utility, worry about how this law would constrain them. It would force profound change between now and January 2020 when the bill would go into full effect. That’s not much time to completely reinvent the utility’s revenue model. The standard process does not normally invoke that much change so quickly.

While I can understand why the PUC feels this is a risky bill, I fear that the risk is greater if we do not change fast enough. HECO’s costs are rising and technological change is relentlessly advancing, giving customers more options. The utility is pushing hard for grid upgrades that are expensive, but could become obsolete if enough customers leave the grid. A grid defection death spiral could be near.

The larger risk is a mountain of stranded assets, combined with punishingly high electricity prices for the most vulnerable customers—renters who cannot defect. This risk is also the State’s risk, since it may be on the hook for a bailout if the PUC approves investments in assets that quickly become obsolete. (I am told that the State probably would not be on the hook legally, due to this precedent, but the end game here would be ugly regardless.) And political leaders who enabled the catastrophe will, of course, have to answer to voters.

We can’t kick this can anymore. We have to act. This bill isn’t ideal—it doesn’t tell us the right performance metrics that would better align the utilities incentives with the public interest. But it does force us to make these hard choices soon.

- Michael Roberts
UHERO Research Fellow and Professor of Economics

UHERO BLOGS ARE CIRCULATED TO STIMULATE DISCUSSION AND CRITICAL COMMENT. THE VIEWS EXPRESSED ARE THOSE OF THE INDIVIDUAL AUTHORS.


December 4, 2017 Bringing together energy and climate change policy

We hear a lot about Hawaii’s Renewable Portfolio Standard (RPS) which requires 100% of the utilities’ net electricity sales to come from renewable sources by 2045. Subsidies, rapidly declining solar panel costs, and high electricity prices have led to the proliferation of distributed rooftop solar photovoltaic (PV). By the end of 2016, roughly 1 out of 7 occupied housing units on Oahu had a solar PV system (City and County of Honolulu, 2017; ACS, 2017). Integrating increasing amounts of intermittent renewable energy, including utility-scale solar and wind, presents a challenge for electricity grid operators since at any moment supply must equal demand. While it is easy to get wrapped up in how to enable more cost-effective renewable energy on an outdated grid, designed for centralized generation and a one-way flow of electricity, I’d like to step back for a moment and remind ourselves of the rationale for renewable energy policies to ensure we meet our policy objectives and, towards that end, are using the appropriate policy instruments.

Like the U.S., Hawaii relies heavily on fossil fuels to meet its electricity needs (see Figure 1 for Hawaii’s generation mix in 2016).1 Since fossil fuels are a depletable resource, the transition to renewable energy is theoretically inevitable absent any policy intervention. It is the speed of transition that is inefficient from a social perspective due to the presence of environmental externalities (Gillingham and Sweeney, 2010).2 The damages from greenhouse gas (GHG) emissions are spillover costs not reflected in current market prices for fossil fuels. As a result, there is both more fossil fuel consumption than socially optimal and the transition time to renewable energy is slower. Basic economics tells us that the best way to mitigate climate change is to “get prices right” by imposing a tax equal to the marginal damage cost of emissions or apply emissions trading.3 Such market-based incentives are less costly and allow for more flexibility than traditional command-and-control policies in which uniform standards (ambient, emissions, or technology) must be met by affected sources. The marginal damage cost of GHG emissions can be given by the "social cost" of carbon—the per unit present value of the total damages from carbon dioxide (CO2) emissions or alternatively the benefit from emissions abatement.

Figure 1. Hawaii’s Electricity Generation Portfolio, 2016.

Source: EIA, 2017.

Instead of a broad carbon tax, most of the focus in Hawaii has been on taxing the barrel of oil. This of course also discourages fossil fuel use; however, the barrel tax we have is quite modest so its major impact is as a source of funding. As only $1.05 per barrel is levied—and this excludes aviation fuel and fuel sold to a refiner—it does not capture the full externality cost. And the dirtiest fuel, coal, is also currently exempted.4 We also rely on policy instruments like the RPS or subsidies for renewable energy, which though they likely reduce carbon, not necessarily at least-cost.5 These policies were not founded on the basis of environmental impacts (namely climate change), but instead were primarily driven by affordability6 and a stronger local economy.7

To address climate change specifically, we have a separate policy, Act 234 (2007), which requires Hawaii to reduce its GHG emissions to 1990 levels by 2020. The statewide GHG limit is 13.66 million metric tons of carbon dioxide equivalent (MMTCO2e), excluding air transportation and international bunker fuel emissions and including carbon sinks. In response, GHG rules were established for the electricity sector in 2014; facilities emitting over 100,000 tons of CO2e per year (excluding municipal waste combustion operations and municipal solid waste landfills) are required to reduce emissions by 16% from 2010 levels in 2020. Partnering across the 20 affected facilities is allowed to achieve cost-effective emissions reduction.

Figure 2. GHG Emissions Inventory, 1990 and 2007.

Source: ICF, 2008.

Figure 2 shows Hawaii’s 1990 and 2007 GHG emissions inventory—the most recent inventory to date.8 It shows that the electricity sector produces approximately 30% of GHG emissions. Other sectors matter too, especially transportation. By focusing on economy-wide GHG emissions reduction, coupled with the appropriate policy instrument to meet the policy objective, not only will it encourage more renewable energy in the electricity sector, but it will also facilitate coordinated efforts in other sectors. For instance, ground transportation comprises many individual actors, which together account for 14-18% of emissions. It is also the fastest growing sector (38% increase between 1990 and 2007). Emissions from ground transportation have likely continued to increase despite increased fuel efficiency and the growth of electric vehicles (EVs) in recent years.9 This suggests that even if the electricity sector were to comply with or exceed the 16% reduction, the growth of ground transportation likely outpaces the decline in the electricity sector; without coordinated state action we may not meet Act 234.10

Climate change policy offers a potentially economy-wide approach that can align multiple policy goals—whether it is more affordable, locally produced electricity or the electrification of transportation. An economy-wide carbon tax also means that the same $/ton cost would be levied on gasoline. While there is a federal gasoline tax of 18.4 cents/gallon and a state gasoline tax of 16 cents/gallon (EIA, 2017), this does not necessarily amount to the full externality cost of pollution.11 With the proper price signals, getting more EVs on the road will happen without any other overarching goals or mandates in the transportation sector. Whereas federal Corporate Average Fuel Economy (CAFE) standards increase the fuel efficiency of new vehicles, they do not encourage people to drive less. A carbon tax would target both vehicle purchase and driving decisions for new and used vehicles. Moreover, a carbon tax offers the opportunity to address distributional impacts. Carbon taxes are perceived to be regressive because fuel comprises a greater share of spending for low-income households. However, mandates are more regressive than a revenue-neutral carbon tax which can redistribute revenues to taxpayers by cutting other taxes (e.g. payroll, personal income, and corporate taxes) or through direct payments (flat “check in the mail”).12

Lastly, a carbon tax would also address flaws in today’s current energy policies. For instance, the 100% RPS, as currently calculated, does not translate into Hawaii generating all its electricity from renewable sources since distributed rooftop PV is counted in the numerator (renewable generation) but not in the denominator (total electricity sales). As calculated, only electric utilities are subject to the law. The gas utility and other large commercial customers who install their own generators are not part of the picture, perhaps prompting large customers to switch to gas or defect from the grid entirely. Instead of devising an amended metric to close such loopholes,13 stronger GHG policy—a carbon tax to either complement or replace the RPS—would align statewide goals and avoid the consequences of any “leakage” across sectors.

A carbon tax could also help to make good on the goals of Hawaii’s energy efficiency portfolio standards (EEPS). In contrast to an RPS which targets the supply-side, the EEPS focuses on electricity consumption, calling for a 30% reduction by 2030, equivalent to 4,300 gigawatt hours based on a 2008 baseline forecast of electricity consumption in 2030. Measuring progress according to the design of the standard is extremely difficult without a “counterfactual”—that is, electricity consumption absent any energy efficiency savings. In addition, similar to CAFE standards in the transportation sector, some efficiency gains are offset by increased consumption (a rebound effect). There are also many individual actors, some regulated by the Public Utilities Commission, and others, unregulated. An economy-wide carbon tax would incent fossil fuel conservation by all. Note also the volumetric surcharge design to support energy efficiency programs currently presents regressive impacts.14

There’s a lot of background activity around compliance with Act 234 on the horizon with affected facilities submitting their updated emissions reductions plan and the DOH updating and developing GHG inventories and projections. As we move forward, we should consider not only working towards compliance in one year but in perpetuity. This blog post has highlighted the critical link between our broader energy goals and how climate change policy and its policy instruments can enable us to reach those objectives. Maybe Act 32 (2017), which commits Hawaii to meeting some of the principles and goals laid out in the Paris Accord, will be a way to keep us on track. But without any specifics as to how we are to achieve such reductions—through a carbon tax or otherwise—it is largely symbolic. It’s time for a comeback in energy and GHG policymaking.

- Sherilyn Wee 
UHERO Affiliated Researcher

UHERO BLOGS ARE CIRCULATED TO STIMULATE DISCUSSION AND CRITICAL COMMENT. THE VIEWS EXPRESSED ARE THOSE OF THE INDIVIDUAL AUTHORS.


1Though the composition of fossil fuels differs; in the U.S., natural gas and coal comprise roughly 30% each and nuclear, 20% in 2016 (EIA, 2017).

2Yet with technological advances and the discovery of new reserves, it could also be argued that the supply of fossil fuels are “nearly limitless.” In either case, without correcting for the market failure, the transition would be to slow to mitigate the impacts of climate change (Covert et al., 2016).

3For instance, the Regional Greenhouse Gas Initiative, is an electric sector cap-and-trade program between nine Northeastern States.

4See Act 73 (2010), Act 107 (2014), and Act 185 (2015).

5Emissions reduction depends on the generation source displaced and on increased consumption due to reduced prices. Murray et al. (2014) show tax credits have a small impact on GHG emissions, and in some cases, emissions increase. Palmer and Burtraw (2005) show that neither a production tax credit or an RPS leads to as high of and as cost-effective a reduction as a cap-and-trade program.

6Note low cost and renewable energy is often incorrectly regarded as synonymous; such treatment depends on context (e.g. PV versus non-PV customers) and the procurement of renewable energy sources (benefit from low-cost utility-scale renewables is shared amongst all customers). Also, if Oahu’s coal plant—the cheapest source of energy at around 3 cents/kWh—were to go offline (power purchase agreement to expire in 2022), energy costs would increase dramatically.

7See HB1464 (2009) and HB623 (2015).

8The Department of Health (DOH) is in the process of updating prior GHG inventories and developing new GHG inventories for 2015, 2016, and 2017.

9There are 6,490 EVs statewide, comprising less than 0.01% of all registered passenger vehicles as of October 2017 (DBEDT, 2017).

10Contrary to the Department of Health’s (2014) statement that “these rules will ensure that the state returns to 1990 GHG emission levels by 2020 as required under Act 234, 2007.”

11GHG emissions are a global pollutant and therefore global damages should be accounted for.

12See for example David and Knittel (2016) and Levinson (2016) on fuel economy standards.

13In the 2017 legislative session, the Department of Business Economic Development and Tourism (DBEDT) for the second time, proposed to amend the RPS calculation to correct for this error (see SB906, HB1040).

14As a per kWh charge, customers who are able to reduce or offset their energy use through energy efficiency and distributed PV pay a lower dollar amount than customers who do not have access to such technology. The expansion of distributed PV puts a greater burden on these (generally) lower-income customers.


June 2, 2017 The Role of Policy and Peers in EV Adoption

Electric vehicles (EVs) can be a cleaner means of transportation compared to cars with traditional gasoline engines. They have the added benefit of being able to provide support to the electric power grid—an increasingly important attribute in states like Hawaii with high levels of intermittent renewable energy. To achieve widespread deployment of EVs, we need to know why consumers choose to buy an EV rather than a traditional car. Towards this end, we have conducted two studies that evaluate the effects of state-level policy incentives in the United States and that estimate “spillover effects” from geographic peers in Hawaii who purchase EVs. Preliminary results are presented below.

State EV Policies

Though EV battery costs have fallen rapidly in the last several years, the upfront cost of EVs still remain a barrier to rapid adoption. States have implemented a range of policies to encourage consumers to purchase EVs—financial and otherwise—but it is unclear how effective these policies are at achieving additional EV uptake. We estimate the effect of policy on EV adoption using semi-annual new vehicle registrations by EV model from 2010 to 2015 and a rich dataset of consumer-oriented state-level policies designed to promote EV purchases. We focus our policy analysis on EV vehicle purchase incentives and a range of other policies like home charge subsidies, reduced vehicle license taxes or registration fees, time-of-use rates, emissions inspection exemptions, high occupancy vehicle lane exemptions, designated and free parking, and an annual EV fee (that discourages EV purchase). As a rough indicator capturing the overall number of policies that states have used to incentivize consumer EV adoption, we add the number of policies up by state, illustrated in Figure 1. We separate the “policy index” (ranging from 0 to 9) by battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) and show how it has changed over time (as shown in Figure 1 for the second half of 2011, 2013, 2015). Overall, there are more BEV policies, where California and Arizona are leaders in the number of EV policies adopted.

Figure 1. State Policy Index: BEVs (top) and PHEVs (bottom)


Our econometric estimates show that state policies positively impact EV adoption for both BEVs and PHEVs. The vehicle purchase incentive has a pronounced effect on BEV uptake. A $1,000 increase in the purchase incentive leads to an approximately 15% increase in sales of BEVs. We test these results by examining states that have ended large purchase subsidies, and find that BEV adoption declines. Other policies—aggregated together into a policy index—likewise increase EV uptake, though more so for PHEVs. This suggests that policies related to usage are perhaps more relevant for PHEVs. Each additional policy increases PHEV sales by 18%. The contrast between the effectiveness of different types of incentives for BEVs and PHEVs offers some guidance for policymakers evaluating current state policies or considering adopting new state EV policies. In sum, we find that state policies have driven additional EV uptake—extending EV purchases to consumers who would not have otherwise entered the market.

Geographic Peer Effects for Teslas

We also examine the role of geographic peers in EV uptake in Hawaii. Hawaii provides an excellent case for studying peer effects because it has strong EV adoption, the second highest amongst U.S. states in EVs per capita (IHS Markit, U.S. Census Bureau, 2010 – 2015). Although federal and state governments offer a variety of consumer incentives, the decision to adopt EVs may also extend beyond economic and policy motivations to include behavioral and social components. Social networks, also called “peer effects,” could have a potentially large influence on vehicle choice if people are influenced in their decision to adopt an EV by peer decisions to adopt EVs. Our second study examines peer effects defined by geographic networks, i.e., by visual observations of EVs registered in one’s neighborhood. Using zip code-level EV registration data from 2013-2016 for Hawaii, we exploit a three-month gap between adoption decisions and deliveries of Teslas to estimate presence and size of peer effects. Tesla EVs were important for reigniting interest in EVs more generally and amount to 13% of registered EVs on Maui, Oahu, and Hawaii Island. Our econometric analysis identifies statistically significant neighborhood effects. Figures 2 and 3 illustrate EV and Tesla uptake, respectively, by zipcode on Oahu, Maui, and Hawaii Island; Kauai is omitted due to data limitations.

Figure 2. EV Adoption on Oahu, Maui and Hawaii Island

 

Figure 3. Tesla Adoption on Oahu, Maui and Hawaii Island

We find that geographic-based peer effects generate one additional Tesla sale for every 26 Teslas sold in a zip code. How meaningful the magnitude of these peer effects may be is likely contextual. If for example policy focused specifically on marketing to peers and social networks, this may not provide much gain. However, as a pure spillover effect, peer effects can be meaningful. If, for example, Hawaii were to offer a second round of vehicle purchase subsidies, the peer multiplier effect estimated in our analysis would increase the additional Teslas purchased by 4-5% over each year of the vehicle’s life. As a lower bound, this amounts to roughly 1 additional Tesla per zipcode as a result of peer effects. One note of caution: whether the peer multiplier for Teslas—a very high-end vehicle—will translate as the peer multiplier for other lower-priced EVs, such as the Nissan Leaf or Chevy Volt, remains an open question.

- Sherilyn Wee, Makena Coffman and Sumner LaCroix


References

IHS Markit. (2016). Dataset of New Vehicle Registrations by state 2010-2015.

U.S. Census Bureau. (2010-2015). 2010-2015 American Community Survey 1-Year Population Estimates.


May 5, 2017 Michael Roberts Receives Agricultural & Applied Economics Association’s Quality of Research Discovery Award

UHERO congratulates Michael Roberts, recipient of the Agricultural & Applied Economics Association’s Quality of Research Discovery Award for his article, "Who Really Benefits from Agricultural Subsidies? Evidence from Field-level Data." Michael will be recognized during the AAEA 2017 Annual Meeting this summer in Chicago.

Michael Roberts is a UHERO Research Fellow, Professor of Economics and co-founder of UHERO's Energy Policy and Planning Group


January 17, 2017 Sherilyn Wee recognized as Outstanding Student of the Year by the U.S. Department of Transportation

Sherilyn Wee at the UTC Awards Banquet January 7 in Washington D.C. with keynote speaker, Dr. Beverly Scott, CEO of Beverly Scott and Associates.

UHERO congratulates Sherilyn Wee on receiving an Outstanding Student of the Year award, presented by the U.S. Department of Transportation (DOT). Sherilyn was recognized in Washington D.C. for her contribution to the transportation field through her research and leadership with the Electric Vehicle Transportation Center. For 26 years, the University Transportation Centers (UTC) Program, under the management of the U.S. DOT's Office of the Assistant Secretary for Research and Technology, has advanced U.S. technology and expertise in transportation through education, research, and technology transfer.

Sherilyn Wee is a postdoctoral researcher and former graduate research assistant at UHERO. She holds a Ph.D. in Economics from the University of Hawaii.