Swedish Electric Bikes – Energy Institute Blog

Uppmärksamhet! New research is looking at the economics of e-bikes.

What do Sweden, Norway, Austria, France, Germany, Italy, Luxembourg and Scotland have in common? They all have e-bike subsidies in place.

In today’s blog I want to write about new search economists Anders Anderson and Harrison Hong on e-bike subsidies in Sweden. Policies to encourage e-bikes have proliferated rapidly, but this is the first economic analysis I’ve seen and the study does a great job of exposing many of the key issues.

pedal power

Wanting to reduce carbon emissions, Sweden launched subsidies for electric bikes in October 2017. How does it work? Easy. Go to an e-bike dealer in Sweden. Buy an electric bike. Fill out a form. Receive a discount from the Swedish government equal to 25% of the price of the e-bike, up to a maximum of 10,000 crowns ($1,100).

Politics was incredibly popular. In the first year, 100,000 cyclists received discounts for e-bikes. The policy became so popular that the program budget was quickly exceeded and the decision was made to prematurely end the policy in October 2018. To date, discounts have yet to be made available, despite support of some Swedish policy makers.

Additionality

The authors use administrative, survey and other data to evaluate the policy. First, the authors question additionality. Have rebates increased e-bike sales? Or, did the rebates go to people who would have adopted the technology anyway?

The figure below plots a representative sample of e-bike sales by month in Sweden. The dark gray bars show the 13 months that discounts were available, with additional months plotted before and after for comparison.

E-bike sales increased by 70% in the months the discounts were available. The increase is particularly pronounced during the summer of 2018, but even January and February 2018 saw much higher sales than those same months in other years.

It should also be noted that sales fell sharply when the discounts ended. reminding Previous search on “Cash for Clunkers”, this sharp drop suggests that some sales may have been brought forward in time to take advantage of the discount.

Based on their analysis of monthly sales data, as well as additional self-reported information from a large-scale survey, the authors conclude that approximately one-third of rebate recipients would have purchased an e-bike anyway. (i.e. they weren’t extra), with the remaining two-thirds representing e-bikes that wouldn’t otherwise have been on the road.

Impact

The authors then look at e-bike prices. We might have expected e-bike sellers to capture some of the discount by raising prices. However, it turns out that the buyers kept almost 100% of the discount.

The solid line in the figure above represents the average monthly prices for e-bikes. Average prices increase somewhat throughout the period, but there is no marked change when the discounts were introduced, nor when the discounts ended, and therefore no evidence that the discount was captured by the sellers.

This finding is consistent with the fact that the supply of e-bikes is very elastic. In 2017, there were already many different manufacturers and retailers on the market, and none of the supply chain constraints which present challenges today. It seems that sellers were able to increase their sales quite easily with little impact on prices.

Reduction of carbon emissions

Finally, the authors calculate that each e-bike reduces lifetime carbon emissions by 1.3 tonnes. This calculation is based on survey data in which rebate recipients provided detailed information about their transportation choices before and after purchasing an e-bike.

This part of the analysis requires strong assumptions, but I found these results fascinating. E-bikes will not replace cars for long journeys, but rebate recipients report having significantly changed their commuting behavior. Prior to purchasing an e-bike, nearly two-thirds of recipients used a car to some extent for commuting. After buying an electric bike, only 4% continue to use the car every day and 54% use it less frequently. The authors calculate that rebate recipients reduced their car driving by an average of 1,146 kilometers per year.

Adjusting appropriately for non-additional participants, the authors find that Swedish e-bike rebates cost $600 for every ton of carbon reduction. The authors point out that this is higher than most estimates of the social cost of carbon, but I think that’s not quite the right comparison. First, the rebates are transfers — not economic costs — so it doesn’t equate to $600 spent on other forms of carbon reduction. Second, this calculation does not take into account several other potential categories of benefits.

Future work

I enjoyed chatting with colleagues here at the Energy Institute about this new research, and I think we found several additional potential categories of societal benefits that would be interesting to examine in future research.

• Traffic jam. The traffic imposes great social costs and e-bikes might be able to help with that.
• Local pollutants. Less driving means fewer nitrogen oxides, carbon monoxide and hydrocarbon emissions.
• Security. Honestly, I don’t know if more e-bikes on the road are good or bad for safety. I could see arguments going both ways, but this seems like a top-notch problem.
• Producer learning by doing. As with any rapidly evolving technology, there are spillovers to innovation. This was probably even more important in 2017 than it is now, given that the e-bike market was just getting started.
• Consumer learning by doing. Riding an electric bike, you might learn that you love it. Maybe this one-time discount will change your transportation choices for life.
• Peer effects. Seeing all these e-bikes criss-crossing Sweden might inspire future adoption by others even without reimbursement. This could partly explain the high sales of e-bikes in Sweden in 2019, after the discount disappeared.
• Human health. Just as carbon policy produces “co-benefits” in the form of reduced emissions of local pollutants, could a rebate on the e-bike produce co-benefits in the form of better cardiovascular health?

These additional factors aren’t easy to quantify, but they tend to be benefits, not costs, so incorporating these other factors would likely strengthen the economic case for e-bike discounts. I feel like e-bike discounts are most valuable in places where traffic jams and local pollution are particularly problematic.

In short, Anderson and Hong answer a few important questions, but raise even more – not just about e-bikes, but the whole emergence micromobility space. I look forward to more articles on this topic.

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Suggested citation: Davis, Lucas. “Sweden and the e-bike economy” Energy Institute Blog, UC Berkeley, April 25, 2022, https://energyathaas.wordpress.com/2022/04/25/swedish-e-bikes/