The Economics of ELECTRIC VEHICLES for Passenger Transportation

Cecilia Briceno-Garmendia

Wenxin Qiao

Vivien Foster

© 2023 International Bank for Reconstruction and Development / The World Bank

1818 H Street NW, Washington, DC 20433

Telephone: 202-473-1000; Internet: www.worldbank.org

Some rights reserved

1 2 3 4 26 25 24 23

This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved.

Rights and Permissions

This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http:// creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions:

Attribution—Please cite the work as follows: Briceno-Garmendia, Cecilia, Wenxin Qiao, and Vivien Foster. 2023. The Economics of Electric Vehicles for Passenger Transportation. Sustainable Infrastructure Series. Washington, DC: World Bank. doi:10.1596/978-1-4648-1948-3. License: Creative Commons Attribution CC BY 3.0 IGO

Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation

Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank.

Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images.

All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org

ISBN (paper): 978-1-4648-1948-3

ISBN (electronic): 978-1-4648-1949-0

DOI: 10.1596/978-1-4648-1948-3

Cover and interior design: Chris Phillips, Circle Graphics, Inc.

Library of Congress Control Number: 2023900711

Sustainable infrastructure is a key enabler of economic and social development, as well as environmental sustainability. Quality infrastructure enhances productivity and competitiveness, contributing to economic growth and employment as well as facilitating international trade. Broad coverage of infrastructure services promotes social inclusion and equity and supports the formation of human capital. Green infrastructure safeguards local environmental quality, while contributing to the global decarbonization process. The challenge of delivering sustainable infrastructure services is a complex one that goes far beyond “bricks and mortar” to encompass good policy, sound planning, efficient procurement, smart regulation, transparent governance, affordable finance, and functional markets. The Sustainable Infrastructure Series covers a wide range of policy topics relating to network infrastructure services, including energy, multimodal transportation, information and communication technology and digital development, water and sanitation, and urban and rural infrastructure, as well as irrigation and flood management.

Off the Books: Understanding and Mitigating the Fiscal Risks of Infrastructure (2023) by Matías Dappe Herrera, Vivien Foster, Aldo Musacchio, Teresa Ter-Minassian, and Burak Turkgulu

Laying the Foundations: A Global Analysis of Regulatory Frameworks for the Safety of Dams and Downstream Communities (2020) by Marcus J. Wishart, Satoru Ueda, John D. Pisaniello, Joanne

L. Tingey-Holyoak, Kimberly N. Lyon, and Esteban Boj García

Rethinking Power Sector Reform in the Developing World (2020) by Vivien Foster and Anshul Rana

Lifelines: The Resilient Infrastructure Opportunity (2019) by Stephane Hallegatte, Jun Rentschler, and Julie Rozenberg

Beyond the Gap: How Countries Can Afford the Infrastructure They Need while Protecting the Planet (2019) by Julie Rozenberg and Marianne Fay

All books in the Sustainable Infrastructure Series are available for free at http://hdl.handle.net/10986/31290

Electric mobility is gaining momentum, especially in China, Europe, and the United States, which account for more than 90 percent of the world’s electric vehicle (EV) fleet. However, this report, The Economics of Electric Vehicles for Passenger Transportation, shows that EVs could be increasingly relevant for low- and middle-income countries (LMICs).

Whereas many advanced countries see electric mobility primarily as a way to decarbonize the transportation sector, the rationale for electric mobility adoption in LMICs is much wider. It brings the potential to reduce local air pollution, improve the quality of public transportation, provide last-mile connectivity, reduce dependence on imported fuels, and provide new opportunities to participate in vehicle supply chains. Electric mobility adoption, however, does not address all aspects of transportation and development, such as road safety, congestion, land management, or urban planning. Therefore, electric mobility adoption must be part of a comprehensive program to promote sustainable and inclusive urban mobility.

EVs will eventually come to dominate the passenger transportation systems of all countries, but the timing of this transition will be determined by the economic and financial realities of each case. For some countries, it already makes economic sense to pursue electric mobility, even though EVs can cost 70 percent more than conventional vehicles. The operating benefits EVs bring to the table—such as lower maintenance and fuel costs—often offset the higher capital cost, making them a feasible option in the medium term.

Factoring in the broader health and environmental benefits makes the economic case even stronger. Regardless of how a country generates electricity, EVs emit less carbon per vehicle-kilometer than conventional vehicles. These reductions become even more pronounced as the power sector decarbonizes. For LMICs with serious urban air pollution problems, the value of local environmental benefits associated with electric mobility adoption exceeds even that of global climate benefits. After performing an analysis based on these criteria, this report finds that, in half of the countries studied, global policy targets aiming for 30 percent of new passenger vehicles to be electric by 2030 makes economic sense for many LMICs.

Efforts to accelerate an electric mobility transition should target the most viable market segments. In view of their relatively low capital cost, the case for electric two-wheelers and three-wheelers is particularly strong in almost every country studied, and the case for electric buses is expected to strengthen as technology evolves and countries adopt efficient procurement and management practices. Currently, for more than half of LMICs studied, the electrification of buses is an attractive proposition when externality benefits are included and vehicles are deployed on busy, high-volume routes.

Once a country decides that accelerating electric mobility uptake makes sense, governments can be proactive in several ways. Accelerating adoption requires coordination across sectors and a combination of strategic, transportation, energy, and financial policies. An evaluation of the timing and chief motivations should guide policy design. Nonmonetary incentives such as promoting leasing and consumer financing all show promise and are cost-effective. But governments also need to invest in robust charging infrastructure, which can be up to six times more effective at encouraging EV purchases than subsidies. Thus, the ultimate success of electric mobility adoption involves additional public investment; in some countries, it also means reductions in fiscal revenues because of the forgone oil taxes. Governments may need to plan to anticipate the fiscal implications.

Although most of the pieces of the puzzle might seem to be in place, making the proposal attractive for users is essential. Doing so might require devising financial and procurement schemes such as pooling demand and transferring power and benefits to buyers rather than to providers or creating financing mechanisms to reduce the risk to new buyers and spread higher capital costs. Electric mobility is an agenda of increasing relevance to LMICs, although each country will need to find its own way. Like many transitions, the trajectory is uncertain but the ultimate destination is clear.

Nicolas Peltier-Thiberge Global Director for Transport Global Practice The World Bank

Binyam Reja Practice Manager for Transport Global Practice The World Bank

This report has been prepared by a core team led by Cecilia Briceno-Garmendia (Global Lead Economist) and Wenxin Qiao (Senior Transport Specialist) of the World Bank’s Transport Global Practice, with major contributions from Vivien Foster (Chief Economist, Infrastructure Vice-Presidency) and under the overall guidance of Nicolas Peltier-Thiberge (Global Director, Transport Global Practice) and Binyam Reja (Practice Manager, Transport Global Practice). Other contributing members of the team include Muneeza Mehmood Alam, Fan Zhang, Kristin Panier, Nino Pkhikidze, Annika Berlin, Helena Goetsch, Jevgenijs Steinbuks, Yoomin Lee, and Azeb Afework. The report also benefited from a fruitful collaboration with the Energy Sector Management Assistance Program (ESMAP) and the World Bank’s Energy and Extractives Global Practice, including contributions on the energy and transport nexus from Ivan Jaques, Yanchao Li, Tarek Keskes, Henrik Rytter Jensen, and Adam Krzysztof Suski, under the guidence of Gabriela Elizondo Azuela.

A diverse group of consultants and consulting firms contributed to the report. Special acknowledgment goes to Senior Consultants Uwe Deichmann and Shanjiang Zhu for their key contributions to the report and model. The team also appreciates contributions from Cambridge Econometrics, led by Stijn Van Hummelen, Jamie Pirie, and Jon Stenning; Wood PLC, led by Bipin Muley and Moshiuzzaman Mahmud; Chenfeng Xiong, Sadanand Vishwanath Wachche, Gustavo Collantes, Adyasha Mohanty, Jerónimo Callejas, Joshua Linn, Danhui Tian, Huijing Deng, Tali Trigg, Nicolas Oxenford, Jijun Wang, Nathalie Del Valle Barboza Rojas, Vidula Damle, and Elizabeth Font; and the World Resources Institute (led by Ryan Sclar, Pawan Mulukutla, and Krithi Venkat) for their valuable inputs during the research for this report.

The team thanks peer reviewers Bianca Alves, Franck Taillandier, Gerald Ollivier, John Gregory Graham, Pierre Audinet, and Yang Chen for their excellent critiques and suggestions to improve the quality of both the report and the model. The team also appreciates comments received from participants of technical workshops, the quality enhancement review, and decision meetings. The team benefited from additional comments from Ani Balabanyan and her team, led by Tom Remy from the World Bank’s Energy and Extractives Global Practice.

Special heartfelt thanks to the World Bank’s Transport Global Practice teams from Brazil, Cambodia, the Arab Republic of Egypt, Ethiopia, Ghana, India, Jamaica, Jordan, Kazakhstan, Maldives, Nepal, Nigeria, Poland, Rwanda, Tajikistan, Türkiye, Ukraine, Uruguay, Vanuatu, and Vietnam for their help in providing data, sharing country-specific documents, and fact checking the country studies included in the analysis. Similarly, our thanks go to our World Bank Transport Global Unit colleagues for their continuous feedback and permanent encouragement and to the team from the Office of the Infrastructure Vice-Presidency’s Chief Economist’s Office for its valuable input.

We appreciate the World Bank’s Carbon Price Assessment Tool team members Stephen John Stretton, Stephane Hallegatte, Alexandra Andrea Maite Campmas, Daniel Esteban Bastidas Cordova, Paulina Estela Schulz Antipa, and Dirk Heine for facilitating access to key data.

The team has been lucky to count on the support of members of our Communication and Knowledge Management teams, including Erin Scronce, Xavier Bernard Leon Muller, Jonathan Davidar, Sara Sultan, and Leszek Tymoteusz Zemke.

The team is deeply grateful to Riccardo Puliti (Vice President, Infrastructure) and Pablo Fajnzylber (Director of Strategy and Operations, Infrastructure) for their excellent leadership and invaluable guidance. The team also extends its gratitude to Makhtar Diop (Managing Director and Executive Vice President, International Finance Corporation), Guangzhe Chen (South Asia Regional Director, Infrastructure), and Franz R. Drees-Gross (West Africa Regional Director, Infrastructure) for supporting our initial ideas and launching the underlying research project.

Cecilia Briceno-Garmendia is the Global Lead for Transport Economics, Policy, and Innovation at the World Bank and leads the World Bank’s Transport Decarbonization agenda. She also works with the World Bank’s operational teams in reassessing the lens through which mobility and logistics are incorporated at country and regional levels to capitalize on synergies between climate action and development. She has conducted research and development projects in over 75 countries spanning Africa, Asia and the Pacific Islands, Europe, and Latin America. Previously, she worked in software engineering, specializing in artificial intelligence and the design of information and organizational systems. She has a PhD in economics from Georgetown University and an MBA from the Instituto de Estudios Superiores en Administración in Caracas, Venezuela.

Vivien Foster is Chief Economist for the Infrastructure Vice-Presidency of the World Bank. For over 20 years she has been advising governments of more than 30 countries across the developing world on a wide range of infrastructure policy issues. Her policy-oriented research has been extensively published, including titles such as Water, Electricity and the Poor: Who Benefits from Utility Subsidies?; Africa’s Infrastructure: A Time for Transformation; Building Bridges: China’s Growing Role as Infrastructure Financier for Sub-Saharan Africa; and Rethinking Power Sector Reform in the Developing World. Most recently, she was Co-Director of World Development Report 2021: Data for Better Lives. She holds a PhD in economics from University College London.

Wenxin Qiao is a Senior Transport Specialist with the World Bank, working on analyzing transformative technologies and their impact on global transportation networks and supporting improvements toward sustainable and intelligent transportation networks. She specializes in developing network models to optimize traffic conditions and resource use, including prioritizing public transit systems, predicting travel times, and improving network resilience. She has authored or coauthored about 30 peer-reviewed publications in international journals and conferences and has served as a peer reviewer for several transportation journals. She holds a PhD in transportation from the University of Maryland.