Green Car Adoption and the Supply of Alternative Fuels

Giulia Pavan's homepage at TSE

Abstract: Easy access to stations serving alternative fuels is an obvious concern for customers considering to buy a ``green'' car. Yet, the supply of fuel is seldom considered analyzing how to promote the adoption of environmentally friendly vehicles. I develop and estimate a joint model of demand for cars and supply of alternative fuels. Customers care about the density of stations in their are offering the fuel compatible with their car; stations only supply fuels of cars of which stock of circulation is large enough to cover the fixed cost of building an alternative fuel pump. I use this framework to compare the effectiveness of a subsidy to consumers who buy cars running on alternative fuels to that of a subsidy to gas stations installing alternative fuel pumps. Counterfactual simulations suggest that subsidizing fuel retailers to offer alternative fuels is a more effective policy that indirectly increases low emission car sales.