Green Cars Adoption and the Supply of Alternative Fuels

Abstract

Easy availability of stations serving alternative fuels is an obvious concern for customers considering to buy a “green” car. Yet, the supply of fuel is seldom considered when analyzing the problem of fostering the adoption of environmentally friendly vehicles. I develop and estimate a joint model of demand for green cars and supply of alternative fuels. Customers care about the density of stations offering the fuel their car runs on in their market; stations only supply fuels whose stock of circulating cars 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 an effective policy to indirectly increase low emission car sales.