Are Electric Cars and Solar Panels Complements?

Xueying Lyu

Journal of the Association of Environmental and Resource Economists, 2023, vol. 10, issue 4, 1019 - 1057

Abstract: Both electric cars and residential solar panels are environmentally friendly durable goods that are often subsidized. The relationship between the two in demand will affect the efficiency of a range of green policies. This study explores the complementarity between the two goods, taking an instrumental variables approach. Using global horizontal irradiance as an instrument, I find that each existing solar adoption leads to approximately 0.184 additional electric car sales, including 0.121 battery electric vehicles and 0.063 plug-in hybrid electric vehicles. Utilizing availability of high occupancy vehicle lanes and gasoline prices as instruments, I find that each electric vehicle ownership leads to roughly 0.26 additional solar installations. The complementarity mainly comes from lack of charging stations and insufficient compensation for excess solar energy sold back to the grid. The findings imply substantial spillovers from policies affecting either choice, changing the cost-benefit calculus for a range of green policies.

Date: 2023
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