Assessing the causal effect of air pollution on electric vehicle adoption using real world data: Evidence from 270 Chinese cities

Abstract

Electric vehicles (EVs) are recognized as a feasible solution for improving the environment, and environmental factors may also exert effects on the adoption of EVs. Previous research, primarily relying on survey methodologies, indicated that individual environmental awareness promotes the intention to adopt EVs. However, few studies explore the impact of real-world air quality on actual EV adoption. Compiling a panel dataset encompassing 270 Chinese cities from 2014 to 2020, we use an instrumental variable approach to assess the causal effect of air quality on the sales of EVs. Thermal inversion is employed as an instrumental variable to address endogeneity arising from the obvious reverse causality in their relationship. The results show that the deterioration of air quality leads to an increase in the sales of EVs. This positive effect is more pronounced in cities characterized by higher per capita income, higher car ownership per capita, and larger urban size. Mechanism analyses show that the positive effect is largely mediated by government policies. Our findings reveal that Chinese governments are responding to air pollution issues in a rational way and that their policies are effectively promoting the adoption of EVs.