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Public Sector

The risks and rewards of mobility subsidies

The most direct way to get people to use clean transport would be to make it free, but can we afford to? Can we afford not to?

The scientific consensus is that to avoid the climate crisis, the world must wean itself off fossil fuels. In concert, it is our governments' responsibility to incentivize and promote the use of cleaner technologies, from electric vehicles to public transit. One of the most direct ways that governments around the world has seen to do this is through subsidies: offering people and businesses financial savings for choosing cleaner options.

While subsidies do make a direct and easy-to-understand incentive towards getting people to use clean transport, governments have to be mindful when setting up these programs. Positioned incorrectly, they can exclude the populations who could benefit most from the savings, and even negate their own usefulness.

How subsidies (don't) work

One example of a green subsidy that needs improvement is the US government tax-break for the purchase of electric vehicles. On paper it's simple and effective enough: If you buy an electric car, like a Tesla, you qualify for a federal tax credit of $1,875, and various state and local credits. This makes buying electric more affordable and should get gas-cars off the road. However, subsidies like this only apply to the people who can already afford to spend at least $30,000 on a new car – about 150% higher than the average used car. Additionally, producing a new car – even an electric one – causes its own pollution.

When subsidies take the form of tax-credits, they apply only to the parts of the population who can afford to make the change and pass the burden to every taxpayer who can't. And by filtering the population that is incentivized to make clean changes by income, these plans don't solve the problem they are made for. While rich people disproportionally contribute to pollution, it isn't enough for these programs to just change how much wealthy people's lifestyles pollute – they have to change the lifestyles themselves – and for that, they have to incentivize cleaner behavior that benefits everybody.

Vlkswagen eGolf

Norway is one of the few markets in the world where the price of an electric car is at the same level as that of a similarly sized vehicle with a combustion engine. In 2018, almost every third vehicle sold in Norway was electric and every sixth electric car sold was a Volkswagen e-Golf.

Everyone saving saves everyone

People who can't afford cars – electric or otherwise – still need to go places, and to do so, they use bikes or public transportation. For government subsidies to succeed in their goals of getting people to adopt clean transport, these are the modes of transport they should incentivise.

The greater Paris region is incentivizing e-bike use through a subsidy of €500 towards its cost. Not only does this make green transportation more available to a greater part of the population, it also takes cars off the road rather than just replacing them. The subsidy also works on top of a bike-share rental scheme that further eliminates the need for car ownership in the city by making alternatives more affordable. And even at €500 per bike, the subsidy is a lot cheaper on the taxpayer than $1,875 per Tesla.

An even better transportation alternative that taxpayer money could go towards is subsidising public transport. A handful of transportation departments in the United States, like the MTA in New York, already offer programs that let people save on public transit by paying with pre-tax income.

Even better would be using taxpayer money to make public transportation free at point-of-service. That's what Estonia did in 2018 after having free public transit in its capital city since 2013. Besides reducing the financial burden on lower-income residents, this encouraged people of all levels of wealth to leave their cars outside of the city and use the free public transit to go out more often.

The real cost of fares

Perhaps the better question when it comes to subsidizing public transport isn't “can we afford to do it?", but, “can we afford not to?" Even if we put aside the urgency the climate crisis should impose on instituting policies that reward green behavior and penalize polluters, it's hard to ignore the political element of whose transportation the government pays for. A $0.04 fare hike proved too much for already struggling Chileans to abide, leading to country-wide protests. The environmental protest group Extinction Rebellion led their own demonstration in the London Underground. And in New York, citizens marched against the city's plan to spend $249 million on extra cops and surveillance equipment to save $200 million in fare evasion.

Cities can't hope to prevent the intertwined problems of environmental collapse and civil unrest by catering exclusively to the wealthier classes and making only their preferred lifestyles greener. To help tackle these important issues, HERE provides cities and companies with powerful Urban Mobility Solutions that take all the data into account.

Harmonizing urban mobility

Building smart infrastructure is now a reality

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