Promoting Clean Technology Adoption: To Subsidize Products or Service Infrastructure?

Clean technology products (e.g., electric vehicles and solar photovoltaic panels) are key to sustainable development of sectors such as transportation and energy. Often, adoption of such products relies on development of supporting service infrastructure, for example, charging networks or energy-storage systems, and is often hindered by the “chicken-and-egg” dilemma: firms are reluctant to make capital-intensive investments before sufficient consumer adoption, and consumers hesitate to adopt without supporting infrastructure. Aiming to overcome this issue, the article examines the efficacy of two forms of government subsidies (as well as their combination), namely service infrastructure subsidy and product subsidy. Although both types of subsidies are generally conducive to clean-technology adoption, the study finds that these subsidies can be detrimental under certain conditions. In particular, the former may cause early adopters to delay their purchase, and the latter may interfere with the firm’s investment incentives and lead to reduced overall adoption. The article identifies the optimal subsidy strategy that follows a “sandwich rule:” it is optimal to provide only the product subsidy when the infrastructure deployment cost is sufficiently high or sufficiently low; however, it is optimal to subsidize both if the cost falls in the moderate range.