Clément Malgouyres (CREST-CNRS), with Thierry Mayer and Lewin Nolden
Governments increasingly tie clean-technology subsidies to industrial aims. In 2024, France conditioned its electric-vehicle (EV) purchase bonus on a life-cycle environmental score, instantly disqualifying models accounting for about one-third of EV sales. We leverage this reform in order to understand how costly tailoring green subsidies to pursue non-environmental industrial policy is. Linking exhaustive registration records to assembly plants and battery origins, we exploit this reform in a difference-in-differences design. We then combine these estimates with original survey data on second choice to estimate a nested-logit demand system. The reform redirected demand toward European supply chains but reduced EV penetration by 0.4 percentage points. The resulting increase in driving emissions roughly offsets manufacturing-stage CO2 gains. A budget-neutral variant recycling fiscal savings into larger bonuses for eligible models restores electrification and turns the net CO2 effect positive, at a cost of about Euros 4,200 per reshored battery in consumer surplus. Accounting for producer surplus accruing to domestic shareholders and corporate tax revenue, this cost falls to approximately euros 1,600 per battery. Our welfare analysis further highlights that the reform effectively converts largely untaxed carbon (manufacturing-phase emissions, outside the scope of carbon pricing) into heavily taxed carbon (driving emissions, taxed at approximately euros 210/tCO2 through fuel excise alone). Accounting for this pre-existing tax wedge dramatically improves the fiscal efficiency of the reform.