Willingness to pay for the infrastructure investments
for alternative fuel vehicles
Nobuyuki Ito†§, Kenji Takeuchi¶, and Shunsuke Managi‡†

Division of Natural Resource Economics, Graduate School of Agriculture, Kyoto University, Japan§

Research Fellow of the Japan Society for the Promotion of Science, Japan¶‡

Graduate School of Economics, Kobe University, Japan

Graduate School of Environmental Studies, Tohoku University, Japan

Abstract
This study investigates potential demand for infrastructure investment foralternative fuel vehicles (AFVs) by using a stated preference survey of 1,531 Japanesecitizens. The potential demand is estimated on the basis of how much people arewilling to pay for AFVs under different refueling scenarios. By using the estimatedparameters, the economic efficiency of establishing battery exchange stations forelectric vehicles is examined. The result indicates that infrastructural development ofbattery exchange stations can be socially efficient when the percentage of electricvehicle purchasers out of the total number of new vehicle purchasers exceeds 5.63%.
Furthermore, in contrast to intuitive prediction, we found a complement relationshipbetween the cruising ranges of AFVs and the infrastructures established. The result
suggests that people with AFVs might change their total trip distance depending on
the sufficiency of infrastructure investment.

Keywords: Alternative fuel vehicle, infrastructure investment, stated preference method, choice
experiment, discrete choice, nested logit model, cost-benefit analysis

11 Introduction
Alternative Fuel Vehicles (AFVs) are expected to play an important role inreviving the automobile industry as well as in mitigating carbon emissions in thetransportation sector. Reduction of carbon emissions is becoming a matter ofinternational importance. In the US, the American Recovery and Reinvestment Act of2009 extended consumer tax incentives, providing tax credit ranges from 2,500 to
7,500 US dollars (hereafter dollars) for plug-in electric vehicles (EVs). In the UK,
those who purchased EVs in 2011 could receive a rebate ranging from 2,000 to 5,000
pounds (Department for Transport, UK). Furthermore, they could also be exempt fromannual vehicle taxes and showroom taxes, whereas the purchaser of an average newgasoline vehicle (GV) would be paying a one-off excise duty of 155 pounds from
April 2010 onwards (after a one-time exemption from the duty). EVs are tax free.
Similar incentives are being offered by other countries in Europe. In 2010, Japan also
provided subsidies for EVs within a range of 660 thousand yen to 1,380 thousand yen(a range of 7,310 to 15,300 dollars).1
Nevertheless, the demand for AFVs is still at a premature stage. One of the reasonsfor this is the lack of investment in infrastructure for recharging/refueling thesevehicles. The number of establishments for refueling EVs and fuel cell vehicles(FCVs) are insufficient. However, a few attempts have been made to resolve thisproblem. For example, in London it is planned to set up 1,300 charging points by 2013.
The “Source London” project provides a network of 400 recharge points that enable
recharge equipment individually owned to be shared as of March 2012 (London
1

During the period our survey was conducted in February 2010, the average exchange rate was
90.28 Japanese yen per dollar.
2Assembly Environment Committee, 2012). In the US, a California-based venturecompany known as Better Place proposed that establishing rental battery stations
where drivers can replace their depleted batteries with fully charged ones within aminute, could serve as an effective solution. Shown evidence of consumer willingness
to pay for these infrastructures, governments would be more inclined to approve
investment in such infrastructure. A stated preference survey is useful for predicting
such potential demand under hypothetical scenarios in which circumstances
dramatically change.
Several studies have used the stated preference approach to investigate the potential
demand and role of government support for AFVs. In the 1970s the studies ofpotential demand for EVs started in the US against a backdrop of the oil crisis (Beggs
et al., 1981; Calfee, 1985). The concern of the early studies was how much the fuelefficiency of EVs characterized by a short cruising range can compete withconventional gasoline vehicles (GVs). After that, in response to California’s
zero-emission vehicle mandate, studies regarding AFVs that include a measure ofemission level as one of the vehicle attributes were carried out (Bunch et al., 1993;
Brownstone et al., 1996, 2000; Brownstone and Train, 1999; see also Hidrue et al.,2011). Ewing and Sarigöllü (1998) focused on the significance of economic incentives
provided by governments and found that they had modest effects on the vehicle
choices of residents in the metropolitan Montreal area. Potoglou and Kanaroglou(2007) examined the impact of non-economic incentives such as “free parking” and“permission to drive on high-occupancy vehicle lanes with one person in the car” andfound that these incentives do not influence the preferences of the people in Hamilton,
Canada with respect to “green” vehicles. In a survey conducted in Northern California,

3

Cao et al. (2006) asked the respondents to characterize their neighborhoods using 34
attributes and analyzed the effects of these neighborhood characteristics on theirchoice of vehicle type. Responses showed a strong relationship between neighborhood
characteristics and choice of vehicle type and suggested that land use policies, at least
to a certain extent, can reduce the use of light-duty trucks, including minivans andpickup trucks. Although previous studies have investigated the attributes that
consumers prefer in their vehicles of choice, questions regarding the type of
infrastructure and the ideal minimum level of demand have not received muchattention. Potoglou and Kanaroglou (2007) indicated disutility of vehicles owing to alack of fuel availability. The availability of established alternative infrastructure also
prompts consumers to switch to AFVs. Hence it is necessary to identify and compare
all the benefits of establishing and improving different types of infrastructure.
This study aims to reveal the potential demand for infrastructure investment byusing a stated preference survey conducted in Japan for three kinds of AFVs: hybrid
electric vehicles (HEVs), EVs, and FCVs. We selected Japan as a case study because
several competitive auto manufacturers in that country are attempting to establish
mass production technology for AFVs.
The contribution of this paper is that it reveals the potential demand forinfrastructure investment for different AFVs. This potential demand is estimated on
the basis of how much people are willing to pay for AFVs under different refuelingscenarios. By using estimated parameters, the economic efficiency of establishingbattery exchange stations for EVs and hydrogen stations for FCVs can be examined.
Subsequently, we investigate the substitutability between the cruising ranges of AFVs
and the infrastructures established.

4The rest of the paper is organized as follows: Section 2 addresses the survey
strategy and the manner in which our data is collected. Section 3 explains thetheoretical background of the nested multinomial logit model (NMNL). Section 4
presents the estimation results. Section 5 discusses two scenario forecasts of market
shares and the effect of subsidization of EVs. Section 6 presents concluding remarks.

2 Survey design
AFVs differ from conventional GVs in fuel availability, level of CO2 emissions,cruising range, and fuel cost. Assessing consumers' willingness to pay for fuelavailability and for longer cruising ranges is required for policy makers to evaluate
options for infrastructural development and investment in technical development.
However, because no market data is available until some infrastructural and technicaldevelopment takes place, the potential demand for such development is hard to judge.
The advantage of a questionnaire survey is that it enables surveyors to present
situations that are yet to be realized, or to present new products that cannot yet beproduced by existing technology, in order to enable potential customers to describe
their reactions to them (Beggs et al., 1981). We conducted a questionnaire survey ofchoice experiments in order to reveal such a potential demand for infrastructures and alonger cruising range for AFVs.
2.1 Vehicle attributes and their levels
Thus far the construction of infrastructure for AFVs has been inadequate. Hence inthe real world, where we do not have much infrastructure for AFVs, market data does
not provide enough information on the demand for various types of infrastructure.

5Moreover, a decision to purchase a car depends on numerous attributes. In this study,
therefore, we have selected nine attributes on the basis of the focus of our study and thefindings of previous studies. Attributes connected with refueling, refueling rate, and fuelavailability are important factors that influence vehicle choice (see Ewing and Sarigöllü,1998; Potoglou and Kanaroglou, 2007). Table 2.1 indicates these attributes and levels in
detail. Characteristics of the attributes are as follows:
Fuel type: In order to compare the benefits of establishing infrastructures for EVs
and FCVs, we considered the following four fuel types: conventional GVs, HEVs, EVs,
and FCVs. The conventional GVs are treated as the base alternative that the respondents
were willing to purchase.
Table 2.1: The attributes and levels of choice experiments

About here

Body type: We asked respondents to choose two vehicle body types out of a total ofnine alternatives that they would consider in their next purchase decisions; we used
these two body type preferences to create respondent profiles. The following nine
categories of vehicle body types were included in our survey: subcompact,
compact/hatchback (hereafter compact), coupe, sedan, convertible, wagon, minivan,
SUV/pickup truck, and truck/bus. The body types are unrelated to fuel types.
Manufacturer: We asked respondents to choose one automobile manufacturer fromamong a list of manufacturers that they would definitely consider in their next purchasedecision; we used their preferences to create profiles for GVs. The list comprised thirty
manufacturers, including foreign companies. It was assumed that only the following
four representative automobile manufacturers in Japan produce HEVs, EVs, and FCVs:

6

Toyota Motor Corporation, Honda Motor Company, Nissan Motor Company, andMitsubishi Motors Corporation.
Cruising range: The cruising range is also a critical consideration when choosing
AFVs. The cruising ranges are set as 800 kilometers for GVs; 1,000 kilometers for
HEVs; between 50 kilometers and 200 kilometers for EVs; 2 and between 300
kilometers and 600 kilometers for FCVs.
Refueling rate: The total time taken to refuel all AFVs except EVs is 5 minutes. As
compared to other AFVs, EVs usually take a longer time to recharge; however, where
battery-exchange stations are available, the time taken to recharge is comparable toother AFVs. A California-based venture company known as Better Place has
established a battery-exchange station that permits drivers to exchange their depleted
battery packs for fully recharged ones in under 80 seconds (Source: Better Place’s
website).
Carbon dioxide: By choosing an AFV, drivers can reduce the emissions of CO2. The
fuel type being used determines the CO2 levels for all vehicles except HEVs. Only
HEVs have two different levels of CO2 emissions; their emission levels have been
reduced by 40% and 60% from the current levels.
Fuel availability: Fuel availability is described in terms of the percentage of refuelingstations that offer the new fuel. Depending on the type of FCV, either 10% or 50% of
currently existing service stations offer the new fuel. When the battery-switching
scenario is assumed, depending on the type of EV, either 10% or 50% of currently
existing service stations provide the facility. When a battery-recharging scenario isassumed, drivers of EVs can recharge the batteries at their homes and/or at
2

The cruising range of Nissan’s EV model Leaf is between 100 kilometers and 220 kilometers
depending on the conditions of speed, climate, road, etc. (Source: Nissan Leaf’s website)7

supermarkets.
Purchase price: The purchase price for GVs is based on respondents’ answers
regarding the amount they are willing to spend on their next purchase opportunity. The
purchase prices for AFVs are indicated by the increase in the price that the customers
are willing to pay for their next purchase of a GV.
Annual fuel cost: The annual fuel costs for GVs are calculated by multiplying the
respondents’ current number of refuels per month by the amount spent by them perrefuel and by twelve months. The annual fuel costs for AFVs are indicated bycomparing the decrease in the annual fuel costs of AFVs by the annual fuel costs of
GVs. In the choice experiments, the respondents were instructed to assume that theannual fuel costs include the cost of replacing the batteries of the recharge type of AFVs.
It must be noted that the attributes of different fuel types, refueling frequencies, andrefuel stations are correlated owing to the common technological aspects amongvehicles.
Furthermore, respondents were asked to consider all the non-listed attributes as
identical for all the vehicles in the alternatives. If respondents required information
regarding vehicle attributes while answering the choice experiment questions, they werepermitted to obtain that information.

2.2 Design of choice sets
Figure 2.1 provides an example of a choice set. The profile for vehicle 1 (GV) is
created on the basis of the respondent answers regarding their next purchase opportunity.
Thus, vehicle 1 remains fixed throughout the choice sets for each of the respondents.
We made profiles for all types of AFVs using orthogonal arrays for 10 attributes and8

4 levels. Maintaining the orthogonality, the EV profiles that contradicted the scenarios
regarding the refueling rate and fuel availability were modified. Under thebattery-switching scenario, the refueling rate becomes 5 minutes and fuel availability is
indicated by the percentage of current service stations offering the new fuel. Under thebattery-recharging scenario, drivers can recharge the batteries at homes and/or
supermarkets.
We constructed 64 profiles for each AFV; therefore, there were a total of 192 (64 × 3)
profiles. We randomly selected two profiles from three AFVs and matched it with the
GV profile, thereby creating 128 choice sets. Thus, the profiles of GVs are the same inany choice sets. There were 16 versions of the questionnaire and each respondent
answered eight choice sets.

Figure 2.1: Example of choice set
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2.3 Data
We conducted a web-based survey in February 2010. The articulation and clarity ofthe questions were examined by a pretest that was conducted in December 2009. We
sent e-mails in order to invite registered monitors to participate in the online survey and1,531 people aged between 19 and 69 responded to this questionnaire. The response rate
was 23.6%.
Table 2.2 presents the summary statistics. Although the distribution of the genders
and ages of our sample is similar to those of the census population in each prefecture,
there were relatively fewer households with low incomes and more households with9

high incomes as compared to the census.

Table 2.2: Summary statistics of respondents’ characteristics
About here

3 Discrete choice models
Vehicle choice behavior was analyzed using discrete choice models, which assume
that consumers’ choice behaviors are based on the random utility theory. We applied thenested multinomial logit model (NMNL) in order to avoid the restriction of
independence from irrelevant alternatives, usually known as the IIA property, which isassumed to exist in a multinomial logit model (MNL). For example, let us consider
three choice alternatives: a GV, an HEV, and an EV. Let each of the choice probabilities
be 40% and 20%. IIA implies that the ratios of probabilities choosing these alternatives
remain unaffected by the addition or deletion of other fuel type alternatives from thechoice set. However, if decision makers have the same utility for a GV and an HEV, theratio of choice probabilities between the GV and EV changes to four from two byomitting the HEV alternative. In this case, the MNL would be an unacceptable model,
and parameter estimates would be biased. Use of NMNL is appropriate when the set ofalternatives faced by a decision maker can be portioned into subsets, known as nests, insuch a manner that the following properties hold: for any two alternatives that are in thesame nest, IIA holds, and for any two alternatives in different nests, IIA does not hold(see Ben-Akiva and Lerman, 1985; Train, 2003).
In the NMNL, the utility of decision makeralternatives is denoted by10

who is required to choose among

for

(3.1)
where

and

and

,

are observable and unobservable terms respectively, which are

given by choosing the subsets of alternatives known as nests;

and

are

observable and unobservable terms, respectively, within the same nest. The set ofalternatives included in each nest

is denoted as. We now describe theprobability choice system as a two-level tree structure; therefore, the choice probability
that chooses alternativein the nest

is given by

,

(3.2)

where

;

alternative;

is a vector of observable variables related to

is a vector of observable variables that are related to nest

the scale parameter of nest;is(IV parameter below); and all the scale parameters ofalternative levels are standardized as one (Ben-Akiva and Lerman, 1985; Louviere et al.,
2000; Hensher and Greene, 2002; Train, 2003). When the IV parameter assumes thatfor all, the NMNL is reduced to the standard MNL. For the sake of simplicity,

we do not consider the branch level equation and omit

. We define eleven

alternative specific constants in order to avoid multicollinearity among the attributes offuel type, fuel availability, and refueling time. The conventional GV is treated as thebase alternative. We consider three types of tree structures that are determined by fueltypes, refueling times, and fuel availability. Comparing the estimated IV parameters11among the tree structures nested by the four branches of GV, HEV, EV, and FCV (Loglikelihood -11663.9, BIC = 1.937), nested by two branches whether zero-emission
vehicles, EVs and FCVs, or not (Log likelihood = -11669.9, BIC =1.937), and nested by
two branches whether conventional GVs or “green” vehicles (Log likelihood -11663.7,
BIC = 1.935), we settled on the tree structure with the smallest Bayesian information
criterion (BIC); Figure 3.1 presents this tree structure. As is evident, although numerous
other tree structures could be hypothesized, a more comprehensive discussion of the
NMNL model structures and the selection of functional forms is beyond the scope of
this paper.
Figure 3.1: Tree structure of NMNL
About here

4 Estimation results

We estimated two MNL models and one NMNL model; Table 4.1 presents theestimation results of these models. In MNL model 2 and NMNL, we analyzed theinteraction effects between cruising ranges and establishment of infrastructures. Using a
one-tailed asymptotic t-test at the 1% significance level, the IV parameter of NMNL issignificantly lesser than one (the p-value in the NMNL is 0.000), so the hypothesis thatthe true model is MNL is rejected. Therefore, MNL is an unacceptable model, and theparameter estimates are biased. The estimated results of each coefficient of variable
used in our models are as follows:
Alternative specific constants (ASCs): The difference between the coefficients of
HEV1 and HEV2 indicates the utility difference between the different CO2 emission
levels of the two types of HEVs. The magnitude relationship between HEV1 and HEV2

12

indicates that, as expected, the reduction of CO2 emission is beneficial for consumers.
The difference between the coefficients of EV1 and EV2 represents the utility of
reducing time for recharging batteries at home. Reducing the time taken for recharging
EVs would be beneficial for consumers. The magnitude relationship between thecoefficients of EV1 and EV2 is consistent with expectations. The difference between
the coefficients of EV3 and EV4 represents the utility difference between the different
recharge durations for recharging batteries at home and supermarkets. The magnituderelationship between the coefficients of EV3 and EV4 is as per expectations. The
difference between the coefficients of EV5 and EV6 represents the utility difference inthe extent of infrastructural support provided. Increasing the number of service stations
that provide battery exchange services for EVs would be beneficial for consumers. The
magnitude relationship between the coefficients of EV5 and EV6 is as per expectations.
Furthermore, the difference between the coefficients of FCV1 and FCV2 represents
the utility difference in the extent of infrastructural support provided. Increasing service
stations that provide refueling services for FCVs would be beneficial for consumers.
The magnitude relationship between the coefficients of FCV1 and FCV2 is in line withexpectations. Because the available infrastructures differ between different types ofengines and the marginal utilities of cruising range are influenced by infrastructuredevelopment, it is valid to assume that the marginal utilities of cruising range of AFVs
are not equal to that of GV and HEV. On the other hand the number of attribute level ofcruising range is one in GV and HEV. Since the ASCs of both GV and HEV include theutility for cruising range, we cannot evaluate them separately.
Prices and annual maintenance costs: The signs of the coefficients of pricevariables and annual fuel costs are as expected. These values indicate that for reducing

13

1,000 yen (11.1 dollars) of annual fuel costs, the car users’ willingness to pay (WTP) isapproximately 11.6 thousand yen (128 dollars).
Fuel availability: The coefficient of EV6 is larger than that of EV5 and thecoefficient of FCV2 is larger than that of FCV1. These magnitude relationships are
consistent with expectations and indicate that the utility of consumers increases with theincrease in the number of stations where they can exchange the batteries of their EVs
and refuel their FCVs.
Cruising range: As referred to above, the estimated coefficient of cruising range
and the squared term of it are the marginal utilities of them in the utility function of EVs
and FCVs. As expected, the coefficient of cruising range and the squared term of
cruising range between refueling/recharging are positive. The coefficient of the squared
term of cruising range is negative. The results indicate that consumers’ maximum WTP
for cruising range is represented by a certain value. We also estimated the parameters ofcross terms between a few ASCs and cruising range. The coefficients of these crossterms represent the difference in the maximum WTP for cruising range.
Body types: The coefficients of body types relative to small types (where the small
type includes both subcompact and compact cars) have either positive or negative signs.
The vehicle types of SUV/pickup truck, sedan, wagon, and minivan offer consumers
significantly higher utilities as compared to vehicle types such as subcompact, compact,coupe, convertible, and truck/bus. The coefficients of cross terms between household
size or age and body types indicate that larger households significantly prefer the body
type of coupe than subcompact/compact; younger people significantly prefer body typesof convertible and sedan than subcompact/compact; males significantly prefer bodytypes of coupe and truck than subcompact/compact.

14

Table 4.1: Estimation results of MNL and NMNL
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4.2 Establishment of infrastructure

Figure 4.1 provides the calculated WTP for the infrastructures for EVs and FCVs.
The definition of each item and the interpretation are as follows:
Quick recharge at home (WTP1): “Quick recharge” implies the transition in the timenecessary for recharging batteries from 8 hours to 30 minutes. The WTP for quick
recharge at home is calculated by the difference between the WTP for EVs withbatteries rechargeable at home for 30 minutes and the WTP for EVs with batteries
rechargeable at home for 8 hours, such that

, wheredenotes price parameter. Although the WTP calculated by the estimated parameter is
73,000 yen (807 dollars), the 95% confidence interval includes zero.
Normal recharge at the supermarkets (WTP2, WTP3): “Normal recharge” implies
that EV batteries require 8 hours for recharging. We define the WTP for normal
recharges at supermarkets for the two cases where the consumers have normal rechargeequipment (C1) or quick recharge equipment (C2) at their homes. The WTPs for thetwo abovementioned cases are evaluated by calculating the difference between the WTP
for EVs with batteries rechargeable at supermarkets for 8 hours and the WTP for EVs
withbatteries

rechargeable

at

home

for

8

hours,

suchthat, or by calculating the difference between the WTP
for EVs with batteries rechargeable at supermarkets for 8 hours and the WTP for EVs

15

with batteries rechargeable at home for 30 minutes such that
, whereis the interaction effect of cruising range andrecharging an EV at home, and 0.124 is the average cruising range of EVs in our data.
Both WTP2 and WTP3 are negative and have confidence intervals including zero.
Moreover, the magnitude relationship between them indicates that if an EV user
possesses the quick recharge instrument, his/her WTP for a normal recharge at
supermarkets decreases.
Quick recharge at the supermarkets (WTP4 and WTP5): “Quick recharge” implies
that EV batteries require 30 minutes for recharging. We define the WTP for a quick
recharge at supermarkets for the two cases where the consumers have normal rechargeequipment (C1) or quick recharge equipment (C2) at their homes. The WTP for a quick
recharge at supermarkets is given by the difference between the WTP for EVs withbatteries rechargeable at supermarkets for 30 minutes and the WTP for EVs withbatteries

rechargeable

at

home

for

8

hours,

suchthat, or the difference between the
WTP for EVs with batteries rechargeable at supermarkets for 30 minutes and the WTP
for EVs with batteries rechargeable at home for 30 minutes, such that. As in the relationship between WTP2
and WTP3, our results indicate that if an EV user possesses a quick recharge instrument,
his/her WTP for a quick recharge at a supermarket decreases.
The WTP for installing recharge stations in supermarkets was found to be negativein all the cases. The results indicated that if policy makers establish recharge

16

instruments in the car parking spaces of supermarkets, they will be required to establish
more rapid recharging instruments, that is, faster than those that take lesser than 30
minutes (e.g., recharge for 15 minutes), or give users the option to choose shorterrecharging durations. Alternatively, though we did not consider in our survey locations
for installing recharging instruments, they would also be an important issue to consider.
Battery exchange stations (WTP6): The WTP for establishing battery exchange
stations for EVs is calculated by the difference between the WTP for EVs with batteries
exchangeable at 50% of current service stations and the WTP for EVs with batteries
exchangeable at 10% of current service stations, such that.

The WTP for the battery exchange stations is 679,000 yen (7,521 dollars) and does notinclude zero in the 95% confidence interval.
Hydrogen stations (WTP7): The WTP for establishing hydrogen stations for FCVs is
calculated by the difference between the WTP for refueling FCVs at 50% of current
service stations and the WTP for refueling FCVs at 10% of current service stations,such that. The WTP for the hydrogenstations is 406,000 yen (4,502 dollars) and does not include zero in the 95% confidence
interval.
Figure 4.1: WTP for establishing each infrastructure
About here

To compare the benefits of infrastructures between different AFVs, we consider theforecasts by The Ministry of Economy, Trade and Industry (METI) of Japan when it
announced the Next-Generation Vehicle Strategy 2010 (NGVS2010) in April 2010. The
forecasts in the report indicated that in 2020, in the absence of any government supports,
the diffusion rate representing the percentage of new vehicle sales of HEVs will be17between 10% and 15%, that of EVs and plug-in hybrid electric vehicles (PHEVs) will
be between 5% and 10%, and that of both FCVs and clean diesel vehicles will be
miniscule. The governmental targets for the diffusion of AFVs lie between 20% and
30% for HEVs, between 20% and 30% for EVs and PHEVs, up to 3% for FCVs, andbetween 5% and 10% for clean diesel vehicles. The strategy suggests that the
government needs to support the provision of incentive policies aggressively, including
development support, purchase subsidies, tax reform, and infrastructural development.
The strategy proposes to establish recharging facilities for EVs at dealer shops,
convenience stores, commercial facilities, service stations, and the rest areas ofexpressways. Furthermore, the report stated that local governments must synchronize
the planning and installation of recharging equipment with their regional development
plans. There is a high possibility that actions such as establishing infrastructure or
supporting technological innovation would promote purchases of EVs and FCVs.
To compare the benefits of infrastructure between different AFVs, we consider the
NGVS2010 forecasts in a scenario without any government supports.
Annual passenger vehicle sales stood at approximately 2.6 million in Japan in 2009.
On the other hand, there were approximately 40,000 domestic service stations as of2009 (Web source: Agency for Natural Resources and Energy). Forty percent of that
number would be 16,000. If we assume that vehicle sales will not change from 2009 to
2020, the number of annual EV purchasers that will account for 5% to 10% of the newvehicle purchasers in 2020 will be between 132,000 and 264,000. Let us assume that
there will be 10,000 FCV purchasers annually, who will thus account for 0.38% of the
new vehicle purchasers in 2020.
Thus, the aggregated EV purchasers’ WTP for an additional service station that can
provide battery exchange services is 5.55 [1.75, 9.68] million yen (61,500 dollars) per
station and 11.1 [3.51, 19.3] million yen (123,000 dollars) per station in the two cases inwhich EV purchasers are 5% and 10% of total new vehicle sales, respectively (thevalues in square brackets are 95% confidence interval). The aggregated FCV purchasers’
WTP for an additional service station that can refuel FCVs is 4.06 [0.54, 8.43] million
yen (45,000 dollars) per station (values in square brackets are 95% confidence interval).
Although the WTP for each of these infrastructures is rather small, access to theinfrastructures is a public good; therefore, all purchasers of EVs or FCVs can share the18benefits derived from any infrastructural establishment. According to Better Place,
Japan, the construction costs of battery exchange stations for EVs range between 50
million yen and 100 million yen3 (between 554,000 and 1,108,000 dollars). Thus, theannual depreciation expenses, assuming an 8-year depreciation period, ranged between
6.25 million and 12.5 million yen (between 69,000 and 138,000 dollars) in 2009. These
results indicate that infrastructural development of battery exchange stations can besocially efficient when the percentage of EV purchasers exceeds 5.63%.

4.3 Interaction effect of cruising range and infrastructure
Investment in infrastructure directly and indirectly increases benefit through thefollowing two pathways. One is the utility from the infrastructure itself. Since
infrastructure is a public good, AFV users can derive benefits from its use. The other isthe indirect effect that the establishment of infrastructure increases the benefit ofvehicles’ cruising ranges. Therefore, WTP for cruising ranges changes according to theextent of infrastructural establishment. Figure 4.2 illustrates such an interaction effectbetween cruising range and infrastructure. Infrastructure development moves the
maximum WTP for cruising ranges to the right.
The WTP for cruising ranges of EVs that are rechargeable at home for 8 hours or 30
minutes reaches its maximum when cruising range is at zero kilometers. The WTP for
cruising ranges of EVs that are rechargeable at home and supermarkets for 30 minutes
reaches its maximum when cruising range is at 639 kilometers; since this is an
extrapolation beyond our maximum attribute level of 200 kilometers it is not shown in
Figure 4.2. The WTP for cruising ranges of FCVs that are refuelable at 50% of service
stations reaches its maximum when cruising range is at 570 kilometers. Moreover, theWTP for cruising ranges of EVs that are rechargeable at home and supermarkets foreight hours, or EVs with exchangeable batteries, or FCVs that can be refueled at 10% ofservice stations, reaches its maximum when cruising range is at 311 kilometers. These
results indicate that consumers’ WTP for certain cruising ranges increases with the3

The costs of building battery exchange stations are based on the articles by Galbraith (2009) and
Schwartz (2009).
19

increase in infrastructural development. Thus, cruising range bears a complementary
relationship with infrastructure in the case of both EVs and FCVs.
Since both infrastructure improvement and an increase of cruising range reduce thetime to recharge or refuel AFVs and increase the leisure time of the consumer, there
should be a substitute relationship between them. Thus, it might be intuitively predictedthat the WTP for the cruising ranges decrease as infrastructures are improved. However,
our estimation results are not consistent with this prediction. A possible reason for thisis the influence of a change in the total distance respondents travel in their cars. While
we assume that the attributes omitted in the choice experiments are the same between
alternatives, some respondents might assume a different total distance between
alternatives. If the infrastructure for an AFV is so inadequate that the consumer willswitch to public transportation, the total distance traveled in the AFV decreases and thevalue of the vehicle also decreases. When this is the case, the substitute relationshipbetween cruising range and infrastructure improvement changes into a complement
relationship as cruising range increases. Consider the case that the cruising range islonger than travel distance per month; in this case there would be a substituterelationship between them, since infrastructure improvement only reduces the time ittakes the consumer to recharge or refuel his/her AFV, but does not cause him/her toswitch from AFV transportation to public transportation.
Figure 4.2: WTP for cruising range of EVs and FCVs
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5 Scenario forecasts
To understand the estimation results intuitively we simulated two scenario forecasts
of market shares. The difference between them is whether there are alternatives of
EVs of exchangeable battery type, or not. In Scenario 1, the infrastructure of rechargeequipment is so set up that drivers can fully recharge their EVs at their homes or atsupermarkets for 30 minutes and refuel their FCVs at 10% of service stations. In
Scenario 2, the infrastructure of battery exchange stations at 10% of service stations is
added to the infrastructure of Scenario 1. HEVs in both scenarios are types of HEVs
20

that can reduce CO2 emissions by 40% from the current level. Table 5.1 describes theresults of scenario forecasts of market shares of Toyota’s compact or subcompact cars,
where we assume that the prices of a GV, HEV, and FCV are 1.5 million yen, 1.8
million yen, and 10 million yen, respectively; and that the cruising ranges of a GV,
HEV, EV, and FCV are 800 kilometers, 1,000 kilometers, 200 kilometers, and 600
kilometers, respectively. The annual fuel cost of a GV is assumed to be equal to thesample mean. Those of a HEV, EV, or FCV are assumed to be that amount cut by
28% (which equalizes market share between HEVs and GVs), 50%, and 50%,
respectively. The means of age, gender, and household size are also used for thecomputations. These forecasts demonstrate that the infrastructural development ofbattery exchange stations for EVs will increase the total market share of EVs, and thatthe decrease in market share by GVs will be largest, with that of HEVs the second
largest. Though there will be decreases in the share of EVs with a rechargeable battery(EV3), EVs using exchangeable batteries will not suffer a decrease.
A scenario forecast can help a policy maker decide how much subsidy should be
provided to increase the market share of AFVs. For instance, a subsidy of 250,000 yen(2,770 dollars) for EVs whose price is 4 million yen (44,400 dollars) increases themarket share of EVs by 1.81% in Scenario 1. Furthermore, the governmental targets
set down in NGVS2010 for the market share of EVs can be achieved by a subsidy
policy of one million yen (11,100 dollars) and 500,000 yen (5,540 dollars) for each
EV in Scenario 1 and Scenario 2, respectively. However, since in reality the propertiesof AFVs such as body types and design are limited, the market share of AFVs would
be less than our scenario forecasts even if infrastructures are established.

6 Concluding Remarks
Over the past few decades, it has been found that cruising ranges, fuel availabilities,
time taken for refueling/recharging, annual or maintenance costs, and purchase pricesof AFVs are important factors for encouraging consumers to switch from conventional
GVs to AFVs. However, although infrastructure development is an important
requirement for AFVs to be adopted, it entails significant costs to the community. No
21

study has attempted to compare the benefits of establishing different types ofinfrastructures for AFVs. Our study focused on the impact of the availability of fuelamong different infrastructures. We found that it would not be beneficial to install
normal and quick recharging equipment that takes over 30 minutes for recharging
batteries in the parking spaces of supermarkets. Further research is required toinvestigate whether it is beneficial to invest in recharging equipment that takes under
30 minutes to recharge batteries in these places.
The provision of purchase subsidies has been instrumental in supporting
fuel-efficient cars, including HEVs and EVs around the world. Our results indicatedthat, although the per-person benefit of the establishment of infrastructure and the
support for innovation is small, the benefit is large because they are public goods. The
magnitude of benefit depends on the amount of the future market share of AFVs. The
economic incentives that are provided by governments in numerous countries also
have a dimension of being a short-term policy to deal with an economic crisis (OECD2009). The potential benefits of establishing green infrastructures and promoting
innovation would give policy makers an opportunity to shift to a long-term economicand environmental policy.
On the other hand, there are numerous alternate locations for installing charging
instruments for EVs. London aims to make itself the EV capital of Europe by carryingout the Electric Vehicle Delivery Plan announced in 2009. This plan aims to establish
25,000 charge points by 2015, as a result of which no Londoner will be more than amile away from a charging point. Of the 25,000 charge points, 500 are on-street, and
2,000 are in off-street public car parks or in train station car parks. The remaining
22,500 will be provided in partnership with businesses and be located in companies'
car parks or retail/leisure locations (London’s website on electric vehicles; London
Assembly Environment Committee, 2012). In this paper, we considered only one ofthe possible locations in our survey and found that it was not beneficial for consumers.
How much the recharge time should be shortened and where these recharge
instruments should be located are subjects for future investigation.

22

Acknowledgement
Kenji Takeuchi would like to thank the Department of Economics at the University ofGothenburg for giving him the opportunity of visiting research. This study was
supported by a grant from the Policy Studies of Environment and Economy (years
2009-2011), the Ministry of Environment, Japan.

23

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25

Appendices
Table 2.1: The attributes and levels of choice experiments
Attributes
Fuel type
Body type
Manufacturer
Cruising range(km)

Refueling rate

Carbon dioxide(% reduction of apresent averagecar)Fuel availability

GV
HEV/EV/FCV
GV
HEV
EV
FCV
GV/HEV/FCV
EV
GV
HEV
EV/FCV

LevelsGV
Base 1
Base 3
Toyota
800
1,000
50
300
5 minutes
5 minutes(Exchange)
5%
40%
100%

HEV
Base 2

EV

FCV

Honda

NissanMitsubishi

100
400

150
500

200
600

30 minutes

8 hours60%

GV/HEVAll existing
servicestationsEV
10% of
50% ofHome
Home andexisting
existing
Supermarkets
serviceservicestations
stations(Exchange)(Exchange)
FCV
10 % of
50 % ofexisting
existing
serviceservicestations
stations
Purchase price
GV
Base 4(including tax)
HEV
Base 4+20%
Base 4+40%
Base 4+60%
EV/FCV
Base 4+40%
Base 4+60%
Base 4+80%
Annual fuel cost
GV
Base 5HEV
Base 5−10%
Base 5−20%
Base 5−40%
EV/FCV
Base 5−20%
Base 5−50%
Base 5−80%
Note: Base 1, Base 2, Base 3, Base 4 and Base 5 are specified by respondents respectively and differ
between respondents.

26

Figure 2.1: Example of choice set
About here
Vehicle 1

Vehicle 2

Vehicle 3

Fuel type

Gasoline

Fuel cell

Electric battery

Body type

Coupe

SUV

Coupe

Manufacturer

BMW

Honda

NissanCruising range

800 km

600 km

50 km

Refueling rate

5 minutes

5 minutes

8 hours

Fuel availability

All

50% of existing service

Home and supermarkets

existing

servicestations

stations

Carbon dioxide

5% less

100% less

100% less

Purchase price

1.2 million yen

1.44 million yen

2.16 million yen

Annual fuel cost

18,000 yen

3,600 yen

9,000 yenChoose one vehicle

Table 2.2: Summary statistics of respondents’ characteristics

Females
19 to 30
<40
<50
<60
<70
<3,000<5,000<8,000<15,000<20,000
20,000≤
Average

Gender [%] (Census data is as of 2010)
Age group of respondents [%](Census data is as of 2009)

Household income (103 yen) [%](Census data is as of 2008; the samples of no
response are 9.55%)

SampleN=1527
43.42

13.23
22.46
22.66
22.66
18.99
18.99
22.99
28.88
24.62
2.49
2.03
2.43

Census

49.93
18.85
21.81
19.40
19.70
20.23
34.73
27.10
22.65
13.59
1.18
0.75
1.10

Number of household vehicles(Census data is as of 2008)
Note: N denotes the number of respondents. The average of household vehicles owned by total
respondents in our survey is 2.17.

27

Figure 3.1: Tree structure of NMNL

Conventional
gasoline vehicles

GV
FCV2

HEV1

HEV2

EV1

Green vehicles

EV2

GV: Conventional gasoline vehicle
HEV1: HEV reduced by 40 % from the current
emission level
HEV2: HEV reduced by 60 % from the current
emission level
EV1: EV with battery rechargeable at home for
30 minutes
EV2: EV with battery rechargeable at home for8 hours
EV3: EV with battery rechargeable at home andsupermarkets for 30 minutes

EV3

EV4

EV5

EV6

FCV1

EV4: EV with battery rechargeable at home andsupermarkets for 8 hours
EV5: EV with battery exchangeable at 10% ofservice stations
EV6: EV with battery exchangeable at 50% ofservice stations
FCV1: FCV refueled at 10% of service stations
FCV2: FCV refueled at 50% of service stations

28

Table 4.1: Estimation results of MNL models and NMNL model
MNL Model 1

MNL Model 2

NMNL Model

Variables and notations of coefficients

Coeff.

Std. Err.

Coeff.

Std. Err.

Coeff.

Std. Err.

HEV reduced by 40 % from the current emission level (HEV1):

0.162***

0.054

0.152***

0.055-0.0090.063

HEV reduced by 60 % from the current emission level (HEV2):

0.244

***

0.036

***

0.036

0.106

**

0.045

-1.034***-0.660***0.168-1.111***-0.706***0.181-1.069

***

***

0.247

EV with a battery rechargeable at home and supermarkets for 8 hours (EV4) ;EV with a battery exchangeable at 10% of service stations (EV5) ;EV with a battery rechargeable at home for 30 minutes (EV1) :EV with a battery rechargeable at home for 8 hours (EV2);
EV with a battery rechargeable at home and supermarkets for 30 minutes

0.223-0.562***-0.558***0.121-1.821***0.243-1.950-1.258 ***0.123-1.394***0.138-1.515***0.144-1.522 ***0.121-1.674***0.140-1.801***

0.146

0.130
0.123

0.165
0.176

(EV3) ;

EV with a battery exchangeable at 50% of service stations (EV6) ;-1.084

FCV refueled at 10% of service stations (FCV1) ;FCV refueled at 50% of service stations (FCV2) ;−3

Range×10 [km] if EV or FCV, and 0 otherwise:
2−5

Range ×10 [km] if EV or FCV, and 0 otherwise:***-1.225***-1.014

***

2.786

***

-0.214

***

0.104
0.177
0.175
0.774
0.092

−3

Range×10 [km] if EV1 or EV2, and 0 otherwise:−3

Range×10 [km] if EV3, and 0 otherwise:−3

Range×10 [km] if FCV2, and 0 otherwise:-1.220-1.029***-2.418***4.523

Price×10 [yen] :-6.020***

Annual cost×10−7 [yen] :-59.909 ***

29

***

-0.716***-5.433

***

4.594

**

3.759

−7

***

***

0.120
0.226
0.292
0.979
0.130
1.383
1.814
0.617

-1.378***0.127-1.143***0.234-2.513

***

0.303

***

1.001

-0.007***0.001-5.278

***

1.406

4.733

**

1.846

***

0.638

***

0.236
3.789

4.477

3.732

0.128

-5.884***0.128-6.221

3.669-57.263***3.694-56.950***

MNL model 1
Variables and notations of coefficients

MNL model 2

NMNL model

Coeff.

Std. Err.

Coeff.

Std. Err.

Coeff.

Std. Err.

-0.608***0.209-0.564***0.211-0.547**

0.218

0.076

***

0.077

***

0.079

**

0.581

0.588

***

0.174

0.147

***

0.049

***

0.274

0.177

***

0.063

0.045

***

0.014

***

0.003

0.566

***

0.161

2.117

***

0.530

-0.438***0.045-0.335

***

0.049

***

0.051

Continued
Coupe (Dummy):
SUV/Pickup truck (Dummy) :0.309

Convertible (Dummy) :***-1.354

**

0.516

***

0.123

***

-0.898

***

0.176

***

0.042

***

-0.010

***

0.563

***

2.054

***

-0.370***-0.302***

Gender×Coupe (Gender=1 if female, and 0 otherwise) :-0.326***

Gender×Truck:-0.585***

Sedan (Dummy) :Large type if Wagon or Minivan (Dummy) :Truck/Bus (Dummy) :Toyota (Dummy) :Honda (Dummy) :Nissan (Dummy) :Mitsubishi (Dummy) :Household size×coupe:
Age×Open:
Age×Sedan:

0.568
0.170
0.047
0.261
0.061
0.013
0.003
0.154
0.502

0.327

-1.406

**

0.562

***

0.130

***

-0.892

***

0.174

***

0.045

***

-0.011

***

0.563

***

2.136

***

0.574
0.172
0.048
0.265
0.061
0.014
0.003
0.155
0.510

0.345

-1.396-0.869-0.011-0.395***-0.286***0.051-0.284***0.051-0.3330.055-0.569***0.055-0.627***

0.056

***

0.014

0.045
0.049

IV parameter of green vehicle nest

0.045
0.049

0.911

Number of observations

12216

12216

12216

Log likelihood-11708.1-11672.4-11663.730

Figure 4.1: WTP for establishing each infrastructure

Note: The horizontal line on each WTP is the 95% confidence interval that is calculatedusing the Krinsky and Robb’s (1986) procedure for 1000 draws of estimated parameter
vector. C1 and C2 represent the reference points where the consumers only have normal
recharge equipment or quick recharge equipment, respectively, at their homes.

Figure 4.2: WTP for cruising range of EVs and FCVs

31

Table 5.1: Scenario forecasts of market shares of Toyota’s subcompact/compact cars (%)
GV

HEVPrice of EV(million yen)
2

S1

S2

S1

S2

33.51

32.23

2.25

35.04

2.5

36.47

2.75

37.80

3

39.02

3.25

40.14

3.5

41.15

3.75

42.06

4

42.88

29.54
(-3.97)31.25(-3.79)32.89(-3.58)34.45(-3.35)35.92(-3.10)37.29(-2.85)
38.55(-2.60)39.71(-2.35)40.77(-2.11)

27.90(-4.33)29.75(-4.17)
31.54(-3.98)33.27(-3.75)
34.91(-3.51)
36.45(-3.25)37.88(-2.98)39.21(-2.72)40.42(-2.46)

33.92
35.52
37.02
38.41
39.70
40.87
41.93
42.88

EV withrechargeable battery
S1
S2

EV withexchangeable battery
S1
S2

FCV
S1

S2

33.10

-

1.16

1.01
(-0.16)1.07(-0.15)1.14(-0.14)1.20(-0.14)1.26(-0.13)1.32(-0.12)1.37(-0.11)1.42(-0.10)1.46(-0.09)

29.82
26.73
23.84
21.18
18.73
16.51
14.50
12.69

28.65
(-4.45)
26.15(-3.67)23.73(-2.99)21.43(-2.42)19.24(-1.93)17.20(-1.53)15.30(-1.21)13.56(-0.94)11.96(-0.73)12.91(+12.91)
11.78(+11.78)
10.69(+10.69)
9.65(+9.65)
8.67(+8.67)7.75(+7.75)
6.89(+6.89)6.11(+6.11)
5.39(+5.39)

1.22
1.28
1.34
1.39
1.43
1.48
1.51
1.55

Note: The columns of S1 and S2 demonstrate the forecasts of market shares in Scenario 1 and Scenario 2, respectively. In Scenario 1
there is no alternative of EVs of exchangeable battery type. Scenario 2 adds the alternative of EVs of exchangeable battery type to
Scenario 1. The values in parentheses denote the change in market share from Scenario 1 to Scenario 2.

32