Abstract

The purpose of this paper is to provide a methodologically sound instrument to assess the long-term penetration of innovative propulsion systems vis á vis the technologies that currently dominate the market. Towards this end, it simulates the diffusion process of four propulsion technologies (gasoline ICE, LPG ICE, EV, and fuel cells) by taking endogenously into account the effect of learning-by- doing at the manufacturing level. The analysis is extended to the EU zone, it encompasses a time horizon of 20 years and it is repeated for three different policy scenarios, namely: a business-as-usual scenario, an incentive scenario (where financial aids are envisaged for the purchase of non-polluting vehicles) and a production quota scenario (where vehicle manufacturer produce a minimum quota of zero-emission vehicles). The results suggest that - without any specific intervention - the EU urban transportation market will continue to be significantly dominated by ICE vehicles. However, they also indicate that this trend can be reverted by sound policies aimed at supporting the development of new transportation technologies. In particular it is argued that policies that leverage the learning curve of the new technologies during the very early stage of their life cycle are more effective than those that envisage a generalized support dispersed over a longer time horizon.