Driving Restrictions Exemption and Sustainable Transportation in China: A Pathway to Achieving SDG 7

Abstract

The transformation of the transportation sector is critical for achieving Sustainable Development Goal 7 (SDG 7). As the world’s largest auto market, China has implemented various policies to promote sustainable transportation, particularly through the adoption of new energy vehicles (NEVs), thereby increasing the share of renewables in energy consumption and improving energy efficiency. Among these policies, the NEV driving restrictions exemption (NEV-DRE) policy has emerged as a key non-financial incentive to stimulate NEV demand. This study focuses on how the NEV-DRE policy affects the demand side of NEVs in the transportation sector. Employing a difference-in-differences design on a comprehensive dataset of vehicle transactions across 82 prefecture-level pilot cities from 2011 to 2019, this study provides robust causal evidence that the NEV-DRE policy significantly increases NEV sales. Furthermore, this study finds that this growth in demand is primarily driven by an increased consumer preference for domestic pure electric sedans. The policy proves more effective in cities with general driving restrictions, purchasing restrictions, and greater environmental awareness. Our findings demonstrate how innovative traffic management measures can be transformed into effective industrial policy tools, accelerating the adoption of renewable energy in the transportation sector. This study offers valuable insights for policymakers in China and elsewhere on how to design non-financial incentives to promote sustainable transportation, thereby promoting sustainable energy transitions and contributing to the achievement of SDG 7.