Are Electric Cars and Solar Panels Complements?

Both electric cars and residential solar panels are environmentally friendly durable goods that are often subsidized. The relationship between the two in demand will affect the efficiency of a range of green policies. This paper explores the complementarity between the two goods, taking an “instrumental variables” approach to separate correlation from underlying complementarity. Using global horizontal irradiance as an instrument, I find that each solar adoption leads to approximately 3.6 additional electric car sales. Utilizing availability of high occupancy vehicle lanes as an instrument, I find that electric vehicles have little impact on additional solar installations, but owning electric cars leads to larger solar panel sizes conditional on installation. The complementarity mainly comes from lack of charging stations and insufficient compensation for excess solar energy sold back to the grid. The findings imply substantial spillovers from policy affecting either choice, changing the cost-benefit calculus for a range of green policies