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Canadian Study Concludes Rebates to Hybrid Buyers Not Cost-Effective for Reducing Carbon Emissions

24 August 2009

Canadian government programs that offer rebates to hybrid vehicle buyers are failing to produce environmental benefits commensurate with the cost, according to a study by researchers at the University of British Columbia (UBC).

The study finds that the rebates had a large and positive effect on the market share of hybrid vehicles, largely at the expense of intermediate cars, intermediate SUVs and some high performance compact cars. However, only 26% of the hybrid vehicles sold during the rebate programs can be attributed to the rebate; in other words, the rebates primarily subsidize people who would have bought hybrids or fuel efficient cars in any case.

The study was written by Ambarish Chandra, a professor at UBC’s Sauder School of Business; Sumeet Gulati, assistant professor in UBC’s Dept. of Food and Resource Economics; and Milind Kandlikar of UBC’s Liu Institute for Global Issues and Institute of Asian Research.

If the intention of rebate programs is to replace gas guzzlers with hybrids, they are failing. People are choosing hybrids over similarly priced small- and medium-sized conventional cars, which are not far behind hybrids for fuel efficiency and emissions. The reductions in carbon emissions are therefore not great.

Our estimates indicate that two-thirds of people who buy hybrids were going to buy them anyway. So for the majority, rebates are not changing behavior—they are subsidizing planned purchases.

—Ambarish Chandra

According to the study, the inefficiency of rebate programs rises disproportionately when governments increase rebate levels. “When BC’s rebate jumped from $1,000 to $2,000 in 2005, the actual cost of reducing carbon emissions more than doubled,” Chandra says, noting that Ontario recently increased its rebate to a maximum of $10,000 per hybrid vehicle.

The study finds that Canadian provinces that offer rebates have spent an average of $195 per tonne of carbon saved or, equivalently, C$0.43 for every liter (US$1.50/gallon) of gasoline that a vehicle consumes over its 15 year average life expectancy.

Chandra says that governments could garner greater environmental benefits by purchasing carbon offsets (currently priced between $3 and $40 per tonne on carbon markets) or investing in green jobs and technologies.

In summary, the results in our paper indicate that hybrid tax incentives structured as they are in Canada may not be the most effective way to encourage people to switch away from fuel inefficient vehicles like large SUVs or luxury sport passenger cars, at least in the short or medium run. In order to effectively shift people away from fuel inefficient vehicles, the government might need to explore alternative policy options.

—Chandra et al. 2009

While hybrid rebates help governments to appear environmentally progressive, Chandra suggests that some programs may serve as de facto bailouts for the North American auto industry.

Hybrid rebate programs are currently offered by the governments of the US and 13 states, and five Canadian provinces, including BC, Ontario, Quebec, PEI and Manitoba. The Canadian government offered hybrid rebates during 2007-2008.

Researchers used Canadian vehicle sales data over a 17-year period from 1989 to 2006. Results are believed to extend to the US market, given the similarities between auto industries, in terms of vehicle buying patterns, pricing structures and car models.

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August 24, 2009 in Canada, Hybrids, Policy | Permalink | Comments (16) | TrackBack (0)

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Anybody knows who paid the three UBC profs to do the study?

The findings and concludions of such studies are often influenced by the financial sources.

Dpending of the factors, prices, numbers and variables, weighting etc used, one can arrive at very different results.

Hybrid technology is a methodology, not an end. The end is lower fuel consumption. Incentive programs should be to encourage lower fuel consumption, not any particular pathway to that end. Consumers are making a rational decision when they choose a non-hybrid with fuel economy close to a hybrid's but at lower cost.

At this point, it is OK to be subsidizing the auto industry to produce more efficient vehicles. We need a behavior change in consumers and that can't be accomplished with a dead industry or one with not enough revenue to develop those more efficient vehicles.

Just follow the money.

Combined-heat-power and cooling for homes and businesses is probably the fastest way and the cheapest way for individuals to reduce CO2 except for driving less and driving slower and having smaller houses and engines. Alberta should use its oil wealth to buy low CO2 sustainable energy sources, nuclear reactors. ..HG..

This puts it the worst light.

At first this seems like bad news, but I expecct most of us are not actually surprised that the rebates and incentives will go to many greenies and some middle roaders but few guzzler buyers.

But few is better than nothing.

I am not yet ready to "overspend" to buy a hybrid ot EV, but - most importantly; should those who do, be rewarded? Sure; a little bit of "fair" in an unfair world.

And it keeps the technology coming, to some degree.

They are at best measuring this moment in time and making some guesses about what motivates which humans.

1. With scale and maturity, hybrid costs come down, and fuel efficiency increases.

2. Incentives help us get to scale and maturity sooner, which benefits everyone.

3. One of the competing approaches will be smaller, leaner, cheaper traditional ICE cars...which is fine.

4. Trucks will have to be improved to meet higher CAFE standards...hybrid will make sense for some of them, especially for low-speed torque.

Duh! everybody knows it's not cost effective. On the contrary, it's expensive. That's not the point, or the goal. The goal is to give the market for hybrids a nudge upward. It gives the manufacturers more incentive to keep developing this tech. because the know buyers will get the rebate and be more likely to invest.
New technology is expensive at first but gets cheaper. The rebates speed this process.

Agree with damn; they kickstart the technology. Also, without reading the report, I am guessing they used non-plugin parallel hybrids in their analysis, which as we all know are the most inefficient and costly way to make a hybrid. Once a plugin hybrid comes out the whole game will change.

Mark_BC

I am guessing they used non-plugin parallel hybrids in their analysis, which as we all know are the most inefficient and costly way to make a hybrid.

Care to elaborate on that?

If you introduce technology like hybrid electric vehicles without putting a carbon tax on fossil fuels, what you end up doing is, incentivizing people to drive more.

Care to elaborate on that?
Without a plug in to the wall, you are still getting all your energy from gasoline. Even if the battery pack only powered you 20 miles from a wall charge before the gasoline engine kicks in you'd still see a dramatic reduction in gasoline consumption because that 20 miles would cover most people's average commute.

Secondly, parallel hybrids are by necessity more complex (and therefore more expensive) because you need to have both the electric motor and gasoline engine directly connected to the wheels. An internal combustion engine with a direct connection to the wheels requires a lot more sophistication than one that is designed to run at a fixed rpm under a fixed load. In addition, it is also significantly less efficient at burning gas than one with fixed rpm and load used solely for charging the batteries.

Then you have to have all the associated electronics and equipment that shunts power between the engine versus motor, etc etc. It's just overall a very ineffient way of making a hybrid.

What is the mileage of the Prius, like 50 mpg? Apparently the Chevy Volt will get 230 mpg for the average person plugging it in every night.

The Prius has been the best selling car in Japan for many consecutive months due to gov. rebate on hybrids. Appropriate industries should be rewarded for making products that conserve petroleum, energy and the environment. How can one put a price on that?

@Mark BC,
Real-world data have shown that the parallel hybrids like the Honda Insight II is now cost-competitive with a non-hybrid. The GM Volt price tag is estimated at nearly double that of the Prius III. Toyota plans to put a price cut on the Prius II and to continue to sell the Prius II as a stripped model without luxury items, in order to bring it down to competitive pricing with the Insight II.

There is currently no other technologies that are more cost-effective than gasoline-electric parallel hybrid at fuel efficiency improvement.

Roger, the Prius and Insight use NiMH batteries which are much cheaper than lithium ion, which the Volt uses. They can use NiMH for these hybrids because Chevron's patent on the NiMH battery, for some reason, allows an exemption for non-plugin, parallel drive hybrids (the particulars of the 2003 Chevron patent infringement lawsuit against Toyota are not easy to find but when you try to read between the lines it becomes pretty obvious what's going on). Presumably this is allowed because these hybrids pose little threat to overall gasoline sales. If one were to make a plugin series hybrid using NiMH batteries (which Chevron will currently not allow) the price would go down to below that of the Prius and Insight, and then everyone would buy one and their gasoline consumption would drop substantially. Of course that's what Chevron wants to prevent happening, and they have been largely successful so far.

You've got a point there, Mark.

Chandra suggests that some programs may serve as de facto bailouts for the North American auto industry.
Gee, ya think?

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