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.
Ambarish Chandra, Sumeet Gulati, and Milind Kandlikary (2009) Green Drivers or Free Riders? An Analysis of Tax Rebates for Hybrid Vehicles.