The Pros and Cons of Tax Incentives for Hybrid Vehicles

Tax incentives for green cars are hot. Check out this guide. But then check out this research paper from the University of British Columbia:

We estimate the effect of tax rebates on sales of Hybrid Electric Vehicles, offered by Canadian provinces. We find that these rebates had a large and significant effect on raising the market share of hybrid vehicles and that Intermediate cars, Intermediate SUVs and some high performance compact cars were crowded out as a result. Nevertheless, we find that these programs have a very high cost relative to other methods of reducing carbon emissions. The rebate programs largely subsidized consumers who would have bought hybrid vehicles or other fuel-efficient vehicles in any case. If carbon reduction is the goal, provincial governments may be better off purchasing carbon credits rather than providing tax incentives for hybrid cars.

Another reminder that quick, feel-good policies to address climate change have real consequences that have to be thought through.

Adrian Moore

Adrian Moore, Ph.D., is vice president of policy at Reason Foundation, a non-profit think tank advancing free minds and free markets. Moore leads Reason's policy implementation efforts and conducts his own research on topics such as privatization, government and regulatory reform, air quality, transportation and urban growth, prisons and utilities.