Impact Of Federal Incentives On Adoption Of Hybrid Vehicles
Alan Jenn: Carnegie-Mellon University PhD Student, Engineering and Public Policy
5000 Forbes Avenue, 129 Baker Hall, Pittsburgh, PA 15213, USA
Phone: 00 1 (858) 342-2052, E-mail:
Inês Azevedo: Carnegie-Mellon University Assistant Research Professor, Engineering and Public Policy
5000 Forbes Avenue, 129 Baker Hall, Pittsburgh, PA 15213, USA
E-mail:
Pedro FerreiraCarnegie-Mellon University Assistant Research Professor, Engineering and Public Policy
5000 Forbes Avenue, 129 Baker Hall, Pittsburgh, PA 15213, USA
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Overview
The promotion of green vehicles in the United States has been steadily increasing over the course of the last decade in response to concerns over environmentalism and reducing consumption of foreign oil. In an effort to sponsor the adoption of hybrid electric vehicles, the federal government offered several nationwide incentives to consumers beginning in 2004 that were bundled with the Tax Relief Act of 2004 and the Energy Policy Act of 2005. The aim of this study is to assess the effectiveness of these incentives using econometric models.
Methods
The econometric models developed in this paper retrospectively examine sales of hybrid vehicles over the past decade paneling over different vehicle models. Macroeconomic factors such as gross domestic product, unemployment, and gas prices are included as control variables in the model. Our novelty is the use of a lagged dependent variable to simulate an S-shaped diffusion curve for the hybrid electric vehicle. This requires the use of a generalized method of moments model instrumenting for past lagged variables to control for the violation of strict exogeneity in the ordinary least squares approach.
Results
The model finds that there is not a significant impact on the sales of hybrid electric vehicles for the Tax Relief Act of 2004 but a significant impact from the Energy Policy Act of 2005 that yields a 4-20% increase in hybrid sales depending on the vehicle model. In addition, several macro factors are well correlated with vehicle sales, including a positive elasticity of hybrid sales with gas prices as high as 0.4%. Trends in unemployment help to explain the downturn in sales associated with the US recession beginning in 2008.
Conclusions
The ability of the government to assist in transitioning our transportation infrastructure to a more sustainable system requires important consideration on how to effectively increase adoption of new technologies such as hybrid electric vehicles. While a policy similar to the Energy Policy Act could increase adoption, given the large premium for electric vehicles compared to ICE vehicles, there could potentially be more cost-effective methods of increasing sales. In terms of gasoline savings and emissions reductions, the regression models suggest that raising gas prices would be much more effective than the other incentives that were examined in this study. While the government would also stand to generate substantial revenue from such a policy, a careful study would need to be conducted to evaluate other impacts of higher gas prices and weigh them against the aforementioned benefits.
References
Bass, Frank M. "A New Product Growth for Model Consumer Durables: The Bass Model." Management Science, 1969.
Diamond, David. "The impact of government incentives for hybrid-electric vehicles: Evidence from US States." Energy Policy, 2009: 972-983.
Gallagher, Kelly Sims, and Erich J. Muehlegger. "Giving Green to get Green? The Effect of Incentives and Ideology on Hybrid Vehicle Adoption."Journal of Environmental Economics, 2011.