Paper - Harvard Kennedy School

Giving Green to Get Green: Incentives and Consumer Adoption of Hybrid Vehicle Technology

| February 2008

Overview

Federal, state and local governments use a variety of incentives to induce consumer adoption of hybrid-electric vehicles. In this paper, Kelly Sims Gallagher and Erich Muehlegger study the relative efficacy of state sales tax waivers, income tax credits and non-tax incentives, attributing just 6% of existing hybrid sales to tax incentive schemes, approximately 33% to personal (social) preferences, and 27% to rising gas prices. Their work suggests several important implications for policy intended to stimulate accelerated consumer purchase of hybrid-vehicle technology.

  • First, tax incentive design plays an important role in regulatory efficacy: sales tax incentives, which are immediate and easy to obtain have a much greater effect on the demand for hybrid vehicles than income tax incentives, which are delayed and likely more difficult to apply for and obtain.
  • Second, the authors find that while single-occupancy HOV access is correlated with substantial hybrid adoption in Virginia, this is only true in Virginia, perhaps due to the small number of other states offering this incentive or because traffic congestion is more severe in Virginia than in other states with this program.
  • Finally, even though state and federal incentives are significant in many cases, much of the recent increase in hybrid vehicles sales is more likely to be the result of rising gasoline prices or social preferences than existing forms of government incentives. This suggests that government policies which increase the price of gasoline may stimulate greater consumer adoption of hybrid technology. Although the U.S. government has not used higher gasoline taxes as a policy instrument to motivate consumer adoption of more fuel-efficient vehicles, this is a policy tool that has been employed to varying degrees in Europe and Japan.

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For Academic Citation: Gallagher, Kelly Sims and Erich Muehlegger. “Giving Green to Get Green: Incentives and Consumer Adoption of Hybrid Vehicle Technology.” Paper, RWP08-009, Harvard Kennedy School, February 2008.