In this paper we analyze the cost-effectiveness of tax rebates for HEV’s. We find that these rebates had a positive and
significant effect on the market share of hybrid electric vehicles and a negative and significant effect on the market share of
intermediate cars, intermediate SUVs and high performance compact cars. Vehicle sales in all other segments are
unaffected. We use this information to construct estimates on the cost of fuel and carbon dioxide savings associated with
the provincial HEV tax rebate programs. Our results suggest that these programs primarily subsidize people who would
have bought hybrids or fuel efficient cars in any case.
There might be reasons for a relatively high cost of saving fuel or reducing carbon emissions to be acceptable. For
instance, the rebate program might have been designed to accelerate the diffusion of HEV technology and take advantage
of the economies of scale in vehicle production. However, the numbers of HEV’s sold in Canadian provinces are probably
too small for this purpose. Amongst provinces that provided rebates in the year 2006, the province of Prince Edward Island
had the lowest number of HEV sales (only 55) and the province of Ontario had the highest number (with 3475 HEV’s sold).