Do hybrid incentives really work?

Ambarish Chandra is a professor at Sauder School of Business at the University of British Columbia. He drives a Jetta. Hal Hamill of Surrey, B.C., owns AAA Auto and Truck Scrap Pickup. He drives a tow truck. His job is hauling aging clunkers off the roads, while Chandra and his research team try to do the same thing, academically. From different perspectives, the two have reached a similar conclusion: government incentives to get old gas guzzlers off the road may prime the economy, but their impact on the environment isn’t as green as advertised.

Chandra is co-author of a study that found Canadian and U.S. incentives to buy hybrid vehicles are largely a waste of money, if their aim is reducing emissions. “There is a long history in economics of programs designed to sway consumers to do one thing having unintended consequences,” says Chandra. In this case, most consumers using government incentives (as much as $10,000 in Ontario) toward the purchase of hybrids would buy them anyway, he says. Hybrid incentives may steer some from fuel-efficient smaller conventional cars, but they have no impact on reducing demand for SUVs, vans or trucks.

Canadian incentives cost as much 43 cents for every litre of gas a new vehicle will burn over its lifespan. “It doesn’t seem to us that’s a good environmental program,” says Chandra. “It’s probably a pretty effective stimulus program, but we should call it as such.”

Hamill agrees: carmakers and dealers are the real winners. Meanwhile, he questions related programs in Canada and the U.S. that pay owners to scrap their old clunkers. They are paid a few thousand toward a cleaner-burning replacement, “forcing people into more debt,” Hamill says. The older vehicles must be recycled as scrap, meaning working engines and most other parts can’t be resold and reused. How green is that? he wonders. “By building new cars,” notes Hamill, “they’re actually increasing emissions.”