WEAI/AERE 2009 - Individual Paper Abstract
Title: Evaluating Government Support for Hybrid Electric Vehicles in Japan
Author(s): Yu Arai, Sumeet GULATI, Food and Resource Economics, UBC (photo: Casey Williams)
Abstract:
Greenhouse gas emissions from transportation fuel are a significant contributor to global warming and reducing these emissions is crucial to mitigating the effects of climate change (in Japan, as of 2006, twenty percent of carbon dioxide emission was from the transportation sector). The introduction of electric- gasoline hybrid vehicles can aid in this effort by reducing green house gas emissions through a reduction in fossil fuel consumption. Although Hybrid Electric Vehicles (HEVs) have gained substantially in popularity in recent years, there is still a large economic disincentive to purchasing these vehicles relative to traditional gasoline cars.
In 1998, one year after the Kyoto Protocols were introduced to address climate change, the Japanese government began the clean energy vehicle subsidy program. The stated objective of this policy is to provide economic incentives to encourage the sales and increase the initial demand for hybrid-electric and electric automo- biles, buses, and trucks for individuals and corporations. The Electric Vehicle Promotion Center (EVPC - a government body responsible for setting and distributing the subsidy program) sets the maximum amount of subsidies, which vary depending on the retail price of the car, the price of a gasoline vehicle (automobile, truck or bus) alternate base vehicle to the same type, fuel efficiency, and demand for the HEV.
In this paper, using Japanese model specific vehicle sales data by prefecture from 2004-2006, we identify the impact of these subsidies on the sales of hybrid vehicles in Japan. We find that these subsidies had a large, positive and sta- tistically signi.cant impact on the sales of hybrid vehicles. The average subsidy to hybrid cars for the time period analyzed is approximately 200 thousand yen (approximately 2000 - 2200 US dollars) and we find that a 200 thousand dollar subsidy increased the share of the subsided hybrid car by approximately 40%.
This research has policy implications outside Japan. While Japan was probably the first country to implement subisidies to support the sales of HEVs, financial incentives to purchase fuel efficient vehicles are not restricted to Japan alone. Several jurisdictions across the world have given similar economic incentives such as tax credits and subsidies. For example, in 2006, the US federal government offered a tax credit for a limited number of HEVs in addition to tax incentives provided by select state governments. Similarly, the Canadian government began a program last year offering a rebate for those who buy or lease HEVs, on top of some provincial incentives that have been in place since 2000. In Sweden, between 2007 and 2009, the government is providing a rebate to individuals who purchase eco cars (including fuel efficient and low carbon dioxide emission gasoline car, electric car, and in London, HEVs are exempt from the daily London congestion charges. Understanding the impact and the details of the Japanese program will provide policy insights into similar programs in place, or being proposed in other parts of the world.