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How not to promote the use of hybrid automobiles

Rochester Business Journal
August 15, 2014

The transportation sector undoubtedly is an important part of the U.S. economy, and Americans now generally agree that climate change or global warming is a significant environmental problem. Given these two facts, policymakers nationwide have attempted to tackle the environmental problem by influencing human behavior in the transportation sector.

Because carbon dioxide emissions are principally responsible for warming the earth’s surface temperature and carbon dioxide is emitted by all gasoline-powered automobiles, attention has focused on ways to promote the use of hybrid automobiles such as the Honda Civic Hybrid and the Toyota Prius, which have much lower carbon dioxide emissions.

Of the many ways in which a policymaker might stimulate the use of hybrid automobiles, some are more palatable than others politically. Even in progressive California, environmental taxes are resisted by both voters and businesses, so policymakers are always looking for non-tax ways of furthering an environmental objective like increased use of hybrid vehicles.

A lot of attention has been focused on an experiment in the Los Angeles that tried to stimulate demand for hybrid vehicles by letting solo drivers of hybrids use the high-occupancy vehicle lanes on freeways. This kind of policy is also in effect in nine other states, including New York, and is under consideration in six more. The policy itself is popular because many people think it is “free,” costing little or nothing to implement. However, is this a meaningful way to stimulate the use of hybrid vehicles?

Interesting new research by the economists Antonio Bento, Daniel Kaffine, Kevin Roth and Matthew Zaragoza-Watkins sheds light on that question. These researchers begin by rightly noting that whether the benefits of the policy on HOV lane use exceed the costs depends fundamentally on whether there are prior distortions in the sector in which one is seeking to influence human behavior. In the Los Angeles transportation sector and in most such urban sectors, there are two distortions that readily come to mind: congestion and air pollution. The effects of the HOV lane use policy are significantly affected by the interaction between this policy and the two distortions.

Congested locations and peak travel periods make HOV lanes desirable to hybrid drivers, but the policy imposes enormous congestion costs on existing carpoolers. For instance, although adding a single hybrid driver at 2 a.m. imposes no congestion costs, adding one to a busy freeway at 7 a.m. results in congestion costs of $4,500 annually, the research indicates. Even considering the lower emissions from use of hybrid vehicles, the research shows that the costs of the HOV lane policy substantially exceed the benefits. Simply put, the welfare effects of this policy are negative, its use is not “free,” and, to add insult to injury, it also raises no revenue.

How, then, might a policymaker seek to advance the laudable goal of reducing carbon dioxide emissions by encouraging the use of hybrid vehicles? Even though taxes are often unpopular, the research shows that tax credits given to hybrid drivers and financed by other taxes would be significantly better than the HOV lane policy. Other worthwhile policy alternatives include the use of congestion prices and the auctioning of the right to drive in HOV lanes.

Sound research convincingly demonstrates that a policy which appears to be both useful and “free” is neither. Once again, we are reminded of sagacious advice from “The Merchant of Venice”: All that glitters is not gold.

Amitrajeet A. Batabyal is the Arthur J. Gosnell professor of economics at Rochester Institute of Technology, but these views are his own.

8/15/14 (c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.


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