We estimate the effect of tax rebates on sales of Hybrid Electric Vehicles, offered by Canadian provinces. We find that these rebates had a large and significant effect on raising the market share of hybrid vehicles and that Intermediate cars, Intermediate SUVs and some high performance compact cars were crowded out as a result. Nevertheless, we find that these programs have a very high cost relative to other methods of reducing carbon emissions. The rebate programs largely subsidized consumers who would have bought hybrid vehicles or other fuel-efficient vehicles in any case. If carbon reduction is the goal, provincial governments may be better off purchasing carbon credits rather than providing tax incentives for hybrid cars.
Another reminder that quick, feel-good policies to address climate change have real consequences that have to be thought through.