Environmental Issues

The incentive paid by the Manitoba government for purchasing hybrid cars should be increased to 4000 dollars from a current 2000 dollars

Two thousand scientists, in a hundred countries, engaged in the most elaborate, well organized scientific collaboration in the history of humankind, have produced long-since a consensus that we will face a string of terrible catastrophes unless we act to prepare ourselves and deal with the underlying causes of global warming.

-AL GORE, speech at National Sierra Club Convention, Sept. 9, 2005

Swane Arhenius(1896) suggested long back that carbon dioxide concentration would continue to increase with the increase in consumption of fossil fuels, thus leading to an acute problem of global warming. As per the data provided by Intergovernmental Panel on Climate Change (2007), global greenhouse gas emissions have grown with an increase in 70 between 1970 and 2004. There is an immense need of a good action plan in order to prevent global warming.

Lively Barry (2007) described the likely effects of Global warming with the help of following table-

The conventional vehicle types are one of the primary sources of carbon emission, the increase in the usage of electric vehicle can be instrumental in reducing the emission of greenhouse gases. We need to analyze that whether a price incentive to select hybrid electric car over a conventional vehicle can really act as a motivational factor for a prospective car buyer and if the subsidy given can even motivate someone who would otherwise not buy any vehicle into buying a hybrid electric vehicle. Bordley (1993) determined that the decision on which car to buy is a price sensitive decision, and higher price sensitive than the decision concerning whether or not to buy a car. Bordley (1993) also identified that there is a higher chance of people making the car switch in the same segment rather than going to the other segment.

Cao and Mokhtarian (2004) revealed that consumer pays due significance towards maintenance cost which is negatively related to the demand of vehicles.  Further more studies conducted reveal that consumers have an inclination towards vehicle with low emissions as compared to the ones with higher emission rates (Dagsvik et. al., 2002) and if all the other things are constant then they give a preference to hybrid electric vehicles. The important thing to note over here is that price is an important aspect for the decision regarding which vehicle to buy and thus subsidy should be an important criterion and if increased the consumer will have a definite motivation to choose the hybrid electric car over the conventional car. Gallagher and Muehleggers (2008) suggested that increasing gas prices and per capita income both are directly related to the increase in demand for hybrid vehicles

Another important question is that are these subsidies justifiable for the favor of companies involved in manufacturing hybrid cars The answer to this is yes. This is because the hybrid vehicles need a higher initial capital costs because of greater technological complexity involved and the cost of gasoline saved with the help of these cars balances out the higher initial costs paid over a long time. Moreover if take in consideration the environmental costs associated then hybrid cars are more cost effective.

Lipman and Delucchi (2005) analyzed that even in the absence of any subsidy the hybrid cars are more cost effective than the conventional cars when they considered the cost of gasoline at 1.46gallon. Lave and Maclean (2001) also came up with similar analysis and they considered an average cost of gasoline to lie between 2.5 dollars to 3.5 dollars per gallon.

At the end our assumption that a higher subsidy will prove as a motivational factor for the prospective buyer towards buying hybrid electric vehicle has been supported by the thesis of Kelly Sims Gallagher and Erich Muehlegger (2008) who analyzed suggested that adoption of HEV in United States from 2000 to 2006 can be attributed to government incentives, consumer preference for environmental quality and changing price in gasoline.