I study the impact of subsidies for Plug-in hybrid vehicles (PHEV) on carbon emissions. I show that subsidizing innovations without considering consumer behavior can harm the environment. I provide descriptive evidence on charging instances of PHEV and combine it with a structural model of demand for new passenger vehicles to evaluate the market outcomes had subsidies for PHEV not been in place. I show that PHEV subsidies were used by consumers to purchase larger and heavier vehicles and that consumers of PHEV seldom charge their vehicle. Taking into account the observed consumer behavior, I find that the elimination of subsidies for PHEV would have led to a yearly reduction of 167,139 tons of carbon emissions which are equivalent to the yearly carbon emissions 52,916 households emit due to energy consumption.
Tsanko, Ilona (2023), Would You Like to Super-Size Your Car? The Effect Of Environmental Subsidies on Emissions, ZEW Discussion Paper No. 23-033, Mannheim.