The Market Impact and the Cost of Environmental Policy: Evidence from the Swedish Green Car Rebate

We quantify the effects of the Swedish GCR, a program to reduce oil dependence and greenhouse gas emissions in the automobile industry. We find the GCR to increase the market shares of `green cars' and its cost to be $109/tonCO2 saved, thus 5 times the price of an emission permit. Since the main green cars in Sweden are FFVs (flexible-fuel vehicles), which can switch between petrol (gasoline) and ethanol, we also account for fuel choice, which increases the cost of the program. Finally, we show that consumers would have purchased FFVs regardless of the rebate provided by the GCR.