Harnessing Motorists' Potential Demand for Hybrid-Electric Vehicles in Lebanon: Policy Options, CO2 Emissions Reduction and Welfare Gains | Ifi Working Paper

Working Paper | February 2015
Harnessing Motorists' Potential Demand for Hybrid-Electric Vehicles in Lebanon: Policy Options, CO2 Emissions Reduction and Welfare Gains by Alexandra Irani and Ali Chalak
Public concern over deteriorating air quality and the associated local and global impacts has grown significantly in the past decade. Air quality degradation is linked first and foremost to the transportation sector in the Arab region with about 90% of total emissions of carbon monoxide resulting from transportation activities. In Lebanon’s capital, Beirut, current levels of ozone and smog measured are several times higher than the world norms. In this paper, motorists’ preferences for, and propensity to purchase, hybrid-electric vehicles (HEVs) and their readiness to switch to them are elicited by means of a choice experiment and hence indirectly estimates the value that they place on air quality. In addition, the paper investigates and monetizes net financial, welfare and environmental benefits resulting from this shift through the reduction in CO2 emissions. Results are analyzed by means of a generalized multinomial logit model which accounts for both taste and scale heterogeneity. Simulations of aggregate switching behavior revealed that under a scenario which assumes that HEVs are exempt from customs and excise duties (following the 2010 suggested tax amendments by the Ministry of Finance), car buyers would actually be saving $5,100 by buying a hybrid-electric instead of a conventional gasoline vehicle and would enjoy a 30.5% reduction in fuel consumption and 20.5% CO2 emission reduction per car per year putting the yearly net benefit at a high of $5,684 per brand new car sale. This would lead to total fuel cost savings amounting to $16.016 million and 19,600 tons of reduced CO2 emissions per year. Accordingly, endorsing the suggested tax amendments is crucial to develop an HEV market in Lebanon and to achieve the consequent emission reductions and savings.