Lower taxes on efficient cars increase usage, Israeli researchers say

Researchers at Ben-Gurion University of the Negev have discovered that an Israeli policy to reduce taxes on energy-efficient cars, in an effort to reduce energy consumption, actually had the opposite effect as more people took to the roads.

Drs. Ofir Rubin and Stav Rosenzweig and PhD student Aviv Steren discovered that an Israeli policy implemented in 2009 to subsidize energy efficient cars by adjusting the taxes levied on for new cars actually caused drivers to use their energy efficient cars more often.

It is a known phenomenon – called the rebound effect – that as products become more efficient they become cheaper and are thus used more, in practice reducing the overall energy savings. This is the first time researchers have attempted to use an environmental policy in an experiment to estimate the impact of the rebound effect, the university said in a statement.

In the policy set out in 2009, taxes were adjusted in accordance with the car’s energy efficiency, with the greatest tax reduction given to the most energy efficient cars. The researchers discovered a rebound effect of 40 percent. This means that the anticipated energy savings of the new tax scheme were reduced by 40% because the owners drove their cars much more often. In other words, for every 100 liters of fuel the government had hoped to save, it could only save 60 liters, the researchers said.

The findings, reported recently in Energy Policy, an international peer-reviewed journal, are important because global transportation accounts for one-fifth of global energy costs and a quarter of greenhouse gas emissions, the statement said.

“Our study can help policy makers to more effectively design environmental policies, such as subsidizing energy-efficient cars or taxing fuel,” Rosenzweig said.