Indiana University

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Monday, July 16, 2012

Last modified: Monday, July 16, 2012

IU SPEA report: Hybrid trucks hurt by low fuel prices

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July 16, 2012

BLOOMINGTON, Ind. -- A new report from Indiana University's School of Public and Environmental Affairs raises questions about the economic viability of medium-sized diesel-electric hybrid trucks.

These hybrids, promoted by state and federal policymakers, have a significantly higher sticker price than conventional diesel-powered trucks. With volatile fuel prices and uncertain technology and environmental trends, the fuel savings and environmental benefits from driving these hybrids may not be sufficient to recover their higher investment costs, said John D. Graham and Kerry Krutilla, the authors of the study.

Additionally, new federal fuel consumption regulations are improving the fuel economy of conventional diesel-powered vehicles, reducing the comparative advantage of hybrids.

"Looking over a 20-year period, there aren't many scenarios where the government would be justified in significantly subsidizing hybrid truck manufacturers or consumers," Graham said while cautioning that economic, environmental and regulatory conditions could change.

The study also examined the fiscal effects of using and promoting hybrids. States collect additional sales tax revenue when higher-priced hybrids are sold, and these revenues were found to be larger than the lost fuel tax revenue from driving more fuel-efficient vehicles. But at the federal level, the combined effect of corporate tax losses (from the deduction of the investment cost of the hybrid technology) and reduced fuel tax collections worsens the fiscal picture.

The report has been published as an article, "Are Green Vehicles Worth the Extra Cost? The Case of Diesel-Electric Hybrid Technology for Urban Delivery Vehicles," in a just-released symposium edition on science policy in the Journal of Policy Analysis and Management.

Graham, an expert in benefit-cost analysis and former administrator in the White House Office of Management and Budget, is dean of the School of Public and Environmental Affairs. Krutilla is an associate professor at IU and the author of a book and numerous articles on environmental and energy policy and benefit-cost analysis.

A grant from the Navistar Corp. funded the research.

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