Hybrid electric vehicles (HEV) and other advanced propulsion technologies offer greater fuel economy and lower pollutant and tailpipe emissions. Some experts regard the HEV technology as a practical, attractive solution to social concerns about fuel economy (and related fossil fuel conservation) and vehicle emissions. [Maples 98] The technology is practical; however, an HEV is more expensive to produce than a conventional internal combustion engine (ICE). In a world of limited resources and many petroleum users and emissions sources, the policy question is whether the best use of resources is to build HEV, to improve the fuel economy and lower emissions from other sources, or to devote the resources to other environmental projects.
We compare the second generation (designed for the United States) Toyota Prius, to the conventional internal combustion engine Toyota Corolla. We examine both private (vehicle purchase price, maintenance, and fuel) and social (the pollutant [non-methane organic gases, carbon monoxide, nitrogen oxides] and carbon dioxide emissions) costs. For each of the vehicles, we evaluate lifetime vehicle exhaust emissions as well as upstream emissions from producing the fuel.
We find that the second generation Prius is still not cost-effective in improving fuel-economy and lowering emissions. For the Prius to be attractive to U.S. consumers, the price of gasoline would have to be more than three times greater than the present level. To be attractive to regulators, the social value of abating tailpipe emissions would have to be 14 times greater than conventional values. Alternatively, the value of abating greenhouse gas emissions would have to be at least $220 per ton. We judge that any HEV would have a difficult time competing with the Corolla because of the Corolla's already high fuel economy and low pollutant emissions.
We also examine the costs and benefits of making a GM Silverado pickup truck into a gasoline hybrid. Like the analysis of the Prius, we again find that the price of gasoline or social value of abating carbon dioxide would have to be higher than the base case values in order to payback the cost of converting the vehicle to an HEV. Finally, we find that at current gasoline prices and carbon dioxide valuation, a conventional vehicle would need to have a fuel economy of 13 mpg or less in order for a $4,000 cost of converting it to an HEV to get 30% better fuel economy would pay off. We conclude that HEV will not have significant sales unless fuel prices rise several-fold or unless regulators mandate them.