Hybrid-electric vehicles (HEVs) have been sold in the United States since the first Honda Insight of 1999. Growth in hybrid sales has been relatively slow, with the current hybrid market
at about 2.5 percent of all new-car sales. Plug-in hybrid-electric vehicles (PHEVs) and battery electric vehicles (BEVs) will soon be introduced to the market in the United States. The extent to which these more fuel-efficient vehicles are able to penetrate the vehicle market and contribute
to the goals of reducing oil use and greenhouse gas (GHG) emissions will depend on technology and market outcomes as well as policies pursued by government in coming years. Subsidies are among the major policy tools for increasing the share of hybrid vehicles in the fleet. This paper analyze a subsidy to consumers for the purchase of hybrid vehicles: the greater the fuel efficiency of the hybrid over a conventional vehicle of similar size, the greater the subsidy. It find that the interaction between a subsidy policy and other policies can be quite important, and subsidies on hybrids should be evaluated in the context of other policies in place or being considered.