An environmental–economic evaluation of hybrid electric vehicles: Toyota's Prius vs. its conventional internal combustion engine Corolla

We compare the second generation of the first commercial hybrid electric vehicle (HEV), the Toyota Prius, to the conventional internal combustion engine (ICE) Toyota Corolla. The more complicated and expensive Prius has lower pollutant and carbon dioxide emissions and better fuel economy than the Corolla. 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 hybrids, to improve the fuel economy and environmental emissions of other mobile sources, or to devote the resources to other environmental projects. We find that the Prius is not cost-effective in improving fuel economy or lowering emissions. For the Prius to be attractive to US consumers, the price of gasoline would have to be more than three times greater than at present. 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 $217/t. There are many opportunities for abating pollutant and greenhouse gas emissions at lower cost. We conclude that hybrids will not have significant sales unless fuel prices rise several-fold or unless regulators mandate them.