Evaluation of subsidies programs to sell green cars: Impact on prices, quantities and efficiency

•We study a scrappage scheme implemented in Spain by both prices and environmental effects.•A difference-in-difference methodology is applied to two alternative control groups.•Manufacturers kept a part of the subsidy and Plan did not have an overall effect on sales.•A 29% of new demand creation was needed to be a positive environmental plan.•Spanish Public Administration spent 95€ per ton of CO2, when the value in the market of each ton was 14.32€.

During the recent period of economic crisis, many countries have introduced scrappage schemes to boost the sale and production of vehicles, particularly of vehicles designed to pollute less. In this paper, the authors analyze the impact of a particular scheme in Spain (Plan2000E) on vehicle prices and sales figures as well as on the reduction of polluting emissions from vehicles on the road. They considered the introduction of this scheme an exogenous policy change and because they could distinguish a control group (both non-subsidized vehicles and the same vehicles in Slovenia) and a treatment group (subsidized vehicles), before and after the introduction of the Plan, the authors were able to carry out their analysis as a quasi-natural experiment. The study reveals that manufacturers increased vehicle prices by 600 € on average. In terms of sales, econometric estimations revealed that the Plan would not cause any increase in sales. With regard to environmental efficiency, comparing the costs (invested quantity of money) and the benefits of the program (reductions in polluting emissions and additional fiscal revenues) and it has been found that the Plan would only be beneficial if it boosted demand by at least 30%.