Harnessing motorists' potential demand for hybrid-electric vehicles in Lebanon: Policy options, CO2 emissions reduction and welfare gains

Air quality degradation is closely linked to the transportation sector in the Arab region. In Lebanon's capital, Beirut, levels of many transport-related pollutants are several times higher than world norms. In this paper, we elicit motorists' propensity to purchase hybrid-electric vehicles (HEVs) in Beirut by means of a choice experiment, and monetize attendant financial, welfare and environmental benefits. Simulations of aggregate switching behavior revealed that under a transitional scenario which assumes that HEVs are exempt from customs and excise duties (recently proposed, yet unimplemented, by the Ministry of Finance), car buyers would enjoy a 30.5 percent reduction in fuel consumption, 20.5 percent CO2 emission reduction and net benefits of $5684 per brand new car sale per year. Simulations of a more sustainable scenario in which customs and excise duties are reduced by around 38 percent reveal equally significant gains, with aggregate yearly fuel cost savings of $18.66 million and CO2 emissions reductions of 23,100 tons. Accordingly, endorsing the proposed tax amendments could be crucial to establishing a viable HEV market in Lebanon, later to be followed by a more sustainable tax incentive scheme consisting of partial tax discounts that would provide a win-win situation for both government and vehicle buyers.