This paper quanties the eects of the Swedish green car rebate (GCR), a program to reduce oil dependence and greenhouse gas emissions in the automobile industry. We estimate the demand for automobiles in the Swedish market and simulate counterfactual policies to assess dierent program dimensions. Our most conservative estimates nd the GCR to have increased the market shares of green cars by 5.5 percentage points and its cost to be about $109/tonCO2 saved, thus 5 times the price of an emission permit. Since the main green cars in Sweden are FFVs (exible-fuel vehicles), which can seamlessly switch between (high-CO2 emissions) gasoline and (low-CO2 emissions) ethanol, fuel choice is another dimension policymakers need to consider once fuel arbitrage is accounted for, the cost of CO2 savings increases by over 16 percent if 50 percent of FFV owners drive on gasoline instead of ethanol.Moreover, the GCR design was detrimental to Swedish carmakers, which lost substantial market share due to the policy. As the GCR gives vehicles able to operate on alternative (renewable) fuels a favorable treatment as compared to those operating only on regular (fossil) ones, we also consider a counterfactual in which they are treated equally. Our ndings suggest that consumers would have switched to the FFV technology even without the rebate.JEL Classication: H23, H25, L11, L62, L71, L98, Q42, Q48.

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