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Development and Evaluation of Feebate Policies
for California’s Effort to Limit Greenhouse Gas
Emissions from Light-duty Vehicles
David L. Greene
Corporate Fellow, Oak Ridge National Laboratory
Senior Fellow, Howard H. Baker, Jr. Center for Public Policy & Research
USAEE Meetings
October 10, 2011
Washington, DC
Feebates are a policy for encouraging car buyers to
prefer more efficient, lower emission vehicles and
manufacturers to design them.
• A fiscal policy combining graduated
▫ FEEs on inefficient vehicles
▫ ReBATEs on efficient vehicles.
• A “benchmark” defines who pays and who
receives. (distribution)
• A “rate” determines the marginal costs and
benefits. (efficient solution)
• Depending on the choice of benchmark, feebates
can produce revenue, be revenue neutral or be a
net subsidy to car purchases
• The dual of fuel economy standards?
Simplest feebate is linear in energy use or CO2
emissions per mile.
Benchmark is E0. Rate is slope of the line.
System is revenue neutral if benchmark is carefully
chosen.
$
E

Eo
Feebate RateE 0  E 
Today, 16 countries have some form of CO2 or
fuel consumption (l/100km) tax on light-duty
vehicles.
• New vehicle purchase or registration:
▫ Austria, Canada, Finland, France, Ireland,
Netherlands, Norway, Portugal, Spain, U.S.A.
• Annual or recurring registration fee:
▫ Denmark, Germany, Ireland, Luxembourg, Portugal,
Sweden, UK
• Source: N.A. Braathen, 2010. “Incentives for CO2 Emission Reductions in Current
Motor Vehicle Taxes”, ENV/EPOC/WPNEP/T(2009)2/FINAL, Environment
Directorate, OECD, Paris.
France’s Bonus/Malus had an immediate effect, lowering
the average emissions of cars sold by 7 g/mi., entirely
due to car buyers choosing lower emission vehicles.
6
In the ARB Feebates model, the technological potential to increase
fuel economy/reduce emissions was represented by cost curves.
Manufacturers redesign approximately one fifth of their models
each year.
Fuel Economy Cost Curves Technology Cost Curves
Mid-Size Passenger Car
$3,000
2007-2014
$2,500
RPE $/vehicle
2015-2022
$2,000
2023-2025
$1,500
$1,000
$500
$0
0
10
20
30
40
50
Percent Increase in MPG
60
70
7
The NMNL vehicle choice model estimated market shares of
20 vehicle classes and more than 800 individual vehicle
configurations, as well as to buy a new vehicle or not.
8
Most feebate systems analyzed were
benchmarked to the CAFE footprint function.
9
56 cases were analyzed, reflecting a comprehensive
set of feebate designs in various contexts.
• 13 cases analyzed differences in
▫
▫
▫
▫
Feebate rate: $10/$20/$30 per gram per mile
Geographical coverage: CA, CA + opt-in states, All of US
Benchmark: footprint, single, car or truck
Functional form: linear or step function
• 22 sensitivity cases considered the effects of
▫ Fuel prices
▫ Technology costs
▫ How consumers value fuel savings
▫ Other parameters
• 17 additional cases considered alternative post 2016 standards
• 4 more cases assessed whether feebates could replace the CA
standard, plus the effects of banking emissions credits.
• Consumers assumed to require a simple 3-year payback.
10
The reference case included the fuel
economy/emissions standards to 2016 and two
alternative paths to 2025.
11
The impact of a CA feebate system increases almost
linearly with the size of the feebate rate.
12
Considering the full value of fuel savings, the full
costs per ton of CO2 avoided are negative. Why?
13
The greater the market coverage of the feebate
system, the greater its impact on emissions.
14
For a California feebate, most of the impact is
due to sales-mix shifts, less to increased use of
technology.
15
For a nationwide feebate system, most of the
impact is due to increased use of fuel
economy technologies.
16
The footprint benchmark has the smallest impact on
consumers’ surplus, a single point benchmark the largest.
17
Does the public support fiscal policies or not?
18
Key findings are…
• With emissions standards in effect, feebates will further reduce LDV GHG
emissions unless the standards are so strict as to induce pricing by OEMs.
• Reductions of 5 to 20 g/mi occur immediately, depending on the size of the
feebate rate ($10 to $30).
• Reductions are obtained at negative cost, assuming car buyers typically
undervalue future fuel savings relative to expected value.
• Impacts will diminish over time if standards are very strict and technological
progress is slow.
• Feebates could have a very large or very little impact on hybrid vehicle sales,
depending on future costs of hybrids.
• A national feebate would likely have 3 times the impact of a California-only
feebate.
• A linear feebate system will likely be easiest to manage.
• A footprint feebate will have a smaller impact on consumer satisfaction but
also a smaller impact on GHG emissions.
Thank you.
Full report available at:
www.arb.ca.gov/research/apr/past/08-312main.pdf
A feebate can be viewed as a tax on future oil
use or GHG emissions paid at time of purchase.
PV 
L
 CE
 E K oe e dt
t rt
0
t 0
• Assuming:
▫ 14,000 km/year when new = K0
▫ Decreasing at 4%/year = δ
▫ Discount rate of 7%/year = r
▫ Expected life of 14 years = L
▫ Cost to society
of oil use and GHG emissions = C
PV  C  E 0  E  100,000
$1001g 
$10
PV 
 1 00,000km  R 
tCO2 km 
g /km
The immediate shift in sales was large and
tended to favor French auto manufacturers.
Norway’s registration tax was based 50% on weight, 30% on engine
displacement, 20% on power. In 2007 the displacement component was replaced
by a CO2 tax, with an immediate impact on emissions and fuel efficiency.
Denmark’s system is based on km/l and is equivalent to
$320 US per MPG. There are different rates for fees and
rebates.
Denmark’s experience was similar to that of the other
states, an immediate improvement in l/100km.
The U.S. Gas Guzzler Tax (for passenger cars only, not light trucks
and still on the books) is half a feebate system.
$1,800/0.01gal/mi = approx. $20/g/mi
U.S. Gas Guzzler Tax Since 1991
$8,000
$6,000
$4,000
Tax per Vehicle
Approximately $1,800 per 0.01 gallons per mile.
$2,000
$0
0.025
-$2,000
0.035
0.045
0.055
0.065
0.075
-$4,000
-$6,000
-$8,000
-$10,000
Gallons
per Mile
Miles per
Gallon
0.085
0.095
The US gas-guzzler tax has also been effective.
No mass market vehicles have ever paid it.
Distribution of Passenger Cars by MPG
1800
1600
Gas
Guzzler
Limit
Sales (thousands of units)
1400
1200
1000
800
600
400
200
0
12.5
15
17.5
20
22.5
25
27.5
30
32.5
Miles per Gallon (EPA Combined)
2005
2007
35
37.5
40
42.5
45+
The gas guzzler function was adjusted several times.
Would be necessary with feebates to achieve revenue
neutrality.
Evolution of U.S. Gas-Guzzler Tax
$8,000
1991+
1990
1986–90
$7,000
1985
1989
1984
$6,000
1988
1983
Current Dollars
1982
$5,000
1987
1981
1980
$4,000
1986
CAFE Std
1985
$3,000
1984
1983
$2,000
1982
$1,000
1981
$0
10.0
12.0
14.0
16.0
18.0
20.01980 22.0
Miles per Gallon
24.0
26.0
28.0
France’s Bonus/Malus is roughly equivalent to € 150
/tCO2, a rate similar to the U.S. gas guzzler tax.
France's Feebate Schedule
6000
5000
4000
Euros
3000
2000
1000
0
-1000 0
50
100
150
-2000
-3000
g CO2/km
200
250
300