The centerpiece of the policy
recommendations made in Rocky
Mountain Institute’s (RMI) most recent
book Winning the Oil Endgame is the
“feebate.”
A feebate is a policy that provides
a one-time rebate on fuel-efficient
vehicles and places a surcharge on
vehicles that are inefficient. New
light vehicles that exceed a defined
fuel economy benchmark, called the
“pivot point,” qualify for a rebate. The
logic is that people who choose to
drive more efficient vehicles deserve a
rebate because they are helping reduce
social problems, such as pollution,
oil dependence, congestion, health
problems, and climate change.
The amount of the rebate would
depend on where the vehicle’s fuel
economy falls in relation to the pivot
point for all vehicles in that class. A
Honda Civic, for instance, would
qualify for a rebate because it’s more
efficient and consumes less fuel than
comparably sized vehicles. Conversely,
new vehicles that are less fuel-efficient
than others in the same class would be
subject to a fee.
“Feebates are truly a market-oriented
solution to improving automobile
fuel economy,” said Natalie Mims,
a Consultant with RMI’s Energy &
Resources Team. “State governments
should consider feebates as an
opportunity to create incentives to
improve vehicle fuel economy and help
get the United States off oil without
federal leadership. Ideally, the federal
government could use the feebate as
an alternative to CAFE, and shift to a
national incentive-based system instead
of the current command-and-control
system.”
Many public policy experts believe
offering a rebate for the purchase of
efficient vehicles is justified because
efficient vehicles reduce social costs.
A feebate is a better approach to
regulating the automotive industry
because it allows manufacturers
to install as much fuel economy
technology as is cost-effective as
opposed to requiring manufacturers
to install technology regardless of the
cost. Feebates also help consumers
to consider the long-term impacts of
a vehicle’s fuel economy when they
purchase a car. Better yet, a welldesigned
feebate can be self-financing.
Fees could pay not only for the rebates
but also the administrative costs of
running the program.
Last year, RMI organized and hosted
the first Feebate Forum in the United
States in Snowmass Village, Colo.1
Twenty-seven diverse stakeholders from
across the United States and Canada
attended the two-day Forum, which
was funded by the Smith Richardson
Foundation. The purpose of the
Forum was to encourage an open,
off -the-record discourse between the
auto industry and policymakers about
feebates.
Subsequently, RMI produced a white
paper on feebates (www.rmi.org/images/
PDFs/Transportation/Feebate_final.
pdf), which analyzed the effect that the
number of size classes and the variety
of size attributes used to divide the
feebate classes would have on a new
2005 vehicle. The research had two
major findings. First, as the number of
vehicle size classes increases the range
in the volume of vehicles in each class
decreases; the range of fuel economies
in each class gets smaller; and the
differences in size of the fees or rebates
decreases. Second, regardless of the
size attribute used to divide a vehicle
class (interior volume, exterior volume,
footprint and rectangular shadow),
there is not a significant impact on
automobile manufacturers.
In addition to providing this
additional research, the report also
provides an in-depth look at feebates
and recommends that they include the
following characteristics:
Constant rate: The rate is the
component of the feebate that
determines how much the fees or rebate
for each vehicle will be. It is measured
in dollars per gallons per mile. It is
critical that the rate remains the same
for every vehicle to ensure that all
gallons of fuel saved are equally valued.
Self-financing: The policy should be
revenue neutral or slightly revenue
generating (to pay administrative costs).
Th is is achieved by resetting the pivot
point regularly and accurately.
Preserve consumer choice: The policy
should not interfere with consumer
freedom of choice. Creating size classes
with separate pivot points is one way to
achieve this.
Continuous fuel improvement: The
policy should be dynamic and require
constant innovation by a given vehicle
manufacturer for them to continue to
receive rebates on vehicles. Th is can be
achieved by regularly evaluating the
pivot point, which also ensures the
policy is self-financing.
Optimize size classes: The current six
passenger-car class system and six lightduty
truck class system under CAFE
may be the easiest way to introduce the
feebate policy.
In principle, feebates are gaining
acceptance. Canada has had a feebate
law in eff ect since 2007. Last year,
several European countries adopted
feebates. Finland and Ireland changed
their automobile tax structure to vary
based on greenhouse-gas emissions,
and France just implemented what’s
being called the “bonus-malus” law in
January. California’s State Assembly
recently considered a feebate bill to
reduce vehicle greenhouse-gas emissions
after the EPA denied the state a waiver
to regulate tailpipe emissions.
