Feebates, Rebates and Gas-guzzler Taxes: A Study of Incentives for Increased Fuel Economy
Author(s)
Greene, David L.; Patterson, Phillip D.; Singh, Margaret; Li, Jia
Abstract
US fuel economy standards have not been changed significantly in 20 years. Feebates are a market-based alternative in which vehicles with fuel consumption rates above a “pivot point” are charged fees while vehicles below receive rebates. By choice of pivot points, feebate systems can be made revenue neutral. Feebates have been analyzed before. This study re-examines feebates using recent data, assesses how the undervaluing of fuel economy by consumers might affect their efficacy, tests sensitivity to the cost of fuel economy technology and price elasticities of vehicle demand, and adds assessments of gas-guzzler taxes or rebates alone. A feebate rate of $500 per 0.01 gallon per mile (GPM) produces a 16 percent increase in fuel economy, while a $1000 per 0.01 GPM results in a 29 percent increase, even if consumers count only the first 3 years of fuel savings. Unit sales decline by about 0.5 percent but sales revenues increase because the added value of fuel economy technologies outweighs the decrease in sales. In all cases, the vast majority of fuel economy increase is due to adoption of fuel economy technologies rather than shifts in sales.
