Feebates and Fuel Economy Standards

This study evaluates the potential impacts of a national feebate system, a market-based policy that consists of graduated fees on low-fuel-economy (or high-emitting) vehicles and rebates for high-fuel-economy (or low-emitting) vehicles. In their simplest form, feebate systems operate under three conditions: a benchmark divides all vehicles into two categories—those charged fees and those eligible for rebates; the sizes of the fees and rebates are a function of a vehicle's deviation from its benchmark; and placement of the benchmark ensures revenue neutrality or a desired level of subsidy or revenue. A model developed by the University of California for the California Air Resources Board was revised and used to estimate the effects of six feebate structures on fuel economy and sales of new light-duty vehicles, given existing and anticipated future fuel economy and emission standards. These estimates for new vehicles were then entered into a vehicle stock model that simulated the evolution of the entire vehicle stock. The results indicate that feebates could produce large, additional reductions in emissions and fuel consumption, in large part by encouraging market acceptance of technologies with advanced fuel economy, such as hybrid electric vehicles.