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RMI Holds the Nation’s First Feebate Forum

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.