The Car and Truck Fleet and Leasing Management Magazine

Michigan Study Identifies Benefits of Using Vehicle Fees and Rebates to Fight Global Warming

June 11, 2007

ANN ARBOR, Mich. --- The University of Michigan's Automotive Analysis Division recently completed a study that analyzes the benefits of using fees and rebates to reduce greenhouse gas emissions from light vehicles in California. AAD head Walter McManus authored the study. In California, the transportation sector consumes well over half the oil used. Passenger cars and trucks emit 20 to 30 percent of the state's global warming pollution. As a result, vehicles are the main focus of immediate global warming reduction efforts. The state of California's regulatory approach involves phasing in limits to average global warming emissions from passenger cars and trucks beginning in 2009 and culminating in 2016. This regulation has been dubbed "Pavley," after its author, Assemblywoman Fran Pavley. The federal government's approach provides tax incentives to buyers of hybrid vehicles, which emit significantly lower amounts of global warming pollution than most conventional vehicles. However, the hybrid incentive affects only a small portion of the vehicle market. A feebates program provides a third way to enhance or replace existing regulations. A feebates program creates a schedule of both fees and rebates that reflects the amount of global warming pollution that different vehicles emit. Buyers of new vehicles that emit greater amounts of heat-trapping emissions pay a one-time surcharge at the point of purchase. These surcharges are then used to provide rebates to buyers of new vehicles that emit less pollution. According to the study, a feebates program has several advantages over other approaches: • Market-oriented: A feebates program recognizes the power of price signals to change consumer behavior. Incentives spur consumers to purchase --- and manufactures to produce --- cleaner vehicles. • Self-financing: A feebates program can be designed so that the surcharges collected equal the rebates paid. • Affects entire market: A feebates program applies to all new vehicles --- both clean and dirty. This spurs a transformation of the entire market. • Consumer choice: A feebates program can be designed so that consumers have the option to buy vehicles that carry no surcharge in each vehicle class, such as cars, trucks, SUVs and minivans. "This study explores the economic impacts on consumers and manufacturers of the existing Pavley regulation and a feebates program by analyzing four alternative scenarios, using information from 2002 as the base year," the study's executive summary says. The study concludes that a feebates program is "an effective strategy to reduce global warming pollution by up to 25 percent more than Pavley alone. Also, under a feebates program consumers will save thousands of dollars and retailers will see their revenue rise by as much as 6 percent."
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