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Are Feebates Such A Hot Idea?

Via Dave Roberts, a handful of Democratic and Republican senators are now touting a bill to set up a more promising variation on the "cash-for-clunkers" concept—namely, feebates. The idea here would be to slap an excise tax on gas-guzzlers that don't meet CAFE standards and recycle the money into rebates for efficient cars that beat CAFE standards. The fees and rebates would all sit on a sliding scale, so that the more efficient the car, the bigger the rebate (while bigger gas-guzzlers get hit with bigger fees). Like so:

Estimated rebates show that relatively fuel efficient vehicles such as the Honda Civic and Ford Focus receiving rebates of about $1,000 under full program implementation. The Ford Escape Hybrid would be eligible for a rebate of around $2,500, while purchasers of the highly-efficient Toyota Prius would receive about $4,000. At its rated mileage of 100-mpg, a Chevy Volt rebate would be nearly $8,000, while a Hummer H3 would be assessed a fee of about $2,500.

This sounds promising, but there's a potential flaw with pegging this strictly to CAFE standards. If too many people rush out to buy efficient cars that sit below CAFE standards, and not enough people are buying Hummers and paying the fees, then suddenly the feebates are no longer revenue-neutral, and Congress has to find extra money for the program. On the other hand, if the amount collected in fees does happen to match the amount handed out in rebates, well, then the program hasn't really accomplished anything over and beyond what the CAFE standard does. Right?

Seems like it'd be more sensible to have an independent mileage benchmark that could be recalibrated each year to make sure the program remains revenue-neutral. (That way, if people were flocking to more-efficient cars, the benchmark could just be adjusted upward.) In fact, California has been considering just such an approach under its global-warming law. Back in 2007, a study by the University of Michigan's Transportation Research Institute found that the incentives from a well-designed feebate could curb pollution from cars and trucks pretty dramatically.

(Flickr photo credit: abmgvp)