development and evaluation of feebate policies for california’s effort to limit greenhouse gas...
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Development and Evaluation of Feebate Policies for California’s Effort to Limit Greenhouse Gas Emissions from Light-duty Vehicles
David L. GreeneCorporate Fellow, Oak Ridge National LaboratorySenior Fellow, Howard H. Baker, Jr. Center for Public Policy & Research
USAEE MeetingsOctober 10, 2011Washington, DC
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Feebates are a policy for encouraging car buyers to prefer more efficient, lower emission vehicles and manufacturers to design them.
• A fiscal policy combining graduated▫FEEs on inefficient vehicles▫ReBATEs on efficient vehicles.
• A “benchmark” defines who pays and who receives. (distribution)
• A “rate” determines the marginal costs and benefits. (efficient solution)
• Depending on the choice of benchmark, feebates can produce revenue, be revenue neutral or be a net subsidy to car purchases
• The dual of fuel economy standards?
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Simplest feebate is linear in energy use or CO2 emissions per mile.Benchmark is E0. Rate is slope of the line.System is revenue neutral if benchmark is carefully chosen.
FeebateRate E0 E
E
$
Eo
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Today, 16 countries have some form of CO2 or fuel consumption (l/100km) tax on light-duty vehicles.
• New vehicle purchase or registration:▫Austria, Canada, Finland, France, Ireland,
Netherlands, Norway, Portugal, Spain, U.S.A.• Annual or recurring registration fee:
▫Denmark, Germany, Ireland, Luxembourg, Portugal, Sweden, UK
• Source: N.A. Braathen, 2010. “Incentives for CO2 Emission Reductions in Current Motor Vehicle Taxes”, ENV/EPOC/WPNEP/T(2009)2/FINAL, Environment Directorate, OECD, Paris.
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France’s Bonus/Malus had an immediate effect, lowering the average emissions of cars sold by 7 g/mi., entirely due to car buyers choosing lower emission vehicles.
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In the ARB Feebates model, the technological potential to increase fuel economy/reduce emissions was represented by cost curves.Manufacturers redesign approximately one fifth of their models each year.
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$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
0 10 20 30 40 50 60 70
RP
E $
/veh
icle
Percent Increase in MPG
Fuel Economy Cost Curves Technology Cost CurvesMid-Size Passenger Car
2007-2014
2015-2022
2023-2025
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The NMNL vehicle choice model estimated market shares of 20 vehicle classes and more than 800 individual vehicle configurations, as well as to buy a new vehicle or not.
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Most feebate systems analyzed were benchmarked to the CAFE footprint function.
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56 cases were analyzed, reflecting a comprehensive set of feebate designs in various contexts.
• 13 cases analyzed differences in▫ Feebate rate: $10/$20/$30 per gram per mile▫ Geographical coverage: CA, CA + opt-in states, All of US▫ Benchmark: footprint, single, car or truck▫ Functional form: linear or step function
• 22 sensitivity cases considered the effects of▫ Fuel prices▫ Technology costs▫ How consumers value fuel savings▫ Other parameters
• 17 additional cases considered alternative post 2016 standards• 4 more cases assessed whether feebates could replace the CA
standard, plus the effects of banking emissions credits.• Consumers assumed to require a simple 3-year payback.
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The reference case included the fuel economy/emissions standards to 2016 and two alternative paths to 2025.
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The impact of a CA feebate system increases almost linearly with the size of the feebate rate.
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Considering the full value of fuel savings, the full costs per ton of CO2 avoided are negative. Why?
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The greater the market coverage of the feebate system, the greater its impact on emissions.
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For a California feebate, most of the impact is due to sales-mix shifts, less to increased use of technology.
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For a nationwide feebate system, most of the impact is due to increased use of fuel economy technologies.
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The footprint benchmark has the smallest impact on consumers’ surplus, a single point benchmark the largest.
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Does the public support fiscal policies or not?
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Key findings are…• With emissions standards in effect, feebates will further reduce LDV
GHG emissions unless the standards are so strict as to induce pricing by OEMs.
• Reductions of 5 to 20 g/mi occur immediately, depending on the size of the feebate rate ($10 to $30).
• Reductions are obtained at negative cost, assuming car buyers typically undervalue future fuel savings relative to expected value.
• Impacts will diminish over time if standards are very strict and technological progress is slow.
• Feebates could have a very large or very little impact on hybrid vehicle sales, depending on future costs of hybrids.
• A national feebate would likely have 3 times the impact of a California-only feebate.
• A linear feebate system will likely be easiest to manage.
• A footprint feebate will have a smaller impact on consumer satisfaction but also a smaller impact on GHG emissions.
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Thank you.
Full report available at:www.arb.ca.gov/research/apr/past/08-312main.pdf
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A feebate can be viewed as a tax on future oil use or GHG emissions paid at time of purchase.
PV C E0 E 100,000
• Assuming:▫ 14,000 km/year when new = K0
▫ Decreasing at 4%/year = δ▫ Discount rate of 7%/year = r▫ Expected life of 14 years = L▫ Cost to society of oil use and GHG emissions = C
PV C E0 E Koe te rtdtt0
L
PV $100
tCO2
1g
km
100,000km R
$10
g /km
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The immediate shift in sales was large and tended to favor French auto manufacturers.
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Norway’s registration tax was based 50% on weight, 30% on engine displacement, 20% on power. In 2007 the displacement component was replaced by a CO2 tax, with an immediate impact on emissions and fuel efficiency.
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Denmark’s system is based on km/l and is equivalent to $320 US per MPG. There are different rates for fees and rebates.
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Denmark’s experience was similar to that of the other states, an immediate improvement in l/100km.
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The U.S. Gas Guzzler Tax (for passenger cars only, not light trucks and still on the books) is half a feebate system.$1,800/0.01gal/mi = approx. $20/g/mi
U.S. Gas Guzzler Tax Since 1991
-$10,000
-$8,000
-$6,000
-$4,000
-$2,000
$0
$2,000
$4,000
$6,000
$8,000
0.025 0.035 0.045 0.055 0.065 0.075 0.085 0.095
Miles per Gallon
Ta
x p
er
Ve
hic
le
Approximately $1,800 per 0.01 gallons per mile.
Gallons per Mile
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The US gas-guzzler tax has also been effective. No mass market vehicles have ever paid it.
GasGuzzlerLimit
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The gas guzzler function was adjusted several times. Would be necessary with feebates to achieve revenue neutrality.
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France’s Bonus/Malus is roughly equivalent to € 150 /tCO2, a rate similar to the U.S. gas guzzler tax.
France's Feebate Schedule
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
6000
0 50 100 150 200 250 300
g CO2/km
Eu
ros