Photo: ThreatedThoughtsIt’s now fairly widely understood that Cash for Clunkers has worked great as a stimulus program but is negligible as an emissions-reduction program. That’s fine—it did what it was supposed to do. Now that we know how well people respond to cash incentives, though, it’s time to do some deeper thinking about how to drive a large-scale shift to more fuel-efficient vehicles.
Conservatives are always complaining that CAFE standards force automakers to make more fuel-efficient cars, but don’t give consumers any incentive to buy them. That’s a valid complaint. The usual response is to propose raising the gas tax, which, as I’ve mentioned before, drives me crazy. This is the solution people come up with when they are besotted with economics and utterly ignorant of politics. Let’s put voters—particularly low-income voters—in financial pain, thereby forcing them to buy different kinds of cars, whenever they can afford to do that, which could be a long time, particularly with their budgets being destroyed by high gas prices. A political policy that yields pure pain, for every single voter that drives. Lemme see a politician sell that.
A much, much better idea is an oldie but goodie: feebates. Under this program, consumers who buy vehicles that exceed CAFE standards are given a lump-sum subsidy. Yes: cash in pocket! The dealer puts it right in your hot little hands. These subsidies are paid for by a fee on consumers who purchase vehicles that fall short of CAFE standards.
Purely as policy, it has some shortcomings. It doesn’t penalize driving—we’d prefer someone buy an SUV and park it most of the time than buy a hatchback and drive it every day. But that shortcoming can easily be remedied by pairing feebates with higher gas taxes. As a political matter, though, lead with the policy that’s easier to understand and offers tangible benefits!
All of which is prelude to noting the excellent news that Sens. Jeff Bingaman (D-N.M.), Olympia Snowe (R-Maine), Richard Lugar (R-Ind.), and John Kerry (D-Mass.) have introduced a bipartisan feebate bill: the Efficient Vehicle Leadership Act of 2009 (S.1620).
The Efficient Vehicle Leadership Act creates a program that rewards consumers who buy cars and trucks that get better gas mileage than the average overall fuel economy required for its class. Motorists who buy models which exceed that CAFE standard will receive a “fuel performance rebate” (claimed on their tax return or paid instantly by the dealer, whichever the buyer prefers), an amount tied to the fuel savings over and above the relevant CAFE standard. The savings can range from several hundred to several thousand dollars, depending on the vehicle’s fuel economy relative to other models of the same size. Conversely, for inefficient, gas-gulping vehicles, manufacturers will be assessed a fuel performance fee to pay for the program.
If we’ve learned anything from Cash for Clunkers, it’s that direct, tangible incentives like this drive behavior—much more and faster than economic projections indicate.
We’ve used those incentives for economic stimulus. Now we should put them to work increasing the fuel efficiency of the whole fleet.
Capturing the massive social benefits of fuel efficiency requires regulation
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rufwork Posted 1:38 pm
11 Aug 2009
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Ken Johnson Posted 1:50 pm
11 Aug 2009
In fact, fuel economy savings alone could create economic incentives comparable to Cash-for-Clunkers, not just for retiring old clunkers, but also for keeping new gas guzzlers off the road. Consumers' reticence to adequately consider fuel savings in their vehicle preferences could be overcome by providing long-term, low-interest loans for fuel-efficient vehicles, with loan capitalization provided by refundable fees on relatively inefficient vehicles. Loan payments would be balanced by fuel savings, so the loans would effectively be "free money". And fee refunds would be offset by higher fuel consumption, so the fees would effectively be a pure loss. The combination of loans and fees would induce buyers to fully consider lifecycle fuel savings in their vehicle purchase decisions.
Financing incentives could be much more effective than vehicle standards for stimulating efficient vehicle technologies such as hybrids. For example, California's new vehicle emission standards were premised on compliance technologies costing no more than $0.96 (2009 dollars) per gallon of lifecycle fuel savings. (New federal emission and mileage standards will be similar to California's.) Financing incentives, by contrast, could be comparable to fuel prices, which are currently $3.04 per gallon in California -- three times the standards' regulatory incentive.
A $3.04-per-gallon incentive would also be over ten times the incentive that would be created by carbon trading under the Waxman-Markey climate bill (H.R. 2454). Moreover, including transportation fuels in the cap-and-trade system would nullify any environmental benefit of improved fuel economy if the resulting emission reductions are simply traded for greater emissions elsewhere (e.g., from coal combustion).
A vehicle financing program would not impose any caps or standards, and would not levy taxes, require government subsidies, or create a "transfer of wealth" between vehicle owners or manufacturers. But it could create incentives for efficiency and emission reduction far beyond than anything that is contemplated in existing regulations or legislative initiatives.
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neosapiens Posted 2:33 pm
11 Aug 2009
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fulluvit Posted 9:02 pm
11 Aug 2009
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enviroperk Posted 5:09 am
12 Aug 2009
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