Best Practices for Feebate Program Design and Implementation

Governments around the world have imposed standards for fuel economy and CO2 emissions on new vehicles, in reaction both to transportation’s role in forcing climate change and to the threat of oil shortages. Improving vehicle efficiency is an effectual response to both those challenges, and many technologies exist or are nearing production that can substantially reduce fuel consumption and carbon emissions. Performance-based standards are critical to forcing the adoption of those new technologies, but by themselves standards can be limited in their effectiveness. Led by the European Union, some governments are experimenting with an array of fiscal policies—taxes and incentives—that complement performance-based standards for vehicle efficiency. By improving the design of fiscal policies, and exploiting the synergies with standards, policymakers can be more effective in efforts to reduce carbon emissions on the one hand and demand for oil on the other.

Best Practices for Feebate Program Design and Implemetation focuses on one of the most promising incentive types: so-called feebate programs, in which more efficient vehicles receive rebates and less-efficient vehicles are assessed fees. In general, the report finds that fiscal policies aimed at encouraging improvements in vehicle efficiency should be based directly and continuously on CO2 emissions. With respect to feebates, the important elements of a best practice program are:

  • A continuous and linear feebate rate line, without any breaks or discontinuities.
  • The pivot point set to make the system self-funding and sustainable, and periodically adjusted to compensate for changing conditions.
  • A linear metric, such as CO2 emissions or fuel consumption per unit of distance.
  • An attribute adjustment (if one is used) based on vehicle size, not any other metric.