Feebate Debate

May 21, 2009

With a new national fuel economy standard that will require cars to achieve 39 miles per gallon by 2014, comes the issue that vehicles will cost consumers an additional $600 to $1,300, and automakers will struggle to make money on the gas misers they'll need to sell to meet the standard. Even though the vehicle purchase cost would be partially offset by fuel savings, this is typically not part of the car buyer's calculus.

Could the feebate be of assistance here? The fee in feebate goes to the gas guzzler, rebate to the miser. The feebate is applied (in concept at least) so that fees and rebates are balanced; it's revenue neutral. No one gets rich here, but no one gets hurt either (thinking about automakers in particular), and the fuel economy standard becomes a little more achievable.

Comments

[stomv]

To be clear, feebate does not imply revenue neutrality. Feebates can be revenue neutral, revenue positive (a net tax) or revenue negative (a net subsidy).

Given that a fuel efficient vehicle isn't good but merely less bad (with respect to carbon, air pollution, foreign trade imbalance, etc), most economists would argue that these externalities should be paid for in the form of a tax. Sure, you could just tax gasoline, but keep in mind that actually manufacturing the vehicle has detrimental externalities, and so perhaps instead of a revenue neutral feebate, we ought to have an expanded, multi-tiered gas guzzler tax instead of the single step, SUV exempt version which essentially serves as a Ferrari tax.