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Feebate is a portmanteau of "fee" and "rebate". A feebate program is a self-financing system of fees and rebates that are used to shift the costs of externalities produced by the private expropriation, fraudulent abstraction, or outright destruction of public goods onto those market actors responsible. Originally coined in the 1970s by Arthur H. Rosenfeld, feebate programs have typically been used to shift buying habits in the transportation and energy sectors.
Supporters claim feebates are more efficient than quotas and standards such as CAFE. Standards have effectively improved the efficiency and performance in a wide variety of products, including passenger vehicles; but feebates promote even better performance (as opposed to just beating standards), and are less “gameable” or dependent on politics. Some[who?] might argue that a government could create marketing programs and incentives for rideshare, but as governments are so reliant on sales taxes from automobiles, there is no money for the government in carpool or rideshare. In a time when governments have increasing debt and spending, feebates allow the public to encourage responsible environmental stewardship and require that the theft of public and private property through environmental destruction does not go without consequences.[neutrality is disputed]
California's proposed "Clean Car Discount" program (AB493-Ruskin) was designed to help reduce the state's global warming/greenhouse gas emissions by imposing a fee of up to $2,500 on new, high carbon emitting vehicles (starting with 2011 models), and then rebating the fee to buyers of new low emission vehicles, thereby theoretically shifting the social cost of the destruction of public goods by global warming onto those who contribute to global warming. This Bill failed to pass.
Supporters point towards what they feel are feebates' tendency to promote personal responsibility by having those responsible for the involuntary expropriation (by means of force and fraud) of public goods from the public—and each and every private individual—by destruction of the environment or other negligent behavior towards private and public property, by having polluters pay for the externalities that they impose upon society. In the case of personal cars, feebates share some of the same aims as fuel taxes, vehicle registration fees, congestion charging, and road pricing.
It is claimed feebates are generally a more efficient way of promoting greater fuel efficiency and other socially-desirable outcomes than traditional taxes or quotas. Fuel taxes create important price signals that can make consumers aware of the non-internalized costs of fuel consumption (greenhouse gasses, other pollution) — and raise funds to offset this externality. But retail consumers have very high discount rates, meaning buyers do not take into account the additional cost high gasoline taxes or poor gas mileage when purchasing a car. A feebate internalizes that cost into the initial purchase price, thereby requiring the buyer to prepay for the taking of public and private environmental goods.
Another example of a feebate is proposed in the Rocky Mountain Institute’s 2004 publication, “Winning the Oil Endgame”. For each class of car and light truck, a feebate mechanism is used to reward buyers of vehicles that are more fuel efficient than the average vehicle in that class and penalize buyers of less fuel efficient vehicles. This feebate is revenue-neutral, meaning that the amount of money collected through fees (surcharges) equals the amount paid out in rebates.
Compared to a Gas Tax
To understand how a feebate works it is easier to break the feebate into the fee and rebate components. The fee could be compared to a gasoline tax that was paid when the vehicle is first purchased. Suppose the fee was set at $0.10 per gallon for the first 100,000 miles. A 20MPG car would have a fee of 100,000 mi / 20MPG * $0.10 = $500. Upgrading this car to 25MPG would reduce the fee to $400. If the upgrade costs less than the $100 savings this change would be beneficial to both producer and consumer and would be adopted.
The rebate component is the same for every car sold and is calculated the same as the fee. However, it uses the average fuel consumption of the fleet. If the fleet average is 22MPG then the rebate for both would be $455. The effect is a net fee of $45 at 20MPG and a net rebate of $55 at 25MPG. Unlike the fee component, the rebate is not affected by individual car sales or new technology adoption (assuming fleet sizes are sufficiently large).
The advantages of a feebate over a gas tax is that the feebate only applies to new cars and it is revenue neutral to the car industry. If CAFE fleets are used, feebates would start very close to revenue neutral for each manufacturer.