The Passenger Vehicle Fuel Efficiency Act
Act I of the Energize America energy plan.
1) To help Americans transition to increasingly more fuel-efficient vehicles by providing a financial incentive based on the relative fuel efficiency of the newly purchased vehicle, and 2) to directly and significantly reduce the amount of vehicle-related greenhouse gasses emitted into the atmosphere.
Passenger vehicles account for over 40 percent of all U.S. oil consumption; therefore, increasing fuel efficiency is the quickest way to reduce our foreign oil dependence. Passenger vehicles also contribute about 20 percent of all U.S. carbon-dioxide emissions, so increasing fuel efficiency will also reduce significantly greenhouse gas emissions.
The Passenger Vehicle Fuel Efficiency Act will provide financial incentives to individuals who purchase increasingly fuel efficient cars – but does not mandate higher Corporate Average Fuel Efficiency, or CAFÉ, standards. Instead, Energize America calls for fuel efficiency measurement standards to be defined simply and applied consistently across the industry, with rapid increases in average fuel efficiency coming from market incentives and not from federal mandates. These market incentives are referred to as ‘feebates’, in that rebates are offered for higher performing vehicles while fees are assessed on lower performing vehicles within a given class.
The Passenger Vehicle Fuel Efficiency Act will provide Americans who buy a new car, SUV or light truck with a $200 rebate for every ‘mpg equivalent’ the vehicle comes in above the average for new cars, adjusted annually. The ‘MPG equivalent’ for each vehicle will be calculated annually using a single, consistent approach that takes into account petroleum replacement by electricity, hydrogen or other fuel technology. For example, a 2006 Ford Escape hybrid, which has a 33mpg rating, would qualify for a rebate of $2,200 ($200 x 11mpg, based on the current 22mpg average for light vehicles in America). At the same time, a fee of $150 per mile per gallon equivalent would be applied against vehicles falling below the fleet average. Thus, the Hummer H2 – with a reported 9 mpg – would have a $1,950 fee added to its price in 2006. This feebate program will be capped at a maximum of $6,000 per vehicle and will apply to all vehicles and all fuel technologies. The Passenger Vehicle Fuel Efficiency Act will also establish a structured low interest loan program to foster fuel efficient car ownership among Americans earning less than the median income as determined by Congressional District.
The Passenger Vehicle Fuel Efficiency Act will increase vehicle fleet fuel efficiency at least 50% over the life of the program -- from today’s 22mpg to 33mpg or more in 2020. This act will reduce America’s private transport-related oil consumption by 33%, from 9 million barrels per day to less than 6 million barrels per day by 2020. In total, this act will save Americans over $30 billion per year on average (at current prices), or $500 billion in energy costs through 2020. In addition, this act will cut vehicle-related carbon emissions by nearly 75%, or 50 million tons per year by 2020, worth nearly $1 billion per year in carbon credits at current market prices.
The Passenger Vehicle Fuel Efficiency Act will cost an estimated $12B per year or roughly 40 percent of the savings that consumers will see through reduced fuel use.
Comparison to other countries
A February, 2007 report from the Civil Society  noted that there are 113 cars available internationally that get 40 mpg or better, but only two of these are sold in the US. A large majority of these cars (65%) are made by U.S. auto manufacturers (e.g., Ford and GM) or foreign manufacturers with substantial U.S. sales operations (e.g., Volkswagen, Nissan and Toyota).
The report goes on to note that Americans want such cars to be sold in the US. Key findings of an ORC national opinion survey include:
-88% of Americans think Americans should have access to fuel-efficient cars that are made by American manufacturers but not sold here. 58% feel this strongly.
-81% think Americans should have access to foreign-made fuel-efficient cars.
-Nearly 80% of Americans (86% of Democrats and 76% of Republicans would support Congressional action to raise fuel-efficiency requirements for US vehicles to achieve 40 mpg
Feebates hold great promise as a replacement for CAFE standards because feebates eliminate contentious standard-setting processes, which are dominated by car companies. However, some problems still need to be addressed.
1. The assertion of a 50% efficiency increase is unsubstantiated and appears to be wishful thinking. It would be better to find a firmer basis for feebate advocacy, otherwise candidates advocating this policy will be ridiculed as woolly headed, pie-in-the sky types. (Of course it's not fair--never is.)
2. The current CAFE standards raise funds (mainly from European car makers who fall short of the standards), and these funds are used for energy efficiency research. The above design is sure to lose money since the rebate rate ($200) is greater than the fee rate ($150). Perhaps it will lose $12B/year, as stated. In any case this is unnecessary and makes it hard to sell. Traditionally, feebates are designed to be revenue neutral. This is easily done and should be considered.
3. The notion of "savings to consumers" is suspect and not defined. There is evidence that small increases in gas mileage would be costless [see Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards, National Academy Press]. However, the idea that a 50% increase would save consumers a lot of money is almost certainly a fantasy. This does not mean it's a bad idea. We should expect to pay something for solving the global warming problem. It is better to sell things on a realistic basis, otherwise there will be a backlash against helpful energy policy.
4. The 75% CO2 savings must be based on assumptions about replacing gasoline with electricty, ethanol, and hydrogen. But it probably fails to take account of the production of C02 in the production of these three intermediaries. When this is accounted for, there will be little extra savings over the 33% in MPG savings.
5. Lovins is cited, but Lovins recommends using s different average for every weight class. The proposal should specify that this is not included. This would short out the incentive to conserve energy by making cars lighter. It is not needed.
6. Rather than using an arbitrary incentive, $150 or $200 per mile per gallon, the proposal should use an insensitive that is proportional to gasoline saved. This has already been worked out an included in the current law and it would be a shame to go backwards. [This is done be rewarding gallons per mile instead of punishing miles per gallon. Do the math. It works.]