Stop Rewarding the Guzzlers

Canada's plans for reducing its emissions of greenhouse gases under the Kyoto Protocol remain two bits short of a loonie. But one word buried deep in the recent federal budget holds the key to realizing Canada's climate promise: "feebates."

Feebates are a novel combination of fees and rebates, designed to continuously tug the entire car and truck market toward better fuel efficiency. The basic idea is elegant in its simplicity: vehicles that are more efficient than average come to the showroom carrying a rebate for their buyers. Those rebates are proportional to the efficiency of the vehicle, so superefficient vehicles come with whopping big rebates.

Conversely, cars and trucks that are less efficient than average, come with a fee-a fee that, as you guessed, grows with the vehicle's inefficiency. Gas guzzlers, therefore, pay big fees. (Still, the fees are unlikely to be as large as the massive, $4,000 rebates car makers have lavished on purchasers of their largest trucks.) The fees pay for the rebates each year, so feebates are self-financing.

The Martin government's budget does not promise to implement feebates, but it does promise to consider them. It asks the National Round Table on the Environment and the Economy (NRTEE) to develop feebate options and seek public input. Weak feebates are already on the law books in Ontario and Austria, and stronger feebates are under consideration in France, the United Kingdom, and the US state of Connecticut.

Boost to economy

The public has much to gain from feebates, but few people know about all their pluses. Feebates are a plus for the economy, because they correct a documented market failure called the "payback gap." Typically, consumers will only pay extra for vehicle fuel economy if the investment pays itself off within three years, which is just one-fifth the expected operating life of most vehicles. The result is productivity-sapping economywide overconsumption of fuel. Feebates close the payback gap by posting a foretaste of lifecycle energy costs on the one label that no car buyer ignores: the price tag.

Feebates are dynamic, nonregulatory incentives. As the average fuel economy of the fleet rises, the fees and rebates recalibrate and keep the entire market shifting toward fuel savings. Regulatory standards cannot imitate this market-wide benefit.

Feebates are a big plus for clean air and a secure climate, because they put prices in line with Canada's Kyoto commitment. They put the power of the marketplace behind the agreement automakers have signed with government to markedly reduce greenhouse gas emissions from new vehicles.

And feebates are a huge plus for communities, because inefficient vehicles hemorrhage dollars from local economies. British Columbia currently sends $5 million a day to Alberta to pay for its oil habit. By speeding the advent of superefficient cars, feebates keep more of that money at home.

Feebates are a plus for car buyers and makers, too. Buyers get paid to choose vehicles that save them money anyway. And automakers get consistent rewards for investing in fuel efficiency; at present, the roller coaster of oil prices makes consumers fickle about fuel.

Big cars, big lies

Unfortunately, some automakers have already started spreading misinformation. The Canadian Vehicle Manufacturers' Association (CVMA) claims that feebates "unfairly target" buyers of large vehicles. This ignores the variety of feebate options that the National Round Table will develop. For example, feebates can be applied within each size class of vehicles. Those who need large vehicles still get them, and they get a rebate for buying the most efficient ones. Those who choose small vehicles have a similar incentive to buy the most efficient models. Common perceptions aside, feebates work by accelerating technological advances, not by shunting SUV drivers into subcompacts.

Even more spurious is CVMA's claim that feebates are inferior to "financial incentives for consumers to purchase advanced fuel-saving technology, such as hybrids and other alternative fuel vehicles." Such incentives-largely income or sales tax credits for hybrids-are nice, but they're tiny. They apply to a fraction of one percent of new vehicles. Their promise is infinitesimal compared with feebates'.

The potential contribution of feebates extends even beyond vehicles. For household appliances and other energy-using devices, too, feebates can turbocharge progress toward a climate-friendly way of life. But in the here and now, vehicle feebates are simply this: the missing link in Canada's climate plan, the ticket to Kyoto.

Donna Morton directs the Centre for Integral Economics based in Victoria. She was awarded an Ashoka fellowship in 2003 for her work on market-based policy innovation and participates in the national Green Budget Coalition.

Alan Durning directs the Seattle-based research center Northwest Environment Watch and is lead author of Cascadia Scorecard 2005: Seven Key Trends Shaping the Northwest. See www.cascadiascorecard.org for more on feebates.