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Vehicle Efficiency IncentiveProgram Design

A Presentation to the Rhode Island Greenhouse Gas Stakeholder Group

Steve Bernow, Tellus Institute March 21, 2003

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Elements of the VEI Program1. Vehicles Covered by the Program

The program will apply to all light duty vehicles, a category that encompasses passenger cars and light duty trucks (including SUVs, minivans and station wagons).

The program will cover both conventional and alternative fueled vehicles for the model year of first registration.

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Elements (cont’d)

2. Basis for the ProgramThe program will be based on the federal (EPA) vehicle miles-per-gallon (mpg) combined highway/urban ratingIt will not be tied to the sales price of the vehicle. (For alternative fueled vehicles the mpg rating would be adjusted by the relative GHG content of the fuel to that of gasoline.)

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Elements (cont’d)

3. Within or Across Class(Number of Tiers)

The program would be a single-tier system, with no class differentiation.

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Elements (cont’d)

4. Treatment of Commercial Vehicles

The Program would include all commercial vehicles.

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Loopholes

New vs model year first registrationRegistration of vehicles out-of-stateExport of efficient vehiclesLeased vehiclesRented vehiclesState/Municipal Vehicles

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Elements (cont’d)5. Structure of the Incentive Program

The Working Group was divided on which of the following two structures would work best:

a) A linear schedule around the zero point (the weighted average fuel economy of the fleet), reaching fee and rebate plateaus of $4000 at 10 mpg and 50 mpg. respectively. (This was supported by the Conservation Law Foundation, Brown University, and RI-Department of Environmental Management)

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A linear schedule around a zero point of 22 mpg, reaching plateaus of $4000 at 10 mpg and 50 mpg.

1. Zero point is at 22 mpg.2. About 8% of new vehicle

fleet are at zero-point, i.e., are unaffected by fee/rebate.

3. Based on 2001 sales, under this schedule, fees would amount to about $32 million and rebates would amount to $17.3 million, leaving about $14.8 million for contingency funds.

4. Approximately 0.1% of fleet on each side will either pay or receive the cap amount of $4000.

5. The slope of the rebate curve is $143/mpg. The slope of the fee curve is $333/mpg.

Feebate Design with No Deadband, Linear Schedule and $4000 Cap

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Elements… Structure (Cont’d)

b) A deadband around the zero point (the weighted average fuel economy of the fleet), with a linear schedule subsequently that reaches plateaus of $4000 at 10 mpg and 50 mpg.

The deadband would exclude vehicles around the mean from being charged a fee or from receiving a rebate. The size of the deadband would decide how many vehicles are excluded from the system.

A deadband of plus to minus one mpg around the current mean of 22 mpg was deemed reasonable as it excluded about one-third of vehicles purchased in 2001. (This was supported by University of Rhode Island, RI Energy Office, Statewide Planning, Sierra Club)

* AAA abstained from the voting.

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1. Zero point is at 22 mpg.2. Deadband covers about

30% of new vehicle fleet. 3. Based on 2001 sales,

under this schedule, fees would amount to about $26.2 million and rebates would amount to $13.9 million, leaving about $12.3 million for contingency funds.

4. Approximately 0.1% of fleet on each side will either pay or receive the cap amount of $4000.


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A linear schedule (with a deadband) around a zero point of 22 mpg, reaching plateaus of $4000 at 10 mpg and 50 mpg.

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Elements (cont’d)6. Administration of the Program

The VEIA will be administered at the point of first registration of a model year <REWRITE> in Rhode Island, as close to the point of purchase as possible, and as simply as possible.The vehicle dealership could handle the fee/rebate transactions, along with registration fees. For the rebate, the dealer could simply reduce the price or could give the purchaser a cash rebate and collect the funds from the Registry at the time of registration.

The fees/rebates will accrue in a program fund at the Division of Taxation at the Department of Administration. An annual report to the legislature on the progress of the VEIA will be provided.

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Administration, Ct’d

Collection/dispensation of fees/rebates

Notice

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Elements (cont’d)

7. Revenue-Neutrality

The program will be designed to be revenue-neutral, except for a provision for administrative costs, public education/outreach and contingencies.

The scheme decided upon would allocate roughly 80% of the revenues for rebates and 20% for the other costs. This 20% could be revised downwards once the system is deemed to stable and there is less uncertainty about the size of the contingency fund required.

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Elements (cont’d)8. Legality of the Program

Labeling requirements may need to be either eliminated or be made more general instead of referring to federal fuel economy ratings. One possibility is to have informational stickers with the amount of fee/rebates rather than fuel economy ratings. Alternatively, a schedule of fees/rebates for all vehicle models could be posted prominently at each dealership, not individual labels on each vehicle.

Legislation designed around expected carbon emissions that does not depend on the federal fuel economy ratings might have a better chance of standing up to preemption challenges.

Particular attention to the preamble in drafted legislation, to state clearly that the ultimate goal of the program is to reduce GHG emissions, to help protect public health and the environment for Rhode Islanders, and not regulate fuel economy per se.

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Elements (cont’d)9. Annual Updates

The program will be updated periodically to ensure that it continues to be a successful program that helps meet the overall targets of the Rhode Island GHG Action Plan. These updates can take the following forms:

a) Increase the zero point and plateau points each year based on average Rhode Island new vehicle registrations in prior year (through October 15, so there is time to calculate and implement).

b) If needed to keep on track to meet the GHG Action Plan targets, the Administrator would change the slope of the fee/rebate and the maximum fee/rebate levels every two years. The maximum increase or decrease in the fee/rebate during each such revision would be no more than 10%, unless the program administrator demonstrates that GHG reduction targets are not being met and an increase of more than 10% is called for.

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Elements (cont’d)

10. Public Outreach

Public outreach should be performed at two levels:

Before implementation of legislation, in the form of public educational workshops, training videos and pamphlets for legislators and stakeholder groups

During program implementation and on an on-going basis, through mail-outs, television and radio advertising, and informational materials at motor vehicle dealerships and relevant state government offices.

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Alternative Structures to Ensure 80% Disbursement of Fee Revenues to Rebates

Two pairs of alternative structures follow (each pair is with and without the deadband)

• All have a maximum fee of $4,000 at 10 mpg and below.• The first pair has a maximum rebate of $4,000 at 41

mpg and above• The second has a maximum rebate of $6,000 at 50 mpg

and aboveA third structure (without a deadband), but a smaller fee and rebate ($2000 and $3000, respectively) is also included

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1. Zero point is at 22 mpg.2. About 8% of new

vehicle fleet are at zero-point, i.e., are unaffected by fee/rebate.

3. Based on 2001 sales, under this schedule, fees would amount to about $32 million and rebates would amount to $25.4million, leaving about $6.7 million for contingency funds.


A linear schedule around a zero point of 22 mpg,reaching plateaus of $4,000 at 10 mpg and 41 mpg.

Feebate Design with No Deadband, Linear Schedule and $4000 Cap

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30% of new vehicle fleet.

3. Based on 2001 sales, under this schedule, fees would amount to about $26.2 million and rebates would amount to $20.7 million, leaving about $5.5 million for contingency funds.


A fee/rebate around a deadband from 21 to 23 mpg, reaching plateaus of $4,000 at 10 mpg and 41 mpg.

Feebate Design with Deadband, Linear Schedule and $4000 Cap

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3. Based on 2001 sales, under this schedule, fees would amount to about $32 million and rebates would amount to $26 million, leaving about $6 million for contingency funds.


A linear schedule around a zero point of 22 mpg, reaching different plateaus at 10 mpg and 50 mpg to maintain a 20% surplus of fees over rebates.

Feebate Design with No Deadband, Linear Schedule between 10mpg-50mpg

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30% of new vehicle fleet.

3. Based on 2001 sales, under this schedule, fees would amount to about $26.2 million and rebates would amount to $20.8 million, leaving about $5.4 million for contingency funds.


A fee/rebate around a deadband from 21 to 23 mpg, reaching different plateaus at 10 mpg and 50 mpg to maintain a 20% surplus of fees over rebates.

Feebate Design with Deadband, Linear Schedule between 10-50mpg

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Another linear schedule, with lower caps, around a zero point of 22 mpg, reaching different plateaus at 10 mpg and 50 mpg to maintain a 20% surplus of fees over rebates.

Feebate design, no deadband, linear schedule between 10 and 60mpg

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3. Based on 2001 sales, under this schedule, fees would amount to about $16 million and rebates would amount to $13 million, leaving about $3 million for contingency funds.


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Distribution of 2001 new vehicle fleet

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Fuel Economy (mpg)

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Autos Sold in 2001 in MPG Bins:9 MPG – 14.9 MPG

MPG Make Model Class No.9 to 10.9 Amgen Hummer SUV 2

11 to 12.9 Ferrari 360 2-Seater 1

Ford Excursion SUV 22

13 to 14.9 GMC K1500 Yukon SUV 26

Land Range Rover SUV 9

Dodge Durango SUV 225

Ford Expedition SUV 3

Lexus LX 470 SUV 30

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15 MPG – 18.9 MPG

MPG Make Model Class No.15 to 16.9 Chevrolet K1500 Tahoe SUV 236

Mitsubishi Montero SUV 66

Toyota Sequoia SUV 90

Jeep Grand Cherokee SUV 568

17 to 18.9 Jeep Wrangler SUV 187

Nissan Xterra SUV 278

Chevrolet Blazer SUV 74

GMC Jimmy SUV 543

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19 MPG – 22.9 MPG

MPG Make Model Class No.19 to 20.9 Chrysler Town&Country Minivan 490

Ford Crown Victoria Large car 158

Lexus RX300 Sta. Wgn. 213

Volkswagon Passat Compact 237

21 to 22.9 Dodge Intrepid Large car 348

Ford Taurus Large car 705

Chrysler PT Cruiser SUV 642

Toyota Highlander SUV 142

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23 MPG – 26.9 MPG

MPG Make Model Class No.23 to 24.9 Buick Century Midsize 554

Honda CR-V SUV 129

Mazda 626 Midsize 247

Toyota Avalon Large 1225

25 to 26.9 Kia Sephia Compact 243

Toyota RAV4 SUV 113

Chevrolet Cavalier Compact 168

Volvo V40 Sta. Wgn. 7

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27 MPG – 30.9 MPG

MPG Make Model Class No.27 to 28.9 Honda Accord Midsize 424

Toyota Camry Midsize 1225

Ford Focus Compact 200

Hyundai Elantra Compact 570

29 to 30.9 Ford Escort Compact 208

Saturn SW Sta. Wgn. 52

Saturn SC Subcompact 30

Hyundai Accent/Brio Compact 276

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31 MPG – 34.9 MPG

MPG Make Model Class No.31 to 32.9 Mitsubishi Mirage Compact 97

Saturn SL Compact 214

Toyota Celica Subcompact 1181

Chevrolet Metro Subcompact 16

33 to 34.9 Chevrolet Prizm Compact 115

Honda Civic Compact 570

Toyota Corolla Compact 1181

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35 MPG – 64 MPG

MPG Make Model Class No.35 to 36.9 Toyota Echo Compact 154

37 to 38.9 Honda Civic HX Subcompact 72

Volkswagon Golf Compact 237

Volkswagon Jetta Compact 78

Volkswagon New Beetle Subcompact 11

48 Toyota Prius Compact 128

64 Honda Insight Two-seater 4

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Alternative Proposal

1.Small annual levy on all RI vehicles linked to annual fuel consumption (mileage divided by mpg).

2. The fees collected will be used for rebates3. 20% of the fees collected will be retained

for administration and other contingencies.

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ExamplesVehicle Rated Fuel Economy Annual VMT Fee Assessed1985 GMC Suburban 12 mpg 17,000 miles $80.101990 Chevrolet Lumina 26 mpg 8,000 miles $17.401997 Jeep Cherokee 18 mpg 14,000 miles $43.981998 Ford F-150 17 mpg 12,500 miles $41.582000 Toyota Camry 27 mpg 15,000 miles $31.412001 Honda Civic 34 mpg 10,500 miles $17.46

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Rebate Design (Linear Sched)Rebate Design, Linear Schedule and $4000 Cap

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Introduction to Chapter

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• All the Stakeholders (add names) but one agree that the VEIA design outlined in this Chapter represents a reasonable starting design to meet the GHG reduction targets for this program area established in the RI GHG Phase I Plan. Narragansett Electric and New England Gas cannot support covering commercial vehicles with this Act until there is sufficient vehicle choice among commercial vehicles.

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• The Business Roundtable cannot support the Act because the fee and rebate values are too high for an initial attempt to change behavior without impacting the economy and it does not address the volume of emissions from a vehicle, which is a function of miles driven as well as MPG.

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