Feebates, Footprints and Highway Safety

Abstract

This paper presents an analysis of a market-based policy aimed at encouraging manufacturers to develop more fuel efficient vehicles without affecting the car buyer’s choice of vehicle size. A vehicle’s size is measured by its ‘‘footprint”, the product of track width and wheelbase. Traditional market-based policies to promote higher fuel economy, such as higher gasoline taxes or gas guzzler taxes, also induce motorists to purchase smaller vehicles. Whether or not such policies affect overall road safety remains controversial, however. Feebates, a continuous schedule of new vehicle taxes and rebates as a function of vehicle fuel consumption, can also be made a function of vehicle size, thus removing the incentive to buy a smaller vehicle. A feebate system based on a vehicle’s footprint creates the same incentive to adopt technology to improve fuel economy as simple feebate systems while removing any incentive for manufacturers or consumers to downsize vehicles.