November 26, 2007

Federal “Feebate” program needs “major retooling”, says C.D. Howe Institute

Ottawa, Ontario – The federal government’s “feebate” program, which provides rebates to buyers of specified fuel-efficient vehicles and a penalty for fuel-efficient ones, is a “first step” that needs “major retooling”, according to a new study by the C.D. Howe Institute.

In his study Deals on Wheels: An Analysis of the New Federal Auto Feebate, policy analyst Robin Banerjee supports the program but points out several deficiencies with it.

Among the problems, Banerjee says that the program was implemented by Ottawa without adequate consultation with the industry; that it took effect immediately, without mandating a timetable or a phase-in period which would have given manufacturers more time to adjust their models and reduce their costs; that the current structure is not a linear curve, but contains a “dead zone” into which most vehicles fall, reducing the policy’s effectiveness and the impetus for manufacturers to make continuous improvements; and that it exempts pickup trucks, which are regarded primarily as commercial vehicles. As well, Banerjee says that the non-linear nature of the program might make its revenue neutrality difficult to achieve, since it is not expected to result in a large net inflow of tax dollars.

While the feebate’s major motivation was to reduce greenhouse gas emissions, a recent C.D. Howe Institute study estimates that it will reduce Canadian emissions by only one megatonne of CO2 equivalent by 2010 at most.

Banerjee makes a number of policy recommendations to improve the program, including announcing the program’s path over a time frame of several years for major change, allowing auto manufacturers sufficient time to adjust their plans; applying the feebate to more vehicles, to ensure that correct incentives are present; taking the recommendation of the National Round Table on the Environment and the Economy and ensure that feebate policies are actually part of a comprehensive, integrated strategy for the transport sector; and providing incentives for the reduction of travel, including a basic fuel tax, a carbon tax or mileage-based charges.

Currently, the feebate consists of the ecoAuto rebate program, which offers rebates from $1,000 to $2,000 on cars that get a combined fuel economy of 6.5 L/100 km or better, and new trucks getting 8.3 L/100km or better, a rebate on flex-fuel vehicles with E85 consumption ratings of at least 13 L/100 km, and a tax of between $1,000 and $4,000 on fuel-inefficient vehicles.

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