McManus, Walter (2007): Economic analysis of feebates to reduce greenhouse gas emissions from light vehicles for California.
Download (2853Kb) | Preview
A growing majority of climate scientists are convinced that unless emissions are reduced, global warming would cause a number of adverse effects throughout the United States. In California, rising temperatures would reduce the snow pack in the Sierra-the state's primary source of water-and lead to less water for irrigating farms in the Central Valley. Global warming would increase the number of extreme heat days and greatly increase the risk of poor air quality across the state. California's 1,100 miles of coastline and coastal communities are vulnerable to rising sea levels. Concerted action could curb global warming, but all sectors would need to take immediate steps to reduce heattrapping pollution.
In California, the transportation sector consumes well over half the oil used statewide, and passenger cars and trucks emit 20 to 30 percent of the state's global warming pollution. Vehicles therefore are a central focus of the immediate action required to reduce global warming.
The state of California's regulatory approach involves phasing in limits to average global warming emissions from passenger cars and trucks beginning in 2009 and culminating in 2016. This regulation is often called "Pavley," after its author, Assemblywoman Fran Pavley.
The federal government's approach provides tax incentives to buyers of hybrid vehicles, which emit significantly lower amounts of global warming pollution than most conventional vehicles. However, the hybrid incentive affects only a small portion of the vehicle market.
A third approach that could be used to enhance or replace existing regulations would be a feebates program. A feebates program creates a schedule of both fees and rebates that reflects the amount of global warming pollution that different vehicles emit. Purchasers of new vehicles that emit larger amounts of heat-trapping emissions pay a one-time surcharge at the point of purchase. These surcharges are then used to provide rebates to buyers of new vehicles that emit less pollution. A feebates program has several advantages over other approaches: Market-oriented: A feebates program recognizes the power of price signals to change consumer behavior. That is, incentives spur consumers to purchase and manufactures to produce cleaner vehicles. Self-financing: A feebates program can be designed so that the surcharges collected equal the rebates paid.
Affects entire market: A feebates program applies to all new vehicles-clean and dirty-spurring a transformation of the entire market. Consumer choice: A feebates program can be designed so that consumers have the option to buy vehicles that carry no surcharge in each vehicle class, such as cars, trucks, sport utility vehicles (SUVs), and minivans.
This study explores the economic impacts on consumers and manufacturers of the existing Pavley regulation and a feebates program by analyzing four alternative scenarios, using information from 2002 as the base year.
Our findings show that a feebates program is an effective strategy to reduce global warming pollution by up to 25% more than Pavley alone. Also, under a feebates program consumers will save thousands of dollars and retailers will see their revenue rise by as much as 6%.
|Item Type:||MPRA Paper|
|Institution:||University of Michigan Transportation Research Institute|
|Original Title:||Economic analysis of feebates to reduce greenhouse gas emissions from light vehicles for California|
|Keywords:||automotive industry; feebates; greenhouse gases; vehicle emissions; public policy|
|Subjects:||Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q52 - Pollution Control Adoption Costs; Distributional Effects; Employment Effects
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy
L - Industrial Organization > L6 - Industry Studies: Manufacturing > L62 - Automobiles; Other Transportation Equipment
|Depositing User:||Walter McManus|
|Date Deposited:||09. Jun 2007|
|Last Modified:||13. Feb 2013 19:48|
Alson, J., B. Ellies, and D. Ganss, 2005. Interim Report: New Powertrain Technologies and Their Projected Costs. EPA420-R-05-1012. U.S. Ann Arbor, MI: U.S. Environmental Protection Agency, Office of Transportation and Air Quality, Transportation and Climate Division. August. Bento, Antonio M., Lawrence H. Goulder, Emeric Henry, Mark R. Jacobsen, And Roger H. Von Haefen (2005) “Distributional and Efficiency Impacts of Gasoline Taxes: An Econometrically-Based Multi-Market Study,” American Economic Association Papers And Proceedings May 2005 Berry, Steven, James Levinson, and Ariel Pakes. (1995) “Automobile Prices in Market Equilibrium.” Econometrica, 1995, 63(4), pp. 841–90. Berry, S., J. Levinsohn, and A. Pakes. (2004) “Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Vehicle Market,” Journal of Political Economy 112, 68-105. California Air Resources Board (CARB) August 2004. AB 1493 Draft Staff Report: Maximum Feasible and Cost-Effective Reduction of Greenhouse Gas Emissions from Motor Vehicles, August 2004 California Air Resources Board (CARB) September 2004. Addendum to AB 1493 Draft Staff Report: Maximum Feasible and Cost-Effective Reduction of Greenhouse Gas Emissions from Motor Vehicles. Congressional Budget Office, (2003) “The Economic Costs of Fuel Economy Standards Versus a Gasoline Tax”. Congressional Budget Office, Washington, DC. DeCicco, J., F. An, and M. Ross, ACEEE, 2001. “Technical Options for Improving the Fuel Economy of U.S. Cars and Light Trucks by 2010-2015,” American Council for an Energy Efficient Economy. DOE 1995. “Energy Conservation Trends: Understanding the Factors Affecting Conservation Gains and Their Implications for Policy Development.” Report DOE/PO- 0034. Washington, DC: U.S. Department of Energy, Office of Policy. April. EEA 2005. “Fuel Economy Potential for 2010 Light Duty Trucks,” prepared for DOE and DOT, Energy and Environmental Analysis. Ellerman, A.D., Jacoby, H.D., and Zimmerman M. (2006) “Bringing Transportation into a Cap-and-Trade Regime”, The MIT Joint Program on the Science and Policy of Global Change , Report No. 136, June . Espey, M. and Nair, S., “Automobile Fuel Economy: What is it Worth?” Contemporary Economic Policy (Western Economic Association). Vol. 23, No. 3, July 2005, 317-323. Espey, M. (2005), “Do Consumers Value Fuel Economy?” Regulation (Cato Institute), Winter 2005-2006, 8-10. Fudenberg, Drew and Jean Tirole (1991) “Game Theory,” MIT Press. Fullerton, Don and Gan, Li, 2005. "Cost-Effective Policies to Reduce Vehicle Emissions," American Economic Review, vol. 95(2), pages 300-304, May. David L. Greene (2001) “TAFV: Alternative Fuels And Vehicles Choice Model Documentation” Center for Transportation Analysis Oak Ridge National Laboratory July 2001 Greene, D.L., and Y. Fan, ORNL 1994. “Transportation Energy Efficiency Trends, 1972-1992.” Report ORNL-6828. Oak Ridge, TN: Oak Ridge National Laboratory, Center for Transportation Analysis. December. Greene, D.L., Duleep, K.G., and McManus, W.S., “Future Potential of Hybrid and Diesel Powertrains in the U.S. Light-Duty Vehicle Market,” ORNL Report, August 2004. Grene, David L., Patterson, Philip D., Singh, Margaret, and Li, Jia 2005. “Feebates, Rebates, and Gas-Guzzler Taxes: A Study of Incentives for Increased Fuel Economy,” Energy Policy, 33: 757-775. Griliches, Z. (1961). “Hedonic Price Indexes for Automobiles: An econometric Analysis of Quality Change”, in The Price Statistics of the Federal Government, New York, the National Bureau of Economic Research. Hammett, P. Flynn, M., and Sims, M., “Fuel-saving Technologies and Facility Conversion: Costs, Benefits, and Incentives,” Office for the Study of Automotive Transportation, University of Michigan Transportation Research Institute, November 2004. Heavenrich, R.M, EPA 2005. Light-Duty Automotive Technology and Fuel Economy Trends, 1975 through 2005. Ann Arbor, MI: U.S. Environmental Protection Agency, Office of Transportation and Air Quality, Advanced Technology Division. July. Johnson, David S., Reed, Stephen B., and Stewart, Kenneth J. “Price measurement in the United States: A decade after the Boskin Report,” Monthly Labor Review, May 2006. Johnson, Kenneth C. 2006. “Feebates: An Effective Regulatory Instrument for Cost- Constrained Environmental Policy,” Energy Policy, 34: 3965-3976. Kleit, A. ,“Impacts of Long-Range Increases in the Corporate Average Fuel Economy (CAFE) Standard,” Economic Inquiry 42:2 (April 2004) 279-294. (Published version of “Short- and Long-Range Impacts of Increases in the Corporate Average Fuel Economy (CAFE) Standard,” report for the General Motors Corporation, January 2002.) Kurani, K.S., and T. Turrentine, 2004, “Automobile Buyer Decisions about Fuel Economy and Fuel Efficiency,” ITS-RR-04-31, University of California Institute of Transportation Studies Report, Sept. 1. McFadden, D., “Conditional Logit Analysis of Qualitative Choice Behavior,” in P. In Zarembka, Frontiers in Econometrics (New York: Academic Press, 1973). McManus, Walter S., Alan Baum, Roland Hwang, Daniel D. Luria, and Gautam Barua, “IN THE TANK How Oil Prices Threaten Automakers’ Profits and Jobs,” Office for the Study of Automotive Transportation, University nof Michigan Transportation Research Institute, July 2005. McManus, W.S., “The Effects of Higher Gasoline Prices on U.S.Light Vehicle Sales, Prices, and Variable Profits by Segment and Manufacturer Group, 2001 and 2004,” Office for the Study of Automotive Transportation, University of Michigan Transportation Research Institute, May 23, 2005. McManus, Walter, September 2006. Can Proactive Fuel Economy Strategies Help Automakers Mitigate Fuel-Price Risks? University of Michigan, UMTRI Automotive Analysis Division, Research Report. McManus, W.S., “The Link Between Gasoline Prices and Vehicle Sales,” Business Economics, Forthcoming April 2007. NAS 2002. Effectveness and Impact of Corporate Average Fuel Economy (CAFE) Standards, report by the National Research Council, Washington, DC, National Academy Press. Nash, John (1950) "Equilibrium Points in N-person Games" Proceedings of the National Academy of Sciences. National Commission on Energy Policy, “Ending the Energy Stalemate, A Bipartisan Strategy to Meet America’s Energy Challenges,” December 2004. NESCCAF 2004. “Reducing Greenhouse Gas Emissions from Light-Duty Motor Vehicles.” Northeast States Center for a Clean Air Future. September. NRC, 2002. “Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards.” National Research Council, Washington, DC, National Academy Press. Parry, Ian 2006. “On the Costs of Policies to Reduce Greenhouse Gases from Passenger Vehicles” Resources for the Future, DP 06-14, March. Parry, Ian W.H., Carolyn Fischer, and Winston Harrington (2004) “Should Corporate Average Fuel Economy (CAFE) Standards Be Tightened?” December 2004 RFF DP 04-53 Rawls, John, (1971) “A Theory of Justice,” The Belknap Press of Harvard University Press. Simulating Advanced Vehicles Introduction Decisions (AVID): Structure and Coefficients,” Argonne National Laboratory, August 2005. Sweeney, J.L. 1979. Effects of federal policies on gasoline consumption. Resources and Energy 2: 3-26. Train, K.E. and Winston, C., (2006) “Vehicle Choice Behavior and the Declining Market Share of U.S. Automakers” (2006) Forthcoming, International Economic Review. Train, Kenneth E. (2003). “Discrete Choice Methods with Simulation.” Cambridge, UK: Cambridge University Press. Weiss, M., et al, MIT 2000.., On the Road in 2020: A Life-cycle analysis of new automobile technologies. Cambridge, MA: Massachusetts Institute of Technology. October. Kenneth E. Train Clifford Winston (2004) “Vehicle Choice Behavior And The Declining Market Share Of U.S. Automakers,” U.C. Berkeley Brookings Institution July 2004 Williams, H.C.W.L., (1977) “On the Formulation of Travel Demand Models and Economic Evaluation Measures of User Benefit,” Environment and Planning, 9A, No.3, pp.285-344, 1977. Feng, Ye; Fullerton, Don; and Gan, Li. (2004) “Vehicle Choices, Miles Driven and Pollution Policies,” Working paper, University of Texas at Austin, July 2004. Ye Feng Don Fullerton Li Gan (2005) “Vehicle Choices, Miles Driven And Pollution Policies,” Working Paper 11553 National Bureau Of Economic Research August 2005.