Vehicle Efficiency Incentive Program Design

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Vehicle Efficiency Incentive Program Design

• A Presentation to the Rhode Island Greenhouse Gas
  Stakeholder Group
• Steve Bernow, Tellus Institute
• March 21, 2003

2
Elements of the VEI Program

• 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.

3
Elements (contd)

• Basis for the Program
• The program will be based on the federal (EPA)
  vehicle miles-per-gallon (mpg) combined
  highway/urban rating
• It 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.)

4
Elements (contd)

• Within or Across Class
• (Number of Tiers)
• The program would be a single-tier system, with
  no class differentiation.

5
Elements (contd)

• Treatment of Commercial Vehicles
• The Program would include all commercial
  vehicles.

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Loopholes

• New vs model year first registration
• Registration of vehicles out-of-state
• Export of efficient vehicles
• Leased vehicles
• Rented vehicles
• State/Municipal Vehicles

7
Elements (contd)

• 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.

•  
• Zero point is at 22 mpg.
• About 8 of new vehicle fleet are at zero-point,
  i.e., are unaffected by fee/rebate.
• 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.
• Approximately 0.1 of fleet on each side will
  either pay or receive the cap amount of 4000.
• The slope of the rebate curve is 143/mpg. The
  slope of the fee curve is 333/mpg.

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Elements Structure (Contd)

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

•  
• Zero point is at 22 mpg.
• Deadband covers about 30 of new vehicle fleet.
• 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.
• Approximately 0.1 of fleet on each side will
  either pay or receive the cap amount of 4000.
• The slope of the rebate curve is 148/mpg. The
  slope of the fee curve is 364/mpg.

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Elements (contd)

• Administration of the Program
• The VEIA will be administered at the point of
  first registration of a model year ltREWRITEgt 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, Ctd

• Collection/dispensation of fees/rebates
• Notice

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Elements (contd)

• 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 (contd)

• 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 (contd)

• 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 (contd)

• 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 above
• A third structure (without a deadband), but a
  smaller fee and rebate (2000 and 3000,
  respectively) is also included

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

•  
• Zero point is at 22 mpg.
• About 8 of new vehicle fleet are at zero-point,
  i.e., are unaffected by fee/rebate.
• 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.
• The slope of the rebate curve is 211/mpg. The
  slope of the fee curve is 333/mpg.

19

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

•  
• Zero point is at 22 mpg.
• Deadband covers about 30 of new vehicle fleet.
• 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.
• The slope of the rebate curve is 222/mpg. The
  slope of the fee curve is 364/mpg.

20

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.

•  
• Zero point is at 22 mpg.
• About 8 of new vehicle fleet are at zero-point,
  i.e., are unaffected by fee/rebate.
• 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.
• The slope of the rebate curve is 214/mpg. The
  slope of the fee curve is 333/mpg.

21

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.

•  
• Zero point is at 22 mpg.
• Deadband covers about 30 of new vehicle fleet.
• 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.
• The slope of the rebate curve is 222/mpg. The
  slope of the fee curve is 364/mpg.

22
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.

•  
• Zero point is at 22 mpg.
• About 8 of new vehicle fleet are at zero-point,
  i.e., are unaffected by fee/rebate.
• 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.
• The slope of the rebate curve is 107/mpg. The
  slope of the fee curve is 167/mpg.

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Distribution of 2001 new vehicle fleet
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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 TownCountry 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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Perverse Situations in Two-Tier System
Option Light Truck Example (Toyota Tacoma 22mpg) Car Example (Ford Mustang 22mpg)
Linear, no deadband 1200 Rebate 1125 Fee
Split-linear 900 Rebate 667 Fee
Deadband (/- 1 mpg) 1000 Rebate 857 Fee
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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 rebates
• 3. 20 of the fees collected will be retained for
  administration and other contingencies.

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Examples
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Rebate Design (Linear Sched)
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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.