Driving Climate Change

CHAPTER 7

North American Feebate

Analysis Model

Alexandre Dumas, David L. Greene, and André Bourbeau

Canadian automobile manufacturers and the Canadian government recently

signed an agreement to reduce greenhouse gas (GHG) emissions from pas-

senger cars and light trucks by 5.3 megatonnes (MT) in 2010. The agree-

ment is a key component of Canada’s plan to meet its commitments under

the international Kyoto Protocol. In 2003, transportation accounted for 25.7

percent of GHG emissions in Canada (Environment Canada, 2004), and this

is expected to grow to 27.0 percent by 2020 (Natural Resources Canada,

1999). Seventy percent of transportation emissions are allocated to passen-

ger transportation, a sector where emissions continue to grow.

If the current voluntary approach to mitigating passenger transporta-

tion emissions is not effective, one of the options to mitigate emissions

would be to use economic instruments to provide an incentive for the pur-

chase of fuel-efficient vehicles as a potential alternative or complement to

regulation. Feebates are one possible economic instrument that could be

established as a cost effective-way to curb GHG emissions from new light-

duty vehicles (LDVs). Feebates are a market-based system in which every

vehicle is either subject to a fee or rebate when purchased, depending on its

fuel economy.

This chapter presents the results of recent analyses of financial incen-

tives for fuel-efficient vehicles using a model of the North American vehicle

market. It focuses mostly on the impacts of feebate policies implemented

solely in Canada on the North American vehicle market. Successful imple-

mentation of a Canadian feebate system might induce some states in the

United States to adopt similar systems and could possibly lead to a harmo-

nized North American feebate policy. The potential gains in efficiency and

the effectiveness of greater harmonization are explored.

Copyright © 2006 by Academic Press.

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