Feebates A Legislative Option to Encourage Continuous Improvements to Automobile Efficiency

This report by RMI proposes the 'feebate' as a legislative tool to increase automobile fuel economy and reduce greenhouse gas emissions. A feebate applies a surcharge (fee) to inefficient vehicles to fund rebates for efficient ones, creating a self-financing mechanism that encourages manufacturers to innovate across all vehicle size classes without restricting consumer choice.

• A feebate is an incentive policy where inefficient vehicles receive a surcharge and efficient vehicles receive a rebate, with the fees from the former funding the rebates for the latter. RMI estimates that approximately 90 percent of the policy's effect comes from changes in the vehicles manufacturers provide, while 10 percent comes from shifts in consumer behavior.
• RMI recommends a 'constant rate' for feebates, measured in dollars per gallon per mile ($/gpm), to ensure all fuel savings are valued equally regardless of vehicle class. While a rate of $4500/0.01 gpm is needed for consumers to realize full lifetime fuel savings (over 150,000 miles), RMI suggests a lower rate initially to avoid political opposition and high fiscal impacts.
• To maintain revenue neutrality and encourage continuous innovation, the 'pivot point'—the benchmark dividing efficient and inefficient vehicles—must be adjusted regularly. If the pivot point remains static as vehicles improve, the policy would shift from being self-financing to creating a net subsidy or tax.
• To preserve consumer choice and avoid disproportionately impacting manufacturers of larger vehicles, RMI suggests using multiple size classes. Analysis of 2005 data indicates that dividing classes by equal sales volume results in a more even distribution of fees and rebates than dividing by equal size range, which can lead to extremely low fees for the largest vehicles.
• RMI's analysis of size attributes (footprint, rectangular shadow, interior volume, and exterior volume) found that the specific attribute used to divide classes has a minor effect on manufacturer revenue. Instead, the number of size classes has a more significant fiscal impact.
• RMI argues against placing financial caps on rebates or surcharges, as caps may discourage manufacturers from implementing transformational efficiency technologies and instead encourage them to improve vehicles only enough to reach the cap.
• The report identifies three potential implementation points for the feebate: the automobile dealer (point-of-sale), the manufacturer, or a state agency (at registration). Implementation at the manufacturer level is noted as potentially having lower administrative costs due to the small number of major manufacturers compared to thousands of dealers.
• Regarding legal interactions, RMI suggests that state-level feebates using a gallons per mile metric should not be federally preempted by Corporate Average Fuel Economy (CAFE) standards because they provide incentives rather than mandatory standards.
• The California Clean Car Discount Act (AB 493) is cited as a current legislative example. Unlike RMI's recommendations, it uses greenhouse gas emissions instead of fuel economy as the metric, includes a 'zero band' to ensure variety in vehicle choices without surcharges, and caps rebates and surcharges at $2500.
• The Canadian Vehicle Efficiency Incentive (VEI), implemented in March 2007, is described as a flawed feebate model because it uses a 'step-wise' schedule rather than a continuous function, lacks a constant rate for fuel savings, and exempts pick-ups and large vans from surcharges.

APA

Mims, N., & Hauenstein, H. (2008). Feebates A Legislative Option to Encourage Continuous Improvements to Automobile Efficiency. RMI. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_Feebate_final.pdf

Chicago

Mims, Natalie, and Heidi Hauenstein. Feebates A Legislative Option to Encourage Continuous Improvements to Automobile Efficiency. RMI, 2008. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_Feebate_final.pdf.

Wikipedia

{{cite report |last1=Mims |first1=Natalie |last2=Hauenstein |first2=Heidi |title=Feebates A Legislative Option to Encourage Continuous Improvements to Automobile Efficiency |publisher=RMI |date=February 2008 |url=https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_Feebate_final.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{mims2008feebates, author = {Mims, Natalie and Hauenstein, Heidi}, title = {{Feebates A Legislative Option to Encourage Continuous Improvements to Automobile Efficiency}}, institution = {RMI}, year = {2008}, month = feb, url = {https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_Feebate_final.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }