Feebates promoting energy-efficient cars: Design options to address more consumers and possible counteracting effects

Abstract

An increasing number of countries have implemented or are evaluating feebate systems in order to reduce energy consumption of new vehicle registrations. We distinguish between absolute feebates based strictly on a vehicle's energy consumption and relative feebates normalizing energy consumption by a given car utility. This paper analyzes whether absolute or relative feebates encourage more consumers to change to vehicles with lower energy consumption. We combine an analysis of all car models on sale at the end of 2005 with survey data from 326 potential new car buyers. Analysis of the car fleet with regard to behavioral changes assumed as realistic shows that relative systems succeed better in offering more consumer groups cars that are eligible for incentives. Survey results suggest that consumers show some, but limited, willingness to change behavior to obtain an incentive. However, a relative system potentially allows people to switch to cars with higher relative efficiency without actually lowering absolute CO2 emissions. We discuss this inherent dilemma of simultaneously addressing more consumers and limiting counteracting effects. In order to find the optimal trade-off, we suggest assessing different parameters operationalizing vehicle utility by means of micro-simulation with detailed car fleet and differentiated consumer segments.