It's now fairly widely understood that Cash for Clunkers has worked great as a stimulus program but is negligible as an emissions-reduction program. That's fine -- it did what it was supposed to do. Now that we know how well people respond to cash incentives, though, it's time to do some deeper thinking about how to drive a large-scale shift to more fuel efficient vehicles.
Conservatives are always complaining about CAFE standards that they force automakers to make more fuel efficient cars, but don't give consumers any incentive to buy them. That's a valid complaint. The usual response is to propose raising the gas tax, which, as I've mentioned before, drives me crazy. This is the solution people come up with when they are besotted with economics and utterly ignorant of politics. Let's put voters -- particularly low-income voters -- in financial pain, thereby forcing them to buy different kinds of cars, whenever they can afford to do that, which could be a long time, particularly with their budgets being destroyed by high gas prices. A political policy that yields pure pain, for every single voter that drives. Lemme see a politician sell that.
A much, much better idea is an oldie but goodie: feebates. Under this program, consumers who buy vehicles that exceed CAFE standards are given a lump-sum subsidy. Yes: cash in pocket! The dealer puts it right in your hot little hands. These subsidies are paid for by a fee on consumers who purchase vehicles that fall short of CAFE standards.
Purely as policy, it has some shortcomings. It doesn't penalize driving -- we'd prefer someone buy an SUV and park it most of the time than buy a hatchback and drive it every day. But that shortcoming can easily be remedied by pairing feebates with higher gas taxes. As a political matter, though, lead with the policy that's easier to understand and offers tangible benefits!
All of which is prelude to noting the excellent news that Sens. Jeff Bingaman (D-NM), Olympia Snowe (R-ME), Richard Lugar (R-IN), and John Kerry (D-MA) have introduced a bipartisan feebate bill: the Efficient Vehicle Leadership Act of 2009 (S.1620).
The Efficient Vehicle Leadership Act creates a program that rewards consumers who buy cars and trucks that get better gas mileage than the average overall fuel economy required for its class. Motorists who buy models which exceed that CAFE standard will receive a “fuel performance rebate” (claimed on their tax return or paid instantly by the dealer, whichever the buyer prefers), an amount tied to the fuel savings over and above the relevant CAFE standard. The savings can range from several hundred to several thousand dollars, depending on the vehicle’s fuel economy relative to other models of the same size. Conversely, for inefficient, gas-gulping vehicles, manufacturers will be assessed a fuel performance fee to pay for the program.
If we've learned anything from Cash for Clunkers, it's that direct, tangible incentives like this drive behavior -- much more and faster than what economic projections indicate.
We've used those incentives for economic stimulus. Now we should put them to work increasing the fuel efficiency of the whole fleet.