Monday, March 30, 2009

Vehicle Efficiency Market

(above: Morgan Downey. This vehicle is a little extreme but shows what is possible.)

Oil consumption efficiency in the US is currently tied to oil price cycles and low retail taxes on oil. Following is a simple idea for improving the efficiency of the US vehicle fleet independent of oil prices and without increasing gasoline/diesel taxes. The evidence is clear that increases in gasoline/diesel taxes have not been and are not politically tenable in the US.

A Vehicle Efficiency Market (VEM) involves subsidizing efficient cars with money raised directly at the point of purchase from buyers of inefficient cars. The efficiency of a car relative to the rest of fleet sales would be determined by a monthly miles per gallon (MPG) assessment of new vehicles sold. The monthly MPG balancing point would be posted on the internet and at all new car dealer showrooms along with a schedule of credits or levies. Consumers would pay or receive a cash amount depending on whether the vehicle purchased was under or over the average miles-per-gallon (MPG) balancing point for the prior month. The further a vehicle is from the average MPG, the higher the cash payment or credit.

Taxpayers nationwide would not have to pay any additional taxes. There would merely be a simple direct cash transfer from those who are inefficient to those who are efficient. There would be a constant incentive for consumers to purchase more efficient vehicles, even when oil prices are low.

A portion of the revenue raised from buyers of inefficient cars would go toward improving public mass transportation. This would ensure that buyers of efficient cars wouldn't simply use all their savings to buy more oil and drive more miles by living further from their place of work.

More Details
Any vehicle in the plan would have to meet US safety and emission standards. The VEM would be structured such that the cash paid to those buying an efficient vehicle maxes out at a certain dollar level (e.g. $3,500). The goal of a VEM is to move the average MPG of vehicles (meeting US emissions and safety standards) steadily higher - not to provide incentives for anyone to buy any more vehicles than if the VEM didn't exist.

Non-commercial vehicles would be placed in simple classes depending on how many passengers the vehicles are designed to carry safely. Commercial vehicle classes would depend on cargo weight capacity.

The MPG balancing point would move higher each month with an equal sum of money paid (by those below the balancing point) and received (by those above the balancing point). The further the vehicle is away from the balancing point the more paid or received. The VEM payouts/receipts would not be linear (see example table below). A simple schedule posted on the internet and at car dealers would outline the amounts. It may look something like this if the monthly assessment found the balancing point assessment for the prior month to be 25MPG, for example:

How is the VEM different from current US CAFE standards?

US CAFE standards have been a rubber stamping of existing efficiency capabilities rather than incentivizing efficiency. Since 1983, US$735million has been levied against auto makers via CAFE. No US or Asian auto maker has ever been fined via CAFE. Almost all the CAFE fines have been paid by European luxury auto makers (Porsche, Mercedes etc) which account for only 8% of vehicles sold in the US.

The US Energy Independence and Security Act of 2007 set an ultimate CAFE goal of 35MPG by 2020 (current US CAFE standard is 27.5MPG for cars and 22.2MPG for SUVs). On May 19, 2009, the Obama Administration announced a requirement for 2016 passenger cars to average 39mpg and 30mpg for SUVs. This is not aggressive enough. The European Union efficiency goal, by comparison, is 47MPG for new vehicles by 2012 - and this doesn't require any technological discoveries. US CAFE standards don't even bring the US to today's (2009) European vehicle efficiency level. It is unlikely any US administration will have the guts to call for for more stringent measures. Whereas, by putting a price directly on efficiency via a Vehicle Efficiency Market, the Administration can stand back and allow the public to push efficiency very aggressively.

[The oil drum (thanks Gail) kindly allowed me to post the VEM idea on March 27, 2009.]

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