New Vehicle Feebates: Theory and Evidence∗
Nicholas Rivers†
Brandon Schaufele‡
September 11, 2013
Abstract
New vehicle feebate programs are potentially popular policy options, yet analyses of these
policies have been limited to ad hoc proposals. In this paper, we (1) derive expressions for
optimal new vehicle feebate schedules, (2) distinguish between categories of revenue neutral
policy design and explore the social welfare implications of a class of self-financing constraints
referred to as differentiated characteristic revenue neutrality and (3) exploit an extensive, multiyear dataset to estimate a sufficient statistic used to evaluate the welfare implications of a longstanding vehicle feebate program in the Canadian province of Ontario. We find that Ontario’s
feebate program was welfare-enhancing for social costs of carbon greater than $12 per tonne
carbon dioxide, but an optimally designed policy could have yielded significantly more emission
reductions for the same social cost.
Keywords:
Feebate; revenue neutrality; vehicle choice; environmental policy; externality;
optimal tax.
JEL codes: D49, D62, H23, Q58, R48.
∗
Dylan Morgan and Soodeh Saberian provided excellent research assistance. Funding from the Social Science and
Humanities Research Council is gratefully acknowledged.
†
Graduate School of Public and International Affairs and Institute of the Environment, University of Ottawa,
nrivers@uottawa.ca.
‡
Department of Economics and Institute of the Environment, University of Ottawa, brandon.schaufele@uottawa.ca
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