Computer model forecasts impact of automobile fuel efficiency incentives

January 13, 1994

By Jeffery Kahn,

Energy and Environment Division researchers have developed a computer model that forecasts the complex and, at times, surprising impacts of proposed federal policies intended to increase vehicle fuel economy and reduce greenhouse gas emissions.

Called AUTO (for Automobile Use, Technologies, and Ownership), the model predicts the effects of proposed "feebates"--fees on inefficient vehicles, rebates on efficient ones--by looking a decade into the future.

"Feebates are found to have very few shortcomings and promise to yield large benefits to society," says E&E's William Davis, primary author of an upcoming DOE Office of Policy report on the subject. "By affecting prices that consumers and manufacturers see in the market for new vehicles, feebates are likely to be effective in achieving energy, environmental, and economic goals simultaneously."

Davis is a member of E&E's Energy Analysis Program, led by Mark Levine, who also participated in the development of the model. AUTO synthesizes earlier efforts to model the private vehicle market.

AUTO is one of the tools being used by the Clinton Administration as it grapples with how to best reduce oil imports and air pollution, and how to meet the U.S. pledge to reduce its greenhouse gas emissions to 1990 levels. Currently, private cars and light trucks account for more than 50 percent of U.S. transportation energy usage and greenhouse gas emissions.

The Clinton Administration has created a Federal Advisory Committee--known informally as Car Talk--to assess a number of existing and proposed policies. These include economic incentives such as feebates, gas taxes, a gas- guzzler tax, and CAFE (Corporate Average Fuel Economy) standards. In theory, all have the potential to reduce overall energy usage and the threat of global warming.

AUTO allows policymakers to simulate the changes to the market that take place under alternative strategies. By modeling the interaction between consumer demand and manufacturer supply, it forecasts the characteristics of vehicles produced, and the patterns of household purchase, ownership, and use of these vehicles. AUTO also determines overall fuel consumption and carbon dioxide emissions.

In the analysis of feebates, six alternative fee/rebate programs were analyzed. All tilt the price that consumers pay for new vehicles in favor of the more fuel-efficient ones. All are revenue neutral--that is, the fees and rebates even out.

LBL's analysis concluded that over time, feebates would improve the average fuel economy of new vehicles to a maximum of 11-18 percent. This would reduce U.S. fuel consumption in 2010 by 6-8 billion gallons per year. The report predicts a 7-8 percent reduction in gasoline consumption by cars and light trucks. Reducing fuel consumption also cuts carbon dioxide emissions. Between 1995 and 2010, cumulative emissions are reduced by 750-890 million tons.

According to AUTO's feebate assessment, consumers fare very well, while the effect on manufacturers is mixed. The consumer model (CARS, developed by Kenneth Train, chair of UC Berkeley's Center for Regulatory Policy) finds that consumers purchase more fuel-efficient vehicles under feebates. They pay a little more for efficient vehicles, but fuel savings more than compensate. AUTO predicts benefits of $80-95 per household per year, or $10 billion per year nationally.

The manufacturer model (developed by K. G. Duleep of Energy and Environment Analysis) includes engineering and cost data on about 50 current fuel-economy technologies. The model shows that feebates make these technologies more cost-effective. Manufacturers respond by producing more fuel-efficient vehicles.

The financial effects of feebates are slightly negative for domestic carmakers because foreign firms currently have more fuel-efficient fleets. Initially, this would cause domestic manufacturers to lose roughly a one-percent share of the market. This should improve as U.S. manufacturers respond with better fuel efficiency.

Davis notes that the modeling effort involved more than a trillion calculations for each of the six feebate alternatives. He says the results indicate that feebates present a "win/win" opportunity for policy makers who often must grapple with trade-offs between economic and environmental considerations.

"More than 80 countries including the U.S. have agreed to cap their greenhouse gas emissions at 1990 levels. The question then," said Davis, "is how can we do this at the least social and economic costs?

"According to the analysis of feebates, in the vehicle sector we should be able to not only avoid additional costs but to provide additional benefits. That is possible because the analysis shows that, especially, used-car consumers want more fuel-efficient cars.

"A companion finding is that manufacturers' response to this market demand for fuel-economy technology has been insufficient. In responding to the desires of new car buyers, they may be overlooking the needs of the vast majority of households who own used vehicles. Used-vehicle households are on the average only half as wealthy, and often would prefer more fuel economy rather than more horsepower."

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