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IV. Fee-bates: Clearing the Air Through Consumer Incentives


Fee-bates offer a promising option for cleaning up Texas skies.

Under a fee-bate program, buyers of new cars would be required during each annual state registration to pay a fee based on how much their vehicle contributes to air pollution. Such a program would quantify the damage done by a vehicle's pollution each year, rewarding cleaner cars while penalizing dirtier ones.

Alternatively, a slightly higher state vehicle sales tax could be charged to consumers who buy new cars with higher pollution potential. (Both a fee-bate or an additional sales tax would apply only to new car purchases and would not be retroactive.)

In fact, there already is the beginning of a fee-bate system in Texas. Currently, diesel trucks of a certain size pay an 11 percent surcharge on their annual registrations. Under the TERP legislation passed in 2001, truck buyers also pay a 2.5 percent surcharge on the purchase of diesel-powered on-road motor vehicles with a gross vehicle registered weight exceeding 14,000 pounds and with a model year of 1996 and earlier, since those vehicles emit more pollution. Also under TERP, Texans purchasing clean cars – currently four models have been certified -- are eligible to receive a rebate from the state beginning in April of 2003.

As it stands, everyone pays the price for auto emissions pollution. A 2002 study that appeared in the Journal of the American Medical Association examined the effects of just one pollutant, particulate matter, and found that the chances of death due to heart and lung disease increased dramatically with exposure to air pollution. Fee-bates would help make the economics of buying a new car incorporate the vehicle's environmental and health effects.

Incentives in Texas to get cleaner vehicles on the streets must be consumer driven, unless the state adopted a regulatory mandate such as California’s “Zero Emissions Vehicles” standard to motivate manufacturers.

An additional “pollution” fee each year at registration – or upon the purchase of their car -- would not only remind consumers of the costs of pollution, it would also encourage the purchase of cleaner cars. The purpose of these fees is to motivate, not to punish those who already drive dirty cars and can perhaps not afford to replace them: the system would only apply to new vehicles.

Methods for assessing fee-bates vary. An annual additional vehicle registration fee could reflect the fuel efficiency and lower emissions of certain cars. Alternatively, the motor vehicle sales tax could be adjusted upward or downward depending upon the amount of emissions generated by a particular vehicle. Either method could be revenue-neutral or revenue-generating; in the latter case, those monies could help fund other pollution-reducing initiatives such as TERP. As noted previously in this report, TERP is especially in need — its budget was slashed, rendering it inoperative without about $160 million in additional funds per year.20 Generating that money could be an important goal of fee-bates.

20 The TCEQ estimates that the program will need $188 million in FY 2004 and FY 2005 to achieve its clean air mandate. Currently, fees associated with TERP are generating about $20 million a year.

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