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Our recommendation for fee-bates would be to set them low, at an average of $11 per vehicle annually. This fee would fund only the part of the TERP that provides at-purchase rebates for clean cars and would help provide incentives to buy low-emitting vehicles without overtaxing consumer pocketbooks.

Table 9. Options for Assessing Fees/Rebates Under a Texas Fee-bate Program

Health Costs

Assess fees based on health impacts. The health cost per vehicle mile traveled ranges from $.008 - $.04. If cars average 10,000 miles/year, the fees should range from $80 - $400. The average fee would be about $250.

$450 million

Program funding

Charge a graduated fee annually, at registration, to new vehicles in the dirtiest bins, and give an annual rebate to cars in the cleanest. Set the fee-bates at levels so that the statewide average is an annual fee of about $80. Charge the graduated fee at an average of $11 per vehicle, so that the funds raised are about $20 million, enough to fund the section of TERP that provides at- purchase rebates on clean cars.

$150 million (Full TERP funding)

Rebate funding

$20 million (partial TERP funding)

Options for assessing fees/rebates

Revenue generated in year one

Discussion of Fee-bate Benefits

Fee-bates would encourage clean car purchases, bringing Texas closer into compliance with federal clean air standards. Fee-bates also could fund state clean air programs currently in jeopardy. But to effectively change consumers’ buying habits, fees must be large enough to tip the balance in the minds of consumers to choose cleaner cars. A study by the American Council for an Energy Efficient Economy (ACEEE) indicates that imposing a fee-bate of 5-10 percent of a vehicle’s price achieves substantial fuel conservation23. To a point, the bigger the fee, the more motivating power it has, and the more good the funds it raises can do.

In a recent survey, 77 percent of Texans24 believe air pollution is a serious problem—and almost half believe it is getting worse. Still, Texans are willing to participate in solutions. Some 63 percent favor adopting a fee-bates program that would fund other clean air initiatives such as TERP and encourage consumers to buy clean cars.

Fee-bates offer an effective, market-based solution to cleaning the air in Texas and also the opportunity to generate funds to cover health costs and either fund the beleaguered TERP or at least cover the costs of the TERP rebate program.

The economic incentives and disincentives offered by fee-bates will not by themselves solve Texas’ air quality problems, but they would help send strong signals that remind consumers and manufacturers that the choices they make affect everyone's health.

23 DeCicco, John and Gordon, Deborah, ACEEE, “Steering with Prices: Fuel and Vehicle Taxation H1993. Public Citizen, Texas statewide survey on the environment, American Viewpoint, August 2002, http://www.citizen.org/texas/. 24

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