New research has shown that a system of taxation and rebates applied at the time of purchase of a new vehicle could substantially reduce greenhouse gas emissions from cars and trucks in California, and be much more effective than current regulation which involves phasing in CO2 limits.

A study by the University of Michigan Transportation Research Insitute (UMTRI) has found that a system of fees and rebates, known as feebates, could be 25% more effective than CO2 limits.

The state of California's regulatory approach involves phasing in limits to average global warming emissions from passenger cars and trucks beginning in 2009 and culminating in 2016. This regulation is often called "Pavley," after its author, Assemblywoman Fran Pavley.

The federal government's approach provides tax incentives to buyers of hybrid vehicles, which emit significantly lower amounts of global warming pollution than most conventional vehicles. However, the hybrid incentive affects only a small portion of the vehicle market.

UMTRI proposes a third approach that could be used to enhance or replace existing regulations would be a feebates program. A feebates program creates a schedule of both fees and rebates that reflects the amount of global warming pollution that different vehicles emit. Purchasers of new vehicles that emit larger amounts of heat-trapping emissions pay a one-time surcharge at the point of purchase. These surcharges are then used to provide rebates to buyers of new vehicles that emit less pollution. According to the report's authors, a feebates program several advantages over other approaches:

•Market-oriented: A feebates program recognizes the power of price signals to change consumer behavior. That is, incentives spur consumers to purchase—and manufactures to produce—cleaner vehicles.

•Self-financing: A feebates program can be designed so that the surcharges collected equal the rebates paid.

•Affects entire market: A feebates program applies to all new vehicles—clean and dirty—spurring a transformation of the entire market.

•Consumer choice: A feebates program can be designed so that consumers have the option to buy vehicles that carry no surcharge in each vehicle class, such as cars, trucks, sport utility vehicles (SUVs), and minivans.

Finally the authors conclude that under a feebates programme, consumers could save thousands of dollars and retailers see their revenue rise by as much as six percent.

The UMTRI study can be found at www.umtri.umich.edu/.