University of California Institute of Transportation Studies

Markets and regulation are getting out of alignment due to vehicle fuel economy and greenhouse gas standards becoming increasingly stringent. If gasoline prices stay relatively low, then consumers will have little incentive to purchase more expensive fuel-efficient vehicles. California can provide tax incentives to consumers to purchase more fuel-efficient vehicles, but the cost to taxpayers of doing so grows exponentially if sales of these vehicles increase. As a result, this report explores the possibility of imposing fees to less fuel efficient vehicles and smaller rebates to more fuel efficient cars and trucks. The goal of the proposed program is to design a revenue neutral program corrects market signs to consumers and provides an incentive to purchase higher fuel efficient vehicles.