Federal auto 'feebate' program is flawed, study says

Last Updated: Thursday, November 22, 2007 | 2:35 PM ET

CBC News

The federal program offering cash grants to buyers of fuel-efficient cars is a first step to cutting fuel use but it has "several defects," according to a study by the C.D. Howe Institute.

In the study, policy analyst Robin Bannerjee supports the use of grants, but notes that the majority of vehicles attract neither grant nor tax.

"This reduces the effectiveness of the policy and reduces the impetus for manufacturers to make continuous improvements," he writes.

He's critical of Ottawa for failing to adequately consult the industry and for not phasing in the policy. He also notes that the program will hurt the market share of the Big Three North American automakers, which are disproportionately affected by the selective application of the policy. 

The Conservative government unveiled the program, dubbed a "feebate," in its March budget. It gives grants of up to $2,000 to buyers of new cars that burn less than 6.5 litres of gasoline per 100 kilometres. It also imposes a tax of up to $4,000 on gas guzzlers that use more than 13 litres of fuel per 100 kilometres.

Bannerjee also says the plan won't do much to reduce greenhouse gas emissions. He cites another report by the Toronto-based think-tank that said the feebate will reduce Canadian greenhouse gas emission by, at most, one megatonne of carbon dioxide equivalent by 2010. 

"Clearly, the plan alone will make only a small contribution to achieving ambitious emissions reduction targets," he writes.

Bannerjee recommends that Ottawa maintain and even boost measures that encourage people to travel less — such things as increasing the basic fuel tax or bringing in a carbon tax.

"Such taxes would also provide an added incentive for drivers to switch to more fuel-efficient cars," he writes.