NATIONAL ROUND TABLE ON THE ENVIRONMENT AND ECONOMY

Terms of Reference for the Development of Options for a Revenue Neutral Vehicle Feebate in Canada

Mandate

In Budget 2005, the Government asked the National Round Table on the Environment and the Economy (NRTEE) to develop options for a vehicle feebate, to consult, and to make recommendations to the Government prior to the next federal budget. This request reflects the fact that NRTEE has established capacity in the area of the use of economic and fiscal instruments for environmental objectives.

Analytical Framework

A vehicle feebate is generally understood to be a mechanism that combines a fee levied on purchasers of less fuel-efficient vehicles with a rebate provided to purchasers of more fuel-efficient vehicles. The Government has asked for this analysis to assist in evaluating whether the introduction of a vehicle feebate would be considered effective as part of a broader strategy to enhance the fuel efficiency of vehicles purchased in Canada with a view to contributing to a reduction in greenhouse gas emissions.

Key Parameters

The NRTEE will identify, develop and evaluate options for a national vehicle feebate model that would:

• be revenue neutral for the Government (i.e., would strive to balance revenues from the fees with expenditures on rebates, over time);
• apply to all classes of passenger vehicles (including trucks, vans and SUVs); and
• be sufficiently flexible in structure to adapt to changing circumstances, for example to allow for adjustments in fees and rebates over time in response to changes in vehicle models and technology.

Options would be designed that would set out the fee and rebate structure – including illustrative amounts to be applied across vehicles -- as may be distinguished by rated fuel efficiency, vehicle class, and/or other relevant factors.

Assessment of Options Against Criteria

The NRTEE will design and evaluate potential vehicle feebate options and assess those options against the criteria outlined in the Framework for Evaluation of Environmental Tax Proposals set out in Annex 4 (attached) of The Budget Plan 2005, namely:

1. Environmental effectiveness: whether, and to what extent, the proposal will contribute to achieving the environmental goal. (For example, how could a feebate be designed so that it results in an effective reduction in greenhouse gas emissions? What level of emissions reductions could be achieved over time?).
   
2. Fiscal impact: how the proposal will affect government expenditures or revenues (For example, while the fee and rebate combined could be revenue neutral, what would be the projected total revenue from the fee and the expenditure associated with the rebate? Would it be possible to maintain a revenue-neutral balance over time?).
   
3. Economic efficiency: how the proposal will affect the allocation of resources in the economy and Canada’s global competitiveness. (For example, what is the estimated economic impact of a vehicle feebate on the competitiveness of the vehicle-manufacturing sector in Canada).
   
4. Fairness: how the impacts of the proposal are distributed across sectors of the economy, regions or groups within the population. (For example, what could be the expected incidence of a vehicle feebate measure across different categories of buyers, taking into account trends in consumption patterns?).
   
5. Simplicity: how governments will administer the proposal and how affected individuals or parties will comply—and at what cost. (For example, could a vehicle feebate measure be designed so that it would be simple to comply with and administer, for manufacturers, dealers, consumers, and government?).

As background, the NRTEE will review the existing literature to establish whether other governments have successfully implemented vehicle feebates, and if so, how such measures have been, or could reasonably be, evaluated against the assessment criteria outlined above.

Analytical Resources

The NRTEE will contract expertise to develop the necessary analytical base and to address specific issues of interest.
The NRTEE will also draw, as necessary, on expertise from Finance Canada as well as members of the Interdepartmental Fuel Efficiency Working Group on Economic Instruments (comprising officials from Transport Canada (Chair), Industry Canada, Natural Resources Canada and Environment Canada).

Consultations

The NRTEE will consult broadly to obtain the views of interested stakeholders, including appropriate government officials, vehicle manufacturers, labour groups, dealers, consumer groups and non-governmental organizations, with a view to providing a comprehensive assessment of key factors impacting the feasibility of a revenue-neutral vehicle feebate system in Canada for inclusion in the recommendations to the Government.

Deliverable and Timeframe

The NRTEE will prepare a report summarizing its analysis and findings, input from consultations, and policy advice and recommendations on vehicle feebate options to the Minister of Finance who will forward it to the ministers of other relevant federal government departments, after which the report and all related documentation prepared by and for the NRTEE will be made publicly available for wider consideration. The report should be submitted by the end of October.