The federal government has proposed a new strategy to get people out of their gas guzzlers and into more fuel-efficient vehicles.

The vehicle efficiency incentive, introduced in Monday’s federal budget, has three main components: a rebate program offering up to $2,000 for the purchase of a new fuel-efficient vehicle; neutral treatment of a broad range of vehicles with average fuel efficiency; and a new green levy on fuel-inefficient vehicles.

Current models qualifying for the rebate include hybrid-electric vehicles, conventional vehicles with high fuel-efficiency standards, as well as the most efficient of the E-85 fuel and flex fuel vehicles.

The rebates begin at $1,000 for new automobiles with a combined fuel consumption rating of 6.5L/100 km – such as a Toyota Corolla – or 8.3L/100km for minivans, sport utility vehicles and other light trucks, such as the Jeep Patriot. An additional rebate of $500 is added for each half litre per 100km improvement in the combined fuel consumption rating. The maximum rebate is $2,000 for hybrid-electric vehicles such as the Toyota Prius or the Honda Civic Hybrid.

The budget also introduces a green levy on gas-guzzling passenger vehicles with fuel-efficiency ratings of 13L/100km or higher. The levy for cars at that level will be $1,000, but increases in $1,000 increments to a maximum of $4,000 for each full litre per 100km increase to the combined fuel-efficiency rating.

Eligible new vehicle purchases or leases will qualify for the rebate as of March 20. Payments for the rebates will be made once the federal government’s administration and delivery systems have been put in place, which is expected to happen by autumn. The budget is committing $160 million over the next two years for the rebate.

As for the levy, it will apply to new vehicles delivered to car dealerships after March 19. Inventories of vehicles held by dealerships will not be subject to the new green levy. Certain consumer purchase contracts entered into before March 20 will also be grandfathered. The existing excise tax on heavy vehicles will be eliminated effective March 20 with the introduction of the green levy.

The federal government expects the green levy will increase federal revenue by $110 million in 2007–08 and $105 million in 2008–09.