A $1 Billion Prize for a 100mpg Car?

A U.S. Representative has introduced legislation that would offer $1 billion to the first auto company to sell a mass-produced car that gets 100 miles per gallon.

The “E Prize Act of 2012” (HR 3872), sponsored by Rep. Dan Lungren (R—Calif.), would offer a billion-dollar prize to the first U.S. automaker that builds and sells 60,000 mid-size cars capable of reaching 100 mpg.

This is an alternative approach to the government-backed loans and subsidies given to automakers, primarily under the Bush and Obama administrations, to create and sell high-mileage cars. Instead of doling out money upfront to create something that may or may not be appealing to customers, the E Prize Act would take a different approach — setting a clear, audacious goal and rewarding the first company to meet it.

In general, this is a smarter policy. Last year, Julian Morris and I wrote in Forbes that the federal government should end its practice of funding projects up front, and instead reward companies for meeting clear, audacious goals:

Government shouldn’t be in the business of selecting winners and losers in business at all. But if it is going to attempt to drive “green” innovation, it should use prizes to reward actual results and minimize corruption and corporate welfare. Prizes could be used to increase energy efficiency, cost-effectively convert solar energy to electricity, waste reduction efforts, and drive advancements on any number of environmental issues. The type of crony capitalism that led taxpayers to waste over half-a-billion dollars on Solyndra needs to be eliminated.

This strategy is only an improvement if Congress also scraps other subsidies, loan programs, and regulations — like CAFE standards — along with it. As long as government is willing to handout millions, even billions of dollars upfront with few outcome-based measurements, companies will be less likely to push forward with such an audacious goal as a 100mpg gas-powered vehicle. But paired with other bills, like a bill introduced in December that would end the $7,500 tax credit for purchasing plug-in, battery powered cars, this would be a good start.

Government shouldn’t be in the business of telling car manufacturers what they need to produce. But if the federal government feels they need to be involved, rewarding proven success through prizes is a significantly better policy than subsidizing failure.