What you describe is exactly what has been done in many European countries. Over halve of the price of gasoline is government tax and indeed it has kept fuel efficient cars on the road, kept smog down and stimulated industry to keep working and more efficient tecnhologies.

I don't see Europe doing any worse then say USA economically. So apparently the tax-rebate scheme works.

It is not the solution to everything, from from it as several traffic problems we still have, but it has kept things more manageable.

Wouter