The CO2 Challenge for Passenger Cars in Europe by Patrick ten Brink of IEEP Lyon 5 December 2006
1. The CO2 Challenge for Passenger Cars in Europe
and the Potential Role and Impacts of Emissions
Trading
Patrick ten Brink
Senior Fellow and Head of Brussels Office
Institute for European Environmental Policy (IEEP)
ptenbrink@ieep.eu
www.ieep.eu
Elements build on work by the IEEP Transport Team
Malcolm Fergusson & Ian Skinner
and partners TNO, CAIR and LAT
Lyon
5 December 2006
2. Presentation Structure
• Context – history and emissions from transport
• The strategy and its measures
• The performance and the remaining challenge
• Insights on instruments, targets and costs
3. A Brief History
• 1990s: Fuel economy not improving
• 1993: EU ratifies Framework Convention on Climate Change
• 1995: Commission publishes passenger car CO2 strategy
• target 120g/km by 2005 (or 2010 at latest)
• 1997: Carmakers threatened with legislation
• 1998/9: Voluntary Agreements with manufacturers’ associations
• 2000: Monitoring Mechanism (1753/2000) established
• 2001: CO2 Labelling required (1999/94)
• 2005/6: Review of Passenger Car CO2 Strategy
Source: Malcolm Fergusson
4. Transport Sector GHG emissions
http://dataservice.eea.europa.eu/atlas/viewdata/viewpub.asp?id=2104
5. A Diverse Europe - Trends in transport GHG
emissions by country (1990-2003)
http://dataservice.eea.europa.eu/atlas/viewdata/viewpub.asp?id=2083
6. Growth in Road Transport contributions
http://dataservice.eea.europa.eu/atlas/viewdata/viewpub.asp?id=2082
7. Within transport, cars are the main energy user
450
400 Ships
Aircraft
350
Rail & inl.
300 shipping
250
Mtoe
Cars
200
150
100
Lorries
50
0
1990 1992 1994 1996 1998 2000 2002
road road rail inland navigation air sea
Source: T&E Presentation by Jos Dings building on DGENV presentation
8. Transport and GHG emissions – a problem sector
Source: T&E Presentation by Jos Dings; originally from EEA TERM Energy Factsheet
9. Transport pollutants – GHGs a key challenge
http://dataservice.eea.europa.eu/atlas/viewdata/viewpub.asp?id=848
10. Passenger Cars CO2 Strategy: 3 pillars
EU objective: To achieve a fleet average of new passenger car of 120 g CO2/km by
2012 (equivalent to 4.5 l/100 km diesel or 5l/100km gasoline)
Three pillars
Agreements with car industry
Negotiated in 1999/2000 with the European, Japanese and Korean car manufacturers
associations (resp. ACEA, JAMA & KAMA)
Member States provide independent monitoring data on new cars sold
Target: 140g CO2/km by 2008/2009 Annual Joint Reports
Consumer information
Directive 1999/94/EC adopted in December 1999 and amended in 2003
Possible future improvements: harmonised label with energy efficiency classes, and inclusion
of light commercial vehicles in addition to cars
Fiscal measures
July 2005 Commission proposal for a Council directive (COM(2005)261) aims at requiring MS
that have taxes to base their calculation on CO2 emissions
Currently being discussed in Council
Annual Communications to the Council and Parliament - see
Commission web pages: EU CO2 and cars strategy:
Source: DGENV Presentation http://ec.europa.eu/environment/co2/co2_home.htm
11. Consumer information
system (1999/94/EC)
• labelling of fuel consumption and CO2
emissions
• the production of a fuel consumption
and CO2 emissions guide
• displaying posters in car showrooms
• the inclusion of fuel consumption and CO2
emissions data in advertising, brochures,
etc.
Danish Energy Label
12. Fiscal Measures – nation wide and local
Fuel tax; car tax schemes and the London’s congestion charge
Fuel Taxes
UK fuel price escalator
Petrol and diesel tax differentials
Car taxes
UK - registration taxes moved to CO2 rating
London Congestion charge
Started in February 2003
Run by Transport for London, TfL
Covers 21km², 1.3% of greater London
Being expanded and price going up
www.t-e.nu
13. The ‘CO2 Agreement’ with Carmakers
• Community target was 120g/km by 2005/2010
• Commission negotiated with Associations
• Agreement reached on 140g/km
• ACEA by 2008; JAMA & KAMA by 2009; Interim targets 2003/4
• Monitoring Mechanism (1753/2000) established
EU targets in
international context
All going in the same
direction
Japan early leader; EU
plan to go further.
http://dataservice.eea.europa.eu/atlas/viewdata/viewpub.asp?id=2112
14. Voluntary Commitments:
major efforts still needed…
12.4% reduction in 2004 compared to 1995, out of total 25% required by 2008/9…
210
EU15 level in 1995:
200
186 gCO2/km Voluntary
190 commitments:
g CO2/km, annual average
140 g CO2/km in
180 2008/9
170
160
150
140
130
EU objective: 120 gCO2/km
120
110
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
ACEA JAMA KAMA EU-15
ACEA (required) JAMA (required) KAMA (required)
Source: DGENV presentation CO2 & Cars
15. Progress to Date
Some, but it looks like the targets will be missed
220
200
180
grammes CO2/k
160
140
ACEA target ACEA
JAMA target JA A
M /KAMA
KA A
M EU target 2010
120 trend ACEA trend JA A
M
trend KAMA EU target 2012
100
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: T&E Presentation by Jos Dings
16. How well are manufacturers on track?
Different challenges for different manufacturers
Source: Oct 25 T&E brand by brand progress report
17. The CO2 challenge
Increasingly serious concern that the current agreement
targets will not be reached
Increasing realisation that a new self commitment will not
likely result in the 120g/km target being achieved.
Increasing political discourse on need for strict targets.
But how, much will this cost, and what can help reduce the
cost?
Studies for DGENV by IEEP, TNO and CAIR
Study for DGENT by TNO, IEEP and LAT
18. The Study for DGENV by IEEP et al
Service contract to carry out economic analysis and business impact
assessment of CO2 emissions reduction measures in the automotive
sector
Patrick ten Brink
Ian Skinner
Malcolm Fergusson
Dawn Haines
IEEP - Institute for European Environmental Policy
Richard Smokers
Erik van der Burgwal
Raymond Gense
TNO, The Netherlands
Peter Wells
Paul Nieuwenhuis
CAIR - Centre for Automotive Industry Research,
Cardiff Business School, Cardiff University, UK
See http://ec.europa.eu/environment/co2/pdf/cars_ia_final_report.pdf
19. Aim of the work
The aim of the service contract was to assess the impacts of trading
scheme(s) that would allow the target of 120g/km average specific
CO2 emissions from new registrations of passenger cars to be met by
2012.
Assessment of impact on manufacturers, society and consumer covered the following
aspects:
• Manufacturer: costs, potential problems of vehicles not meeting requirements and
not being allowed on the market, trading costs and benefits
• Society: as above, including the value of fuel savings but excluding taxes
• Consumer: impact on availability of vehicles, up front price effect and savings.
• Environment: CO2 and fuel savings.
20. Targets and Instruments
The work looked at 3 types of targets and three instruments:
• Targets
• a % reduction from a reference year,
• a sloped target curve linked to utility criteria (several variations
assessed),
• and a fixed emissions target to be met by all (120g/km)
• Instruments:
• Emission reduction requirements for individual vehicles;
• a manufacturer’s bubble (ie the manufacturer as a whole can
meet the target, effectively allowing burden within the
manufacturer’s fleet); and
• a trading scheme (ie that allows trading between all
manufacturers and hence effectively sharing the burden across the
industry as a whole).
21. Utility function and potential target
Specific CO2
emissions
700
CO2 [g/km] of cars on the market in 2002
Utility based limit values petrol 2012
600 Utility based limit values diesel 2012
Linear (CO2 [g/km] of cars on the market in 2002)
Linear (Utility based limit values petrol 2012)
500
CO2 emission [g/km]
y = 8.4146x
400
300
y = 5.7998x
200
100
0
0 5 10 15 20 25 30 35 40 45 50
Utility (V^2/3*P^1/3)
(source: IEEP et al (2004), building on data from Polk
Utility
22. Technological options for reducing emissions
Petrol vehicles Diesel vehicles
Reduced engine friction losses Reduced engine friction losses
DI / homogeneous charge (stoichiometric) 4 valves per cylinder
DI / Stratified charge (stoichiometric) Piezo injectors
DI / Stratified charge (lean burn / complex
strategies)
Mild downsizing with turbocharging Mild downsizing
Medium downsizing with turbocharging Medium downsizing
Engine
Strong downsizing with turbocharging Strong downsizing
Variable Valve Timing
Variable valve control
Cylinder deactivation Cylinder deactivation
Variable Compression Ratio
Optimised cooling circuit* Optimised cooling circuit*
Advanced cooling circuit + electric water pump* Advanced cooling circuit + electric water pump*
Exhaust heat recovery*
Optimised gearbox ratios 6-speed manual/automatic gearbox
mission
Trans-
Piloted gearbox Piloted gearbox
Continuous Variable Transmission Continuous Variable Transmission
Dual-Clutch Dual-Clutch
Start-stop function Start-stop function
Hybrid
Regenerative braking Regenerative braking
Mild hybrid (motor assist) Mild hybrid (motor assist)
Full hybrid (electric drive) Full hybrid (electric drive capability)
Improved aerodynamic efficiency Improved aerodynamic efficiency
Body
Mild weight reduction Mild weight reduction
Medium weight reduction Medium weight reduction
Strong weight reduction Strong weight reduction
Low rolling resistance tyres Low rolling resistance tyres
Other
Electrically assisted steering (EPS, EPHS)* Electrically assisted steering (EPS, EPHS)*
Advanced aftertreatment DeNOx catalyst
Particulate trap / filter
source: TNO et al 2006
23. Cost Curves – a simple concept, but a bit more
complex in reality and to model
Fuel and size related cost curves - 6
Medium petrol
CO2 vs. costs
30000 200
CO2 emission [g/km]
28000 180
26000 160
price [Euro]
24000 140 cost
CO2
22000 120
20000 100
18000 80
e
1
2
3
4
5
6
lin
e
e
e
e
e
e
ag
ag
ag
ag
ag
ag
se
ck
ck
ck
ck
ck
ck
Ba
Pa
Pa
Pa
Pa
Pa
Pa
In the cost modelling a more complex
mix of packages was used to create
more detailed cost curves.
source: IEEP et al 2004 (TNO inputs)
24. Some results – Net Costs to Society
• Net societal costs per car to meet 120g/km are of the order of 1-2%
of the cost of a car.
• An average cost can be as low as 127 Euros/car or 252 Euros/car
average depending on what discount rate is used (0% or 5% real
respectively).
• The costs for society as a whole amounts to a total of 1.84 billion
Euros/year under the lower cost targets and instruments (trading
route).
• This used conservative oil prices (lower than current)
• This excludes benefits of reducing CO2 and other pollutants
25. Cost to Manufacturers
• Manufacturer costs of meeting the 120g/km target amount
to on average 577 Euros/car for the lowest cost
target/instrument.
• This amounts to 8.36 billion Euros/year for new
registrations in EU-15 in 2012.
• These figures assume that no costs are passed through to
consumers, nor does it reflect that potential for cost
reductions of measures over time.
• Therefore, real costs to manufacturers will probably be
significantly lower, and in cases, if and where full pass
through is possible, then costs are considerably lower.
• Pass through is facilitated by consumer benefits
26. Targets and Manufacturer costs - Euros/car
no pass-through of costs
Flexibility % improvement relative target absolute target
(Regulated entity)
1 every car 591 741 987
2 manufacturer’s 580 605-635 700
average
3 fleet average 577 577 577
27. Costs to consumers
• In many cases, the cost to the consumer is negative – ie the
changes bring a net financial benefit.
• Car prices are expected to rise by on average around
1200Eur (full pass through of costs + taxes and margins),
• for the cheaper options the fuel savings benefits outweigh
the costs at the 0% discount rate.
• In reality, however, consumers probably apply a rather high
discount rate to future benefits, so may not fully appreciate
this benefit.
• On the other hand the consumer benefit is extremely
sensitive to fuel price assumptions;
• with fuel prices at current levels, more of the options yield
net benefits than the study, and consumer acceptance
should increase as a result.
28. Impact of Fuel Price on Consumer Cost
1500
2008
Net costs to consumer [Euro]
1000
500 each car - uniform target
(NPV: IR = 5%)
0 each car - all other targets
0.80 1.00 1.20 1.40 1.60
-500 per manufacturer - all targets
-1000
all cars (trading) - all targets
-1500
-2000
Petrol price [Euro/l]
Source: IEEP/TNO/CAIR
Data: Polk Marketing Systems
29. Insights on Trading
• CO2 credits are traded among manufacturers in g/km per vehicle units
– ie different units than in the EU-ETS.
• Trading can reduce vehicle costs (excl. taxes and margins) by up to
410 Euros/car which = nearly 6 bn Euros/year. (cf 120 g/km fixed per
car target)
• The advantages of trading are much more moderate for other targets,
ranging from close to zero for the % reduction options to 400 – 2,500
million Euro for the other target-instrument combinations.
• Trading volumes range between 201 million Euro with % reduction
case, up to 2.57 billion with a fixed target.
• Note that trading volumes relate to targets defined at the manufacturer
level. There is substantially more internal trading within each
manufacturer, which underlines the benefits of a bubble approach
relative to the car/segment specific approach.
• Buyers and sellers are often very different depending on the target and
instrument type.
30. Cost of Reducing CO2
• For options with trading the value of the traded credits = the
marginal costs of further CO2 reduction (expressed in
Euro/(g/km).
• The marginal costs vary little between target / instrument mixes
– around 50 Euro/(g/km).
• Marginal costs to society are 141 to 174 Euros/tonne CO2 with
trading (interest rate 0% and 5% respectively),
• The average costs are much lower at 34 to 67 Euros/tonne
CO2 (interest rate 0% and 5% respectively).
• Prices are higher than currently under the ETS – hence while
there are benefits of trading generally, joining any automotive
trading scheme to EU ETS would lead to the automotive
industry not meeting the 120g/km target. Also complications of
different use of terms under trading schemes.
31. Subsequent Study – for DG Enterprise
Review and analysis of the reduction potential and costs of
technological and other measures to reduce CO2-emissions
from passenger cars
Richard Smokers, Robin Vermeulen,
Robert van Mieghem & Raymond Gense
TNO Science and Industry
Ian Skinner, Malcolm Fergusson,
Ellie MacKay & Patrick ten Brink
IEEP - Institute for European Environmental Policy
George Fontaras & Prof. Zisis Samaras
Laboratory of Applied Thermodynamics
Aristotle University of Technology
See http://ec.europa.eu/enterprise/automotive/pagesbackground/pollutant_emission/index.htm
32. ‘DGENT Updated results of DGENV study’
For most target-measure combinations the manufacturer costs
for reaching a 2012 target of 120 g/km are around €1700 per
vehicle compared to average costs of the 2008/9 baseline
vehicle emitting 140 g/km. This translates into an additional
retail price of €2450 per vehicle.
These are significantly higher than the study for DGENV.
cost curves (manufacturer costs) cost curves (retail price increase)
10000 p,S 10000 p,S
9000 p,M 9000 p,M
8000 p,L 8000 p,L
costs [Euro/veh.]
costs [Euro/veh.]
7000 d,S 7000 d,S
6000 d,M 6000 d,M
d,L d,L
5000 5000
4000 4000
3000 3000
2000 2000
1000 1000
0 0
0 20 40 60 80 100 0 20 40 60 80 100
CO2 reduction [g/km] CO2 reduction [g/km]
33. Why are they higher ?
• The translation from retail price data obtained from literature to
manufacturer costs has been done with a different factor (1.44 instead of
2.0), resulting in higher input on the manufacturer costs;
• Note that this has no effect on cost to consumers
• The effects of autonomous weight increase have been modelled with a
different formula resulting in a higher amount of additional CO2-
emissions to be compensated;
• This assumes continued move toward heavier cars
• Cost and CO2-reduction data for individual options have been newly
estimated taking into account new literature data, information from
industry and evolved expert judgement;
• The resulting overall CO2-reduction of packages of measures that target
engine and powertrain efficiency has been assessed more
conservatively
• This assumes that manufacturers will less often be able to choose to most cost
effective efficient package of option
34. Weakness of the approach
• Ex ante assessment of costs have almost systematically been
shown to overestimate the costs - ex-post studies have shown
this true retrospectively.
• Cost data tends to takes no or little account of innovation /
learning – based on costs now
• Oil price scenarios used are relatively conservative
• Some conservative estimates used, pushing prices up.
• Assumptions on future weight growth may or may not end up
being true – if not then the costs are an over-estimate. (and if we go
for heavier cars even faster then an underestimate of course).
• Focuses on costs to one set of industry players. Others will make
money on it. Certainly less dramatic a cost to Europe plc, and in fact
not necessarily a cost.
35. General conclusions
• Reducing CO2 from transport-passenger cars is vital
• It is a major technological and social challenge
• The existing policy instruments are not proving as effective as hoped
• There is a need for additional measures
• A range of instruments and targets exist
• Costs can be high for manufacturers, society and consumers – yet
costs to consumers, given fuel savings, are sometimes negative.
• Trading can help reduce costs – there are different winners and losers
depending on targets and instruments
• Trading prices most likely to be higher than EU-ETS.
• IF there is to be a car CO2 trading scheme best to keep separate –
different units, and link will reduce reductions from automotive sector +
note also more CO2 leakage to outside EU from EU-ETS than cars ET.
• There is still controversy over exactly how much it will cost.
• There is no controversy that cars specific CO2 needs reducing further.
36. The CO2 Challenge for Passenger Cars in Europe
and the Potential Role and Impacts of Emissions
Trading
Thank You!
Any Questions?
Patrick ten Brink
Senior Fellow and Head of Brussels Office
Institute for European Environmental Policy (IEEP)
ptenbrink@ieep.eu
www.ieep.eu