Options for Carbon Regulation of the European Car Industry

Alex Veitch

Transport Strategy Manager

Energy Saving Trust

LowCVP Conference: Policy Challenge

The case for regulation

• Long-term carbon regulation for the car industry is required

• Individual companies should be regulated, rather than associations

• Flexibility can be built-in to the regulation

• Emissions trading should be viewed with caution

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ACEA JAMA KAMA Target

Voluntary agreement progress

Source: EC Monitoring Report 2005, T&E 2006

Target year is 2008 for ACEA; 2009 for JAMA & KAMA

T&E figure

Structural issues

• Association approach is flawed• Free riders• No control over members’ production and

marketing strategies• Companies could leave the association• Lack of transparency: No official reporting of

EU wide company average

The case for regulation

• A popular step: 70% of people support mpg regulation*

• Industry certainty: Long-term regulatory framework to drive innovation

• Global competitiveness: Stay ahead of regulation in China, Japan, US

* 70% agreed with the statement: “Car makers should be legally required to make cars that get high MPG (miles-per-gallon)” Mori for EST 2005, Base 1,001

Target: Model Range or Sales Weighted?

• Model range– Simpler for manufacturers to administer– Risks tokenism - low-numbers of low-carbon

cars actually sold

• Sales weighted average – Drives marketing toward low-carbon models– Sales weighted is already lower than model-

range, so better deal for manufacturers

Average CO2 emissions: Best selling car companies in the UK 2005

Source: EST analysis of SMMT data

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Sales-Weighted

UK Average (all cars sold)

Model Range

Regulation option: Max CO2 limit

• Outlaws inefficient products– Transforms the market – Has worked for white goods

• However…– Small “tail” of high CO2 cars– No flexibility for niche producers

Car sales in the UK: CO2 distribution

Source: SMMT

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Regulation option: Company Average

• Similar to U.S. CAFE standards– Simple structure, companies have ownership– Uniform target is tough for niche producers

• Refinements for provide flexibility– Percentage reduction target – Company target based on its model range

Internal trading

• Provides some flexibility– Enables high CO2 producers to purchase credits

from low CO2 producers rather than alter their model range

• However, limited market– Could be a small number of companies earning

credits– Risk of “hamstering” – could require a regulator

to intervene

External Trading

• Requires analysis of actual carbon emissions rather than a fleet-average figure

• This changes the calculation of the impact that each company has on the climate

Average vs. Total Company Emissions

Source: SMMT data, with assumed vehicle lifetime of 200,000km .

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External Trading

• Flexibility: In addition to making lower carbon cars, manufacturers could:– Reduce sales – Influence driving behaviour – Influence purchase decisions– Buy credits on the market

• Problems– Quantifying carbon savings from advice activities

Conclusions

• Strong case for carbon regulation of the car industry, placed on individual companies

• Targets and structure of regulation– Sales weighted target better than model range– Percentage target could provide flexibility

• Caution on emissions trading– Internal trading - insufficient flexibility– External trading - difficult to quantify savings

from advice activities

Options for Carbon Regulation of the European Car Industry

Alex Veitch

Transport Strategy Manager

Energy Saving Trust

LowCVP Conference: Policy Challenge