Cheaper and more efficient

Photo: Creative Tools/Creative Commons

Previous claims that reducing CO2 emissions would make new cars unaffordable are shown to be unfounded in a new report by Transport and Environment. Quite the opposite, cars have actually become cheaper while becoming more carbon-efficient.

In the run-up to adoption of the present regulation on CO2 emissions from cars in 2009, two different studies were commissioned by the European Commission to estimate what it would cost to reduce CO2 emissions from new cars. The first study, published in 2001, used 1995 as a base year and showed that reducing emissions by 25 per cent to an average of 140 grams of CO2 per kilometre (g/km) would cost more than €2400 per car. The second study was published in 2006, in which 2002 figures were used as a baseline. The conclusion was that a reduction of 16 per cent, that is 140 g/km, would increase the retail price by €1200 per vehicle.

Four years after the publishing of the second report, in 2010, the target of the two reports had in fact been reached. The average car sold in the European Union now emitted 140.3 g/km. Had the reduction been as costly as the two reports had shown?

To find out, Transport and Environment used data from the European Commission's competition department. Every year it publishes a study comparing car prices in the EU. The figures are corrected for inflation and for changes in the fleet mix, such as the shift to smaller and cheaper cars during the recent financial crisis.

During the eight-year period for which data was available, beginning in November 2002, cars became 13 per cent cheaper (figure 1), with an average annual price reduction of 1.7 per cent. For a typical €20,000 car this overall change of 13 per cent equals €2600. Even if retail prices do not directly reflect production costs it is clear that any fears that the CO2 regulations would make prices skyrocket were unfounded.

Figure 1. fleet-average CO2 emissions of new cars in the EU versus regulatory CO2 targets

Transport and Environment also reviews overall development in the car industry towards the 2015 target of 130 g/km (figure 2). Between 2007 and 2010, over the time period when legally binding CO2 targets have been a reality for the industry, average emission decreased by 4.0 per cent a year. This can be compared to the average rate between 2002 and 2007 when emissions decreased by just 1.2 per cent a year. At the present rate it looks as if car manufactures will reach the target of 130 g/km ahead of time.

Figure 2. Trends in car prices and CO2 2002-2010 (2002 = 100%)

How could the two studies, conducted on behalf of the European Commission, be so wrong? And why are the targets so easy to reach? A common mistake when predicting costs to meet stricter environmental regulation that requires new technology is that the change in costs as niche technology becomes mainstream technology is completely or partly ignored. The effects of mass production and acquired knowhow will normally result in significantly lower costs.

Another dilemma is that the best information about future costs comes from the industry itself, which has few incentives to be optimistic about the costs of new environmental regulations. Companies that are lagging behind in the development of new technology will obviously want to delay any enforcement. But those leading the way also have an incentive not to reveal just how low production costs may be, as such data is seen as a commercial secret. Even suppliers of clean technology who would in theory have an interest in presenting optimistic figures may not do so, since customer relationships are too sensitive.

The result is a double negative bias. Jos Dings, director of Transport and Environment said:
"Clearly the EU needs to learn lessons from this. When it comes to future targets to improve fuel efficiency, industry cost estimates should be taken with an SUV-sized pinch of salt."

Kajsa Lindqvist

How clean are Europe's cars? Transport and Environment September 2011 can be downloaded at:

CO2 standards for passenger carsThe CO2 emission standard for cars is designed to ensure that the average new car sold in the European Union by 2015 should emit no more than 130 g/km, and by 2020 no more than 95 g/km. The process of developing this regulation began back in 1995 and was hampered by several steps of weakening and postponement.

The core of the regulation is a linear limit curve, where the weight of the car is a variable. Heavier cars are allowed to emit more than the 130 g/km and lighter cars less. This has been criticised for inhibiting producers from developing lighter cars with the same capacity as existing heavy models. Instead a "footprint model" is proposed in which the area between the wheels should determine the emissions allowed.


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