New technologies for cars can help reduce greenhouse gas emissions, but at what cost? The answer may be less than people think.
Would adding US$1,500 to the price of a new car be enough to help halt climate change? That’s what US and EU experts broadly agree on as the average price tag for new technologies coming on stream to make cars more fuel-efficient and climate friendly. But what does that price tag entail?
Cars and sports utility vehicles (SUVs) represent 10% of global CO2 emissions from fuel combustion and 41% of transport CO2 emissions, most of that being in OECD countries. Now, apart from some far-fetched concepts or designs, there is quite an array of options available to help reduce their carbon impact, and not all of them are expensive.There are projects promising more fuel-efficient aerodynamics or lower tyre resistance. Others plan to improve propulsion systems by equipping small engines with turbochargers, so competing with larger-engined cars. Then there are the more talked about new technologies of recent years, such as hybrid vehicles that use gas to power their own electric drive train or “flex-fuel” vehicles that run off of petrol or biofuels. Some of these innovations, like plug-in electric hybrid and hydrogen fuel cell vehicles, would take costs well beyond that extra $1,500.The question is whether these new technologies really work to reduce emissions. A recent review of low-carbon cars in the UK market commissioned by the UK government, the King Review, concludes that they do. In fact, the report argues that within just a decade, people will be able to drive cars that have the same level of power and comfort enjoyed today, but emitting nearly one third less carbon dioxide per kilometre. Were they to do this, they would buck a decade-long trend where consumers have traded important fuel-efficiency gains for more power and weight.A major challenge, according to the report, will be how to cultivate a strongly growing market for low emissions cars that can still earn car makers enough profits to plough back into investments for the next stage of improvements.The King Review’s upbeat assessment is echoed by John Heywood and his colleagues at MIT in the US. They predict that over the next 20 to 40 years, cars’ fuel consumption will fall by 30-50%, thanks to a combination of newly available and still-developing technologies that improve engines and transmissions, greater use of hybrid electric cars, and steps to reduce drag by taking some of the weight off cars. As technologies evolve, we may see more plug-in electric hybrids and hydrogen fuel cell hybrids too.The nature of the challenge varies by region. The current preference for heavier cars in the US means there would be more potential for fuel savings from weight-reducing technologies than, say, Europe, where consumers have typically preferred lighter cars overall. Similarly, in Europe, where fuel-efficient diesel cars have been popular for some time, there would be smaller gains from technologies that improve fuel efficiencies than in the US, where diesel cars are rarer.No technology-based solution is cheap–at least not in the early stages–with current hybrids running about €1,250 (US$2,000) more per car than non-hybrids. Plug-in hybrids, which are recharged and driven, are still too expensive to become widespread.On the other hand, costs fall as technology evolves, and for the Heywood team, the “2035 hybrids” now being developed would halve fuel consumption compared with the ones currently on the road.The EU Commission has taken a look at the impact of its proposed standards for lower car emissions and concluded that the savings from fuel bills could more than offset the costs of buying a car with new fuel-saving technology. They see net savings to consumers of around €1,000 (US$1,600) over the life of the car, which is more than the extra $1,500 price tag mentioned to cover costs. Some critics even believe the EU’s cost projections are too high, not taking into consideration economies of scale in manufacturing the cars or the effect of new knowledge.But do consumers really opt to buy more environmentally-friendly cars over those that are not? After all, consumer tastes, fashions and technologies vary all the time. Some studies find that people put more weight on features such as power and comfort than fuel consumption, when buying a car.Providing more information in sales rooms about environmental impact or emissions may help alter mindsets, even in the absence of strict regulations (see interview with Finland’s transport minister, Anu Vehviläinen
). Tests that account for embarked electronics, air conditioning and other fuel-sapping devices would also give a clearer picture to the potential buyer.Indeed, where car makers are not faced with a stiff mandatory standard on emissions levels and have continuing choice in deciding how well their product line complies with targets, buyer preferences and competitor behaviour will have the final say. This is evident in vibrant demand for large, gas-guzzling, high-end cars, where the fattest returns are made.Policy can help to change this behaviour. France’s environment minister, Jean-Louis Borloo, reported at the environment ministers’ meeting at the OECD in late April that the French “bonus-malus” system that rewards low polluting cars by penalising polluting ones, has noticeably affected customer decisions in buying new cars.
The real issue to watch for is growth in overall car usage. In the EU, where technologies have become more fuel-efficient, the number of cars on the road increased substantially over 1995-2003, when people drove their cars more often and over longer distances. Cheap oil was one reason, but also at play was economic expansion, longer journeys to work as people live further away from urban centres, and the simple fact that fuel-efficient cars make increased driving more affordable.In other words, policies should really focus on reducing the ecological footprint of transport generally, and not just fixing emissions targets by weight classes of different vehicles. In the US, one of the world’s largest single-country sources of emissions, the Department of Transportation chose Earth Day on 23 April to release its proposed interim requirements that auto makers must follow to achieve the average minimum fuel-efficiency target of 35 miles per gallon by 2020.According to the proposed target, signed into law at the end of last year, by 2015, new passenger cars would need to get at least 35.7 miles to the gallon while SUVs and other “light trucks” would have to drive a minimum of 28.6 miles per gallon. Some flexibility is envisaged, and there are proposals for a credit system to enable car manufacturers to trade emissions permits with each other to meet these targets overall.Clearly, a mix of policy actions is needed, combining market-based responses such as fuel taxes and carbon emissions trading schemes with regulations that compel car makers to improve the fuel/emissions performance of their products. These were the conclusions of a recent International Transport Forum-OECD roundtable held earlier in 2008 to weigh the costs and effectiveness of policies to cut emissions.Regulating car manufacturers to achieve better fuel economy may cost more to implement than taxes or other incentive-based measures, and may take longer–as much as 15 to 20 years–to have their full impact, not least because of the lag caused by new car turnover times. Fuel taxes and CO2 emissions trading schemes have the advantage of affecting all transport now, not just new cars; but taxes on fuel are already high in some countries in the EU.Whether taxes can jack prices up enough to reduce journeys or take unnecessary traffic off the streets is debatable and is largely linked to peoples’ expectations about future driving costs–but not too far in the future! What is clear is that there is no panacea and each measure has its pros and cons.Nor is high tech the only way forward. Policymakers would make major inroads by picking the low-hanging fruit first, such as encouraging use of low resistance tyres, higher performance motor oils, ecodriving (see article, page 49) and other steps to reduce fuel consumption. Just switching off air conditioning could reduce emissions by up to 15%, some studies say.But here’s the catch–no matter how much OECD cars improve, ultimately it won’t matter unless those improvements quickly spread to the rest of the world. While the OECD currently dominates transport CO2 emissions, growing incomes and demand in China, India and other rapidly growing economies will make gains from fuel economy improvements there much more relevant by 2050.This means that what little breathing space there is left to get technology solutions right must also be also to ensure that the global market for fuel-efficient car technology expands in line with global demand for cars. JB/RJCReferences
- OECD (2008), “Ministers’ roundtable on climate change”, OECD Observer No 266, March 2008, see www.oecdobserver.org
©OECD Observer No 267 May-June 2008