11

Global Policy Review: Global Policy Review: Transportation and Climate ChangeTransportation and Climate Change

Drew Drew KodjakKodjak, Executive Director, Executive DirectorInternational Council on Clean TransportationInternational Council on Clean Transportation

2626thth Annual ConferenceAnnual ConferenceU.S. and International Association for Energy U.S. and International Association for Energy EconomistsEconomistsAnn Arbor, MIAnn Arbor, MISeptember 25, 2006September 25, 2006

22

OutlineOutline

• Introduction to ICCT• Emissions Trends

– Past, future, and with modeled carbon constraints.

• Review Major Policies– Passenger Cars, Commercial Trucks, and

Fuels– US, California, Canada, EU, Japan, China.

• Final Thoughts

33

About the ICCTAbout the ICCT• The International Council on Clean Transportation (ICCT) is dedicated to

improving the environmental performance of vehicles, fuels and transportation systems throughout the world.

• The ICCT is composed of government officials and international experts who are actively involved in developing environmental regulations for motor vehicles and transportation fuels.

• Council participants are drawn from those nations, states, and regions that are home to some of the largest auto and fuel markets around the world, including the European Union, Germany, Great Britain, Japan, China, Thailand, India, Brazil, Mexico, Canada, California, and the United States.

• Council participants act as individuals, rather than representatives of their countries or agencies.

44

ICCT ParticipantsICCT ParticipantsBrazilSuani CoelhoSao Paulo State Department for the EnvironmentAssistant Secretary

Ruy de Goes Leite BarrosMinisterio de Meio AmbienteProgram Director

CanadaPeter Reilly-RoeNatural Resources CanadaAssistant Director

ChinaHe DongquanChina Sustainable Energy ProgramProgram Officer

Feng FeiDevelopment Research Center for the State CouncilDirector General

Fu LixinTsinghua UniversityDepartment of Environmental Science and Engineering

EuropeAxel FriedrichFederal Environmental AgencyHead of Division

Guenter HormandingerEuropean CommissionVehicle emissions and transport

Martin WilliamsDepartment for Environment Food and Rural AffairsHead of Air and Environmental Quality Division

IndiaAnumita RoychowdhuryCenter for Science and EnvironmentAssociate Director

InternationalMichael WalshTransportation Consultant

JapanYasuri DaishoWaseda UniversityProfessor

KoreaYoungil JeongCenter for Environmentally Friendly VehicleDirector

MexicoAdrián Fernández BremauntzNational Institute of EcologyPresident

Mario MolinaCentro Mario MolinaPresident

Leonora RojasNational Institute of EcologyDirectora General

ThailandSupat WangwongwatanaMinistry of Natural Resources and EnvironmentDeputy Director General

USAHal HarveyThe William and Flora Hewlett FoundationEnvironment Program Director

Margo OgeU.S. Environmental Protection AgencyOffice of Transportation and Air QualityDirector

Robert SawyerCalifornia Air Resources BoardChairman

55

Shares & Trends of World COShares & Trends of World CO22EmissionsEmissions

World CO2 emissions from fossil fuel combustion grew by 20% from 1990 to 2003.

Second largest source was transport sector with 24% of total world emissions.

Growth since 1971 was 150% mainly from road transport.

Source: IEA. 2005. CO2 Emissions from Fuel

Combustion 1971 -- 2003. Paris, France.

66

1990 1999 20200

10

20

30

40

50

60

70

80Million Barrels/Day Oil Equivalent

OtherBunkerJet FuelDieselGasoline

Source: EIA/DOE (2001)

Recent and Projected World Transportation Fuel Demand

20002005

20102015

20202025

20302035

20402045

20500

2

4

6

8

10

12

14

ThousandsMegatons

Water-borne2-3 wheelersLDVsFreight trucksAirBusesFreight + Passenger rail

WBCSD

World Transport Vehicle CO2 Emissions By Mode

88

Transportation

Source: EIA analysis of NCEP policies.

Answer: Very little, because a modest carbon price (e.g., $7 ton/ CO2) translates into a 5.3 cent per gallon increase at the pump.

What happens to transport sector GHG emissions under a modest U.S. economy-wide GHG cap and trade system?

99

Global Projections to 2100Global Projections to 2100

Base Case

Jae Edmonds, PNNL / Battelle, MiniCam Modeling, 2003.

Modeled inventory changes under a stabilization-inducing global carbon price shows doubling of transportation sector emissions.

Electricity Sector

Transportation Sector

Source: PNNL / Battelle

1010

United States: United States: National ApproachNational Approach

• Corporate Average Fuel Economy (CAFE) Standards– Mandated by Congress in response to 1973-74 Arab oil

embargo– Standards first took affect in 1978– Cars mpg increased from 13.2 in 1975 to 27.5 by 1985– Light trucks standards increased less steeply, from about 13

mpg to 20.5 mpg by 1987

• Gas Guzzler Tax Included• Two recent rulemakings by NHSTA to raise light truck

standards (not passenger vehicles)– 2002 Rule raised LDV standards 1.5 mpg over 3 years– 2005 Rule: reformed and increased CAFE system

1111

CAFE Worked:CAFE Worked:Oil, Cost, and GHG Savings in 2000Oil, Cost, and GHG Savings in 2000

• Oil Consumption– 2.8 MBD oil savings (13% reduction)– 25% reduction in demand for gasoline

• Consumer and Economic Savings– $66 billion in direct consumer savings (@$1.54/gallon)– Reduced imported oil price by $1 to $1.80/bbl, yielding $3-6

billion savings in 2000, and $40-80 billion cumulative.

• Climate Change Benefits– 100 million metric tons of carbon/yr– 7 percent reduction in overall US emissions

Source: NRC 2002

1212

What DidnWhat Didn’’t Work With CAFEt Work With CAFE

• Lower standards for light trucks• CAFE credits for flex-fuel vehicles• Failure to regularly update standards to

reflect new technologies.• Fleet average approach favored

manufacturers with smaller vehicle sales mix.

1313

Reformed CAFEReformed CAFE

• New approach established fuel economy standards that vary based on vehicle size (i.e., footprint).

• Shifts distribution of costs away from manufacturers focused on largest classes and towards those focused on smallest.

• Standard is now sensitive to benefit assumptions; $0.50 / gallon translates into 2-4 mpg

1414

Big winners under revised approach are likely to be GM and Ford.

1515

CaliforniaCalifornia’’s Approach: s Approach: Mandatory GHG Emission StandardsMandatory GHG Emission Standards

• Statute passed in July 2002, regulations adopted September 24, 2004.

• Maximum feasible CO2-equivalent emission standards– 30% reduction by 2016 (phase in begins 2009)– Bundle of gases, CO2, HFC, N20, CH4

• About ten other states have adopted the California regulations as permitted under the Clean Air Act.– Equivalent to about 30% of U.S. vehicle market.– Quebec also considering adoption.

Vehicle Climate Change Vehicle Climate Change Emission SourcesEmission Sources

Methane

Nitrous Oxide

CO2

CO2

HFC

A/C compressorEngine Transmission

Black Carbon?Ozone

1717

Carbon DioxideMethane

ChlorofluorocarbonsNitrous Oxide

OzoneBlack Carbon

Refelective AerosolsCloud Droplet Changes

Forcing Agent

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

Watts Per Square Meter

Source: Hansen, Scientific American, March 2004

Climate Forcings

Aerosol Effects AreNot Known Accurately

Recent evidence indicatesReducing 1 kg of BC is equalTo reducing 2.5 tons of CO2

CO2 Is Not The Whole StoryCO2 Is Not The Whole Story

1818

European Approach: European Approach: Voluntary Agreement on CO2 EmissionsVoluntary Agreement on CO2 Emissions

• Voluntary agreement between European Commission and Automobile Associations (EU, Japanese, Korean).

• Target of 140 g/km in 2008 and 120 g/km in 2012.

• Dieselization of passenger vehicle market largely responsible for about 14% reduction in GHG emissions from 1995 baseline.

• Progress has slowed, and latest data indicates 140 targets will not be met.

186

140120

0

50

100

150

200

1995 Act

ual

2008 Agre

ement

2012 Target

1919

Some European Policy QuestionsSome European Policy Questions

– Voluntary or Mandatory?– Integrated approach with other measures?– Incorporate transport sector into broader

emissions trading system?– How should cost effectiveness be

determined?– Size-based or weight-based?– Japanese front runner approach?– Include all GHG emissions or stay with only

CO2?

2020

CanadaCanada’’s Dominant GHG Emissions s Dominant GHG Emissions Source is the Transport Sector.Source is the Transport Sector.

2121

CanadaCanada’’s Approach:s Approach:Voluntary Agreement on GHG Emissions.Voluntary Agreement on GHG Emissions.

• MOU signed in 2005 with Canada and International Automobile Associations.

• Commitment to achieve 5.3 Mt reduction in GHG emissions from passenger vehicles by end of 2010.

• Includes all GHG emissions listed in Kyoto Protocol.

• Compliance calculated by comparing modeled GHG emissions from passenger vehicles in 2010 against adjusted forecast from 1999.

2222

Passenger car agreement to contribute only Passenger car agreement to contribute only 10% of transport sector Kyoto commitment.10% of transport sector Kyoto commitment.

2323

DenmarkDenmark’’s Approach:s Approach:Vehicle Tax Tied to Fuel EconomyVehicle Tax Tied to Fuel Economy

• 24 Different Car Classes Based On Kilometers Per Liter of Fuel

• Diesel Taxed More Than Gasoline

• Annual Increase with Inflation Plus 1.5% Per Year

0

2000

4000

6000

8000

10000

12000

Petrol Diesel

Above2010.0-10.5Below4.5

2424

Japanese Top-Runner ApproachWeight-class fuel economy standards, a 23% fuel economy improvement by 2010 from a 1995 baseline, yielding an average fuel economy of 35.5 mpg.

Example: For vehicles with curb weight of 1515 to 1750 kg, the baseline average fuel economy is the bold black line, and the 2010 requirement is the red line above.

2525

5.62 km/L(17.8L/100km)

(466 g-CO2/km)

6.32 km/L(15.8L/100km)

(415 g-CO2/km)

Base year (2002)Fuel Economy

6.30 km/L(15.9L/100km)

(416 g-CO2/km)(12.1% improvement)

2015Buses

7.09 km/L(14.1L/100km)

(370 g-CO2/km)(12.2% improvement)

2015Trucks

Target standard value (average)Target year

Source: Japan MLITSet in FY2005.

Japan’s Approach to Trucks:World’s First Fuel Economy Standards

for Heavy-Duty Trucks

2626

Annual Vehicle Sales in China, 1991-2006

Cars

Trucks

Buses

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

mill

ions

ChinaChina’’s Situations SituationChina to become the second largest vehicle market this year, with total new sales project to be 6.5 millions.

New car sales are project to be surpass 3.0 millions this year.

Annual growth in new car sales averaged about 20% since 92, trucks 7%, buses 13%

2727

China’s petroleum production, consumption, and imports projected by IEA

Source: World Energy Outlook 2004

China currently ranked 2nd in oil consumption in the world after US. From 1993 China has turned into an oil net-import country, and in 2004 the net-import oil amount has reached 40% of the total oil use. About half of imports from Mideast. IEA projects imports share to reach 60% by 2010, 70% by 2020

China’s Approach:Mandatory weight-class standards

• M1 and M1G type vehicles (EU classification), including passenger cars, SUVs and MPVs less than 9 seats

• Two separate sets of standard for:– passenger cars with manual

transmission– passenger cars with automatic

transmission, SUVs and MPVs with 3+ rows (all transmission types)

• Weight-based, 16 classes (based on EU emission wt. categories )

• Based on European Test Cycle (NEDC)• Liters/100 km• Maximum fuel consumption level for

individual vehicle models within each wt. class, instead of average value associated with each wt. class

15

20

25

30

35

40

45

1500 2000 2500 3000 3500 4000 4500 5000 5500 6000

Vehicle Test Weight (lbs)

App

rox

CAFE

-equ

iv M

PG

Red Line -- Phase II (2008/9)

Green Line -- Phase I (2005/6)

For both Phases, the upper dot line is for Manual transmissions and the lower solid line is for Automatic transmissions.

Vehicle Category by Engine Displacement Tax Rate

Automobiles1.0 to 1.5 liters 3%1.5 to 2.0 liters 5%2.0 to 2.5 liters 9%2.5 to 3.0 liters 12%3.0 to 4.0 liters 15%

4.0+ liters 20%Commercial Buses 5%

Motorcycles<250cc 3%>250cc 10%

China’s Tax Approach:Sales tax tied to engine size

• Reformed corporate exercise tax:– reduce tax rate on

small engines (1.0-1.5 L) from 5% to 3%,

– increase tax rate on larger engine (> 4L, from 8% to 20%)

– eliminate SUV special rate of 5%

•Stalled proposal: Levy penalty tax on vehicle models that fail fuel consumption standards.

Comparison of fleet average fuel economyand GHG emission standards

EU

California

US

Japan

Australia

Canada

China

100

120

140

160

180

200

220

240

260

2002 2004 2006 2008 2010 2012 2014 2016 2018

g C

O2/

km -

Con

verte

d to

NE

DC

Tes

t Cyc

le

Source: Comparison of Passenger Vehicle Fuel Economy and GHG Emission Standards around the World, by Feng An and Amanda Sauer, Report for the Pew Center on Global Climate Change

EU missing target?

3131

Transportation FuelsTransportation Fuels

• Renewable fuel requirements spreading throughout the world.– U.S. renewable fuel standard requires 7.5 billion

gallons by 2008 (check).– Canada’s national target is 5% renewable fuels by

2010- 2012.– European indicative standard is 5.75 percent on an

energy content basis.– Brazil sugarcane ethanol accounts for 40% of

passenger vehicle fuel consumption (not diesel).

3232

All Transportation Fuels Not Created EqualAll Transportation Fuels Not Created Equal

-50000

0

50000

100000

150000

200000

250000

Gasolin

e D

iesel

Gasolin

e (Oil S

ands)

LPG from Petr

oleum

CNG from N

atural

Gas

Ethanol (C

orn / E

U Sugarbee

t)

Ethanol (A

dv. Corn

Biogas

)EU W

heat

Ethanol (B

R Sugarcan

e)

Biodiesel

(Rap

esee

d)

Biodiesel

(Soyb

ean)

Biodiesel

(Yell

ow Grea

se)

Biodiesel

(Palm

Oil)

Electri

city

g/ G

J

Brazil Ethanol LCA

Canada GHGenius Model

Europe WTW Model

U.S. GREET Model

3333

Renewable Fuels Portfolio Renewable Fuels Portfolio StandardStandard

• This policy concept would require fuel suppliers / importers to quantify and eventually reduce GHG emissions generated by fuels.

• Does not exist anywhere at present• Under public discussion in Europe and

California.

3434

Final ThoughtsFinal Thoughts

• Passenger Vehicles– Many ways to promote GHG reductions from passenger fleet.– The key is to create incentives for continuous, long-term

reductions in GHG emissions.– European debate over next 12 months will be critical, as will the

outcome of California lawsuit.• Transportation Fuels

– Key challenge to biofuels is certification of lifecycle emissions from soil to tank.

– Little previous experience with process rather than product-based standards.

• Commercial trucks – Japan leads the world with first standards.– Economic incentives are stronger than for passenger vehicles.