international energy agency agence internationale de l’energie voluntary agreements as drivers of...

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE

Voluntary Agreements as Drivers of Technological Change in the

Transport Sector

Lewis M. Fulton

International Energy Agency

Annex I Expert Group Meeting

Transport Roundtable

OECD Headquarters, February 18, 1999


Talk will cover:

Background on Existing Voluntary Agreements

Case Study: The European Union / ACEA agreement

What does the EU/ACEA VA mean for other regions?

Questions for Discussion


Background - Why VAs ?

Fuel Economy Improvement could provide significant reduction in GHG emissions from light-duty vehicles in Annex I countries by 2010

Technologies are available to reduce average new vehicle fuel intensity by 25% or more, with potential reductions of 50% or more after 2010.

Vehicle manufacturers lack a strong incentive to build vehicles with low energy intensity, since available technologies can also be used to improve vehicles in other ways that are more important to many consumers


The Potential Value of a VA

Manufacturers perceive a high cost to unilateral fuel economy improvement above that level demanded by consumers due to losses in market share and profits

If all manufacturers agree to move in the same direction, some of this market risk is removed

Manufacturers can work in concert to send signals to consumers through vehicle offerings, marketing and pricing.


Existing Voluntary AgreementsCountry Type of Approach Target and Time Period Monitoring and Reporting

Australia Agreement with automanufacturers on fuelconsumption and code ofpractice for reporting on fuelconsumption.

Fuel efficiency targets for carslight-duty trucks (8.2 litres/100km) by 2000

Information service and review ofpassenger motor vehicle plan by1996.

Canada Voluntary agreement withmanufacturers and importerson Company Average FuelConsumption (CAFC)requirements.

Fuel efficiency targets for cars(8.6 l/100km) and light-dutytrucks (11.5 l/100 km) by 1991(starting year 1980).

Motor Vehicle Fuel ConsumptionStandards Programme;information to purchasers,including labeling.

Japan Agreement with motor vehiclemanufacturers of new lightvehicles based on achievingconsumption levels of themost efficient vehicles in eachsize class.

Fuel efficiency targets for theyear 2000 for six light vehiclesand light truck categories (baseyear 1990).

Voluntary system has recentlybeen replaced with a similar, butmandatory program.

UnitedStates

Voluntary partnershipprogramme for thedevelopment of a newgeneration of cars andalternative fuel vehicles.

Fuel economy improvements bya factor of three by 2005 asdemonstrated by new vehicleprototypes; nearer termimprovements to specifictechnologies.

Annual report to Congress onprogress and achievements ineach year. Interim technologygoals are also set and reviewedeach year.


Evolution of Average New Vehicle Fuel Intensities, Selected Annex I Countries

4

6

8

10

12

14

16

18

20

1970 1975 1980 1985 1990 1995

Lit

ers

per

100

km

US (Light trucks)

Australia

Japan

US (Cars)

Allemagne

U.K.

France


Weaknesses in Existing VAs ?

Have involved single countries and relatively small vehicle markets

Have not had especially ambitious targets

Have not had significant governmental support in the form of reinforcing policies


Case Study: The EU/ACEA VA

October 1998, agreement in which European automakers pledged to reduce average emissions of CO2 from new cars 25% by 2008 relative to 1995 level

Automakers will look at potential for additional reductions and report by 2003

Agreement is contingent on a number of actions that must be taken by the EU


EU/ACEA Contingency Factors

Availability of “enabling fuels” (30 PPM Sulphur gasoline and diesel)

Preventions of “distortions of competition”

“Unhampered diffusion” of new technologies into the market


What makes the EU/ACEA VA Different?

Involves several countries, large market

Active participation from automakers from around the world

Metric is CO2, not fuel intensityAmbitious CO2 reduction goalsExplicit contingenciesHigh Stakes - Kyoto links


What Technologies are Available?

New Engines (TDI diesel, DI gasoline, hybrids, fuel cells?)

“Incremental” Vehicle technologies weight reduction friction reduction (lubricants, tires,

aerodynamics) drive train improvements (e.g electronic

transmissions) more efficient accessories regenerative braking


Cost-effective Fuel Economy Improvement Potential: Germany

Note: CECP=cost effective at current fuel pricesSource: IEA Policies and Measures Study

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1990 1995 2000 2005 2010 2015 2020

Lit

ers

per

100

km

CECP, maximum size-class shifting

CECP, reference case

CECP, constant vehicleattributes

Cost effective @$200/ton CO2

Voluntary agreement2010 goal


Required Fuel Economy Improvements by 2010, Germany

Case 1 (current sales mix, HP, weight)

Case 2 (maximum changes in mix, HP, and weight)

1995 Fuel Economy ( L/100KM) 7.6 7.6

Potential L/100KM increase due to mix shift, power and weight increase 0.0 1.3

VA Target: 25% below (1995) 5.7 5.7

Needed reduction 1.9 3.2


Fuel Economy Improvement Potential, Germany

(Indicative Estimates)Case 1 (current sales mix, HP, weight)

Case 2 (maximum changes in mix, HP, and weight)

Needed reduction, L/100KM 1.9 3.2

Potential Benefit from lower cost incremental technologies 1.4 1.4

Potential Benefit from higher cost incremental technologies 0.2 0.2

Potential Benefit from GDI Engines 0.5 0.5Potential Benefit from Hybrids 0.6 0.6

Total reduction 2.7 2.7

Benefit from Diesels instead of GDI and Hybrids 1.2 1.2

Total Reduction w/ Diesels instead of GDI and Hybrids 2.9 2.9


Implications: A Need for Reinforcing Measures

Half or more of the CO2 reduction from technical efficiency improvements may be lost to increased vehicle size, weight, and power

Manufacturers have a limited ability (and incentive) to prevent consumers from shifting purchase patterns


Potential Reinforcing Measures

Many possible measures, but two market-oriented ones could be: fuel economy (or CO2 emissions) based

vehicle fees or “feebates” incentives for the adoption of specific

advanced technologies on vehicles


Fees and Feebates

CO2-based fees can provide a powerful signal to consumers

Many countries already have a substantial vehicle purchase tax that could be converted (in all or part) to a CO2-based tax

A “feebate”, i.e. Fee + rebate system can be applied that is revenue neutral, where fees from “guzzlers” offset rebates for “sippers”


Purchase Fees v. Fuel Taxes

For a vehicle owner who drives 15,000km/year, a vehicle purchase fee of $200 per L/100km could send as strong a signal to purchase a more fuel efficient vehicle as a fuel tax increase of $0.25/litre.

An existing 20% vehicle purchase tax could realistically be converted to a tax that increases by $1000 for each L/100KM increase in fuel consumption rating.


Incentives for Adoption of Advanced Technologies

High cost of advanced technologies will likely come down with volume and experience

Incentives can speed this process by overcoming hurdle costs and risk averse behaviour

Incentives can be technology specific or directed at very low fuel-intensity vehicles


Examples of Technology Incentives

Japan has a price incentive on the order of $3500 for hybrid electric vehicles

US Administration has proposed an incentive for hybrids based on their efficiency improvement relative to comparable conventional vehicles: $1000 for 25% reduction in fuel consumption $2000 for 40% reduction $3000 for 50% reduction $4000 for 67% reduction


What could the EU/ACEA Mean for other VAs?

Provides a very clear set of goals and requirements for success

Will provide spillover benefits if successful

Manufacturers may be more willing to undertake similar agreements elsewhere


Potential Questions for Discussion

What is the appropriate role for VAs in the policy mix for greenhouse abatement in the transport sector? How important is technological change?

Is VA a good model for greenhouse abatement in this sector? How do past experiences relate to this agreement?

How much CO2 reduction are different countries (including non-EU countries) assuming from the EU VA as it now stands?

What policies have countries put in place to reinforce effectiveness of VAs? What are the main barriers they address?

How important is the relationship between fuel quality d fuel efficiency? How can these issues be addressed in an integrated manner?

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