SUMMARY:
This note argues that:
1. A carbon tax is not an effective way of driving down car related emissions. It was estimated that a $23/tonne carbon tax would reduce total car emissions by only 1.1% initially rising to 2.6% after a number of years.
2. Driving down the average emissions per km of new cars should be a key part of any long term plan for reducing fleet emissions.
3. An offset credit emissions trading scheme would be the most effective way of reducing the average emissions per km of new cars. The attractions of this approach include:
I. Does not depend on any change in the price of fuel to work.
II. Will reduce the price paid for cars with below target fuel consumption.
III. The target can be as challenging as the government is willing to make it.
IV. Unlike simple cap schemes, it allows some scope for people to purchase new cars with above target fuel consumption.
V. At a petrol price of $1.50/litre it would actually REDUCE the national fuel bill $614 per tonne CO2 abatement.
(*NOTE: Offset credit trading is at the core of both the Australian MRET emissions trading scheme used to drive investment in renewables as well as the US system for reducing acid rain.)
RECOMMENDATIONS:
1. That an offset credit trading scheme be introduced before the next election.
2. The initial tailpipe emission** target be set at 122 g CO2/km. (5 litres/100 km for a petrol driven car.)
3. The target be ramped down to 25 g/km by 2020.
(**NOTE: The target may be expressed in a form that takes account of total emissions from well to tailpipe, not just tailpipe emissions.)
DETAILS:
Reducing the fuel consumption of cars is important from the point of view of both emission reduction and reducing our exposure to oil supply problems. ABS data indicates that passenger vehicles (excluding buses) consumed 18 billion litres of fuel at an average rate of 11.5 litres/100km during 2007. This fuel consumption would generate about 45 million tonnes of CO2.
Unfortunately, a carbon tax has been found to be ineffective at reducing total car fleet emissions. The results of two large overseas studies in the UK and US both suggest that a $30/tonne CO2 tax on tailpipe emissions would reduce total car fleet fuel consumption by only 1.4% initially rising to 3.4% after a number of years. (For a base fuel price $1.50/litre - These reductions correspond to price increases per tonne CO2 abatement of about $2100 and $900 respectively.)
Other strategies for achieving total fuel reduction include:
1. Reducing total km traveled by using more public transport, car pools, reducing the distance/frequency of travel to work etc.
2. Reducing emissions per km for the existing car fleet by retrofitting cars with plug in hybrid drives, improving driving practices, lowering speed limits, using lower roll resistance tires, fitting lower air resistance hub caps, etc.
3. Reducing average fleet emissions per km over time by improving the average emissions per km of the new cars. This strategy is important because it has the potential to yield the large reductions required to survive future oil shortages and because a typical car will have a life of 10 to 20 years.
The focus of this note is driving down the average fuel consumption of new cars.
Driving down the average fuel consumption of new cars:
There are many commercially available cars that are that have standard fuel consumptions well below the 11.5 litres/100km 2007 average. For example, there are small, low cost cars with claimed highway fuel consumption below 5.0 litres/100 km as well as more expensive conventional drive cars that are claimed to consume as little as 3 litres/100 km. ABS 2007 figures had passenger vehicles averaging 39 km traveled per day, light commercial 50 km/day. This suggests that the plug in hybrids that are beginning to appear on world markets should deliver fuel consumptions below one litre/100 km without requiring large batteries.
Car related emissions are one area where quite dramatic reductions can be achieved over time even if we restrict ourselves to technologies that are currently commercially available.
ABS reports that “Over recent years there has been a continuous reduction in average new vehicle emissions. From an estimated 252 grams of CO2 per kilometre in 2002, National Average Carbon Emissions (NACE) for all new light vehicles sold in Australia 222.4 grams of CO2 per kilometre. This decline in carbon emissions of new vehicles places the industry well on track to achieve the target of an average of 222 grams of CO2 per kilometre by 2010.” The target referred to was the Federal Chamber of Automotive Industries (FCAI) voluntary target. (222 gms per km corresponds to the tailpipe emissions from a car consuming 9 litres petrol/100km.)
Three alternatives for driving down the average fuel consumption of new cars down further have been considered here:
1. The carbon tax.
2. The use of caps to put an upper limit on emissions per km.
3. The use of an offset credit based emission trading scheme to control the average fuel consumption of new cars.
The carbon tax:
As mentioned above the carbon tax is not an effective way of driving down car related emissions because average fuel consumption has been found to be only weakly linked to fuel price.
A $30/tonne tax would add about 33¢/day to the cost of running the average 2007 car. So it is hardly surprising that fuel consumption that such a tax would not be a great incentive to act. Even worse, most of the changes that we are suggesting people take to reduce their fuel cost will reduce comfort, convenience and status.
The carbon tax is not an effective way of driving down the average fuel consumption of new cars.
The use of regulated emission caps:
Regulations that cap emissions per km for new cars could be used to block the sale of new cars that exceed the limit. Advantages include:
1. It does not depend on any change in the price of fuel to work.
2. It could be very simple if no exceptions are allowed.
3. The target can be as challenging as the government is willing to make it.
4. At a petrol price of $1.50/litre it would actually REDUCE the national fuel bill by $614/tonne CO2 abatement.
The disadvantage is that a simple cap may produce loud protests from individuals who have a particular desire for a vehicle that exceeds the cap as well as manufacturers whose product just exceeds the cap. There is a real risk is that the protests will result in higher caps.
A cap based system also provides no incentive for manufacturers to produce cars with emissions well below the cap.
The use of caps can be used to drive serious reductions in emissions. However, there are some disadvantages.
Offset credit based emission trading schemes:
Offset credit trading emission trading schemes are at the core of both the Australian MRET emissions trading scheme used to drive investment in renewables as well as the US system for reducing acid rain. Offset credit trading is particularly suited for situations where the aim is to control an average and where there is no shortage of better than target product.
An offset credit emission trading scheme for controlling average emissions per km might work by:
1. Government sets target and specifies test procedures.
2. If a new car with emissions below target is registered, free credits would be awarded by the government. The number of credits awarded will depend on how far below target.
3. Before a car with above target emissions could be registered a number of these credits generated by the registration of a below target car must be purchased and surrendered to the government. The number of credits purchased will depend on how far above target.
In effect, above target emissions have to be offset against below target emissions so that the average stays at or below target.
The advantages of this approach compared with the others include:
1. It does not depend on any change in the price of fuel to work.
2. It will reduce the price paid for cars with below target fuel consumption.
3. The target can be as challenging as the government is willing to make it.
4. Unlike simple cap schemes, it does not completely block the sale of new cars with above target emissions.
5. At a petrol price of $1.50/litre it would actually REDUCE the national fuel bill by $614/tonne CO2 abatement.
In practice, it may be convenient to use the existing MRET administration system to manage the system for reducing car related emissions.
Offset trading could be used to drive serious reductions in car related emissions while avoiding some of the disadvantages associated the use of regulated emission caps. It is the best of the alternatives considered.
REFERENCES:
1. ABS
2. PHIL GOODWIN, JOYCE DARGAY and MARK HANLY ESRC Transport Studies Unit, University College London, London, UK: “Elasticities of Road Traffic and Fuel Consumption with Respect to Price and Income: A Review (UK)” Transport Reviews, Vol. 24, No. 3, 275–292, May 2004
3. Espey, Molly (Energy Journal. Vol. 17, no. 3, pp. 49-60. 1996)
NOTES:
It may make sense to keep light commercial vehicles out of the offset trading pool while giving/requiring similar payments to those in the offset credit trading scheme for below or above target emissions. Removes the incentive to argue about whether a vehicle is or isn’t commercial. (There might be an upper limit on payments to avoid pushing the payments for large trucks up for no real reason – or exclusion of vehicles above say 10 tonnes.)
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