(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON Feb 12 Present European Union fuel
economy standards discriminate against use of lightweight
materials while an alternative basis for setting targets would
cut the cost of more ambitious targets.
The European Commission has proposed a target to reduce
carbon emissions from cars by 2020 to nearly a third below
present levels, in a regulation currently awaiting European
Parliament and member state approval.
It will announce plans for post-2020 targets in the first
half of this year.
To date, the evidence is that the industry can absorb
ambitious standards, meeting these ahead of schedule at costs
that are below expectations.
It is tempting to suppose that it can continue to drive
rapid gains in fuel economy (with important consequences for EU
oil imports), assuming sustained high oil prices, but that
depends on the incremental cost of new energy-saving
To date, manufacturers have driven relatively cheap fuel
savings, for example by down-sizing engines and replacing these
with turbo-charged, gasoline injection equivalents, and by
introducing stop-start systems that automatically shut an engine
instead of idling.
Further cheap efficiency gains could be achieved by tweaking
the present benchmarking system, which sets emissions targets
according to vehicle weight.
Shifting to an alternative parameter would motivate
automakers to exploit lightweight materials and achieve cheaper
efficiency gains than a wholesale shift to hybrid
It seems reasonable to expect there are larger efficiencies
yet to squeeze from the internal combustion engine, given a
present conversion rate of road fuel at 15-20 percent, with the
rest wasted as heat and other losses.
Fuel consumption falls as gasoline prices rise in a well
understood, quantified price elasticity of demand.
Some studies have also found that demand falls with fuel
It would therefore be reasonable to expect that a sharp rise
in crude oil prices over the past 12 years, plus more recent
volatility, should see a consumer response.
That would add to the impact of fuel economy standards and
advances in energy saving technologies.
Consumers traditionally undervalue fuel savings, given
uncertainty over future energy prices and driving mileages,
while the EU experience supports the view that mandatory economy
standards can overcome such inertia.
Manufacturers failed to meet voluntary targets through 2007,
for example, contrasting with adoption of subsequent mandatory
targets even though these required a step-change in annual
From 2001 to 2007 emissions from new cars on fell by an
aggregate 0.61-1.61 percent annually, and from 2008-2011 by
3.21-3.06 percent, according to monitoring data published in the
European Commission's "Impact Assessment" accompanying its 2020
targets. (See Chart 1)
Chart 1: (page 13) goo.gl/Sb0WU
Chart 2: (page 25) goo.gl/CTFQa
Regulators set the trajectory of fuel economy standards in
part according to the estimated incremental cost of adoption.
Agencies including the U.S. Environmental Protection Agency
(EPA), the California Air Resources Board (CARB) and ICCT
(International Council on Clean Transportation) developed a
teardown analysis approach to pin down those costs.
They broke down cars to their constituent parts and then
calculated the incremental manufacturing cost of replacing parts
with more energy-saving technologies or materials without
sacrificing driving experience.
ICCT last May published findings from that analysis as
applied to European models.
For example, it calculated the full incremental cost in 2012
of down-sizing a Volkswagen (VW) Passat engine with a gasoline
injection, turbo-charged equivalent at 532 euros ($710).
It found the cost of replacing the conventional internal
combustion engine in the same VW with a hybrid electric power
train and start-stop technology at 2,323 euros.
ICCT concluded that manufacturers could meet the EU's
proposed 95 grams CO2 per kilometre target by 2020 (compared
with about 135 grams now) with only limited hybrid vehicle
WEIGHT VS FOOTPRINT
The question is whether manufacturers can wring out further
savings without a more mainstream conversion to these more
expensive hybrid technologies.
One option is to tweak the present benchmarking approach to
encourage exploitation of lighter materials.
Under the proposed 2020 target, and existing regulation,
European automakers have to meet emissions limits for new cars
according to the average weight of their fleet.
This approach of assigning emissions limits according to a
certain parameter value, in this case vehicle weight, is called
the "limit value curve" in regulatory jargon.
"To comply with the Regulation, a manufacturer has to ensure
that the overall sales-weighted average emissions of all its new
cars or vans is not above the point on the limit value curve for
its average utility parameter (in this case weight)," reports
the Commission's Impact Assessment of its 2020 target.
The trouble with such an approach is that it creates a
disincentive to cut weight: by doing so, the manufacturer also
creates a more ambitious target for itself, as acknowledged in
the Commission's assessment, published last July.
"Use of light-weighting technologies under a mass-based
limit function not only reduces a vehicle's CO2 emissions but
also its target.
"As a result light-weighting is a less attractive option
when a mass-based limit function is used. The reduced
effectiveness of light-weighting would lead to increased costs
of meeting the target."
The alternative is a footprint approach, a measure of a
vehicle's size obtained by multiplying its track width by its
wheelbase, which would allow manufacturers to maintain their
diversity of models while capturing fully towards their target
the benefit of lighter materials.
A dual-compliance approach could allow manufacturers to use
either measure for 2020, with a footprint-based approach beyond.
The ICCT estimated that the average compliance cost for the
EU's 2020 target would be as little as half under a footprint
versus a weight-based regulatory structure, in a report
published last month, "Summary of mass reduction impacts on EU
cost curves", with important consequences for fuel economy
ambition after 2020. (See Chart 2)
($1 = 0.7474 euros)
(Reporting by Gerard Wynn; Editing by Anthony Barker)