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Fuel consumption of European cars: The effect of standards, taxation and safety Theodoros Zachariadis Economics Research Centre, University of Cyprus COST.

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Presentation on theme: "Fuel consumption of European cars: The effect of standards, taxation and safety Theodoros Zachariadis Economics Research Centre, University of Cyprus COST."— Presentation transcript:

1 Fuel consumption of European cars: The effect of standards, taxation and safety Theodoros Zachariadis Economics Research Centre, University of Cyprus COST 355 meeting, Madrid, May 2007

2 Contents The effect of standards on fuel economy (Clerides and Zachariadis, “Are standards effective in improving automobile fuel economy?”, July 2006) Some recent results, trying also to explain the share of diesel cars in each country Do vehicle safety requirements compromise fuel economy?

3 Rationale of the study on fuel economy standards Share of transportation in energy use and GHG emissions steadily rising It will take time for biofuels and new technologies (hybrids, fuel cells etc.) to be effective  Improve fuel economy of conventional engines/fuels FE improvements may be attained through: Higher fuel prices FE standards / industry voluntary commitments CO 2 -based vehicle taxation Autonomous technical progress  How much improvement from which measure?

4 Previous similar work Espey (Energy Economics, 1996); Johansson & Schipper (J. Transp. Econ. Policy, 1997) Greene (Energy Journal, 1990) Gately (Energy Journal, 1992) Small & Van Dender (UC Irvine, 2005) What is new in our study: 18 countries, 20 cross-sections, period: Period with & without FE standards, with high & low fuel prices FE standard is explicitly addressed as a variable

5 New-car fuel consumption and standards in the US and EU,

6 Model FC : average sales-weighted fuel consumption of new cars (l/100 km) λ: autoregressive coefficient of dependent variable α 1 : time trend (autonomous technical progress etc.) p : gasoline price (Euros’1995 per liter) L : maximum lag length; L=5 STD : fuel economy standard expressed in l/100 km INC : real GDP per capita (Euros’1995)

7 Data (sample size: 384)

8 Regression results Notes: Estimation carried out with the Arellano-Bond GMM procedure. Robust t- statistics in brackets. *, ** and *** denote significance at 10%, 5% and 1% level. Last column reports the probability of the Arellano-Bond test for second order serial correlation of residuals.

9 Policy implications – 1 1.Are FE standards significant for reducing automobile fuel consumption? Use data from AT, BE, FR, DE, IT, JP, SE and UK Split data in two periods: ‘pre-standard’ ( ) and ‘with standards’ ( ) Re-estimate model without STD variable: i) for ‘pre-standard’ period ii) for entire period Perform a Wald test and a Chow test to examine stability of estimated coefficients Both tests reject the null of coefficient stability  structural break, i.e. FE regulations made a difference

10 New-car fuel consumption in Europe and Japan,

11 Policy implications – 2 2.Given a future FE (or CO 2 ) target to be met without tighter standards, how much should prices increase? In the US, tightening current CAFE standard by 10% is equivalent to raising gasoline price by 36 US cents’2004 / gallon (result is similar with those of other studies) In Europe, stated policy target of 120 g CO 2 /km – 25% tighter ‘standard’; retail fuel prices might have to double to induce similar fuel savings

12 Policy implications – 3 3.How might fuel consumption evolve without further standards and at today’s fuel prices? Time trend coefficient: α 1 insignificant, near zero  i.e. no ‘autonomous’ improvement per year ?  Changing consumer preferences towards more powerful and comfortable cars have cancelled out any autonomous technical progress  European long-term models, assuming that FE will continue to improve at fast rates even without post FE regulations, may have to be revisited

13 Policy implications – 4 4.Are taxes always the most efficient measure? “To tackle an externality, impose a tax and let the market work” But:  Taxes less effective because of consumer myopia  Impact of higher taxes on the whole economy? (e.g. sectors that use fuel as an intermediate good)  Political acceptance of higher taxes  Major externalities (accidents, congestion) associated with miles driven, not with fuel consumed

14 Conclusions of the study on FE standards If there were no standards in force, car fuel economy would not have improved considerably Very high fuel price increases required in Europe if fuel economy to be improved without standards Absent technological breakthroughs or an economic recession, FE will only improve further with tighter standards Raising fuel taxes is not an option for Europe, could be considered in the US together with stricter standards (modified CAFE rules)

15 Recent extensions Focus on European countries only Fuel consumption may also depend on:  total vehicle taxes (registration, circulation, insurance etc.)  urbanisation and population density  ratio of retail gasoline/diesel price Except for gasoline/diesel ratio, other variables not available as a time series but only as a country- specific figure for a given year (i.e. fixed effect) Efficient estimation of dynamic panel models wipes out fixed effects, therefore adding these as explanatory variables is not possible  Feedback requested: are national data on vehicle taxation available for several years?

16 Effect of gasoline/diesel price ratio Price ratio was constructed from retail fuel prices (source: IEA) To avoid endogeneity/collinearity: –Gasoline price is the average of the previous three years –Gasoline/diesel ratio is the current year’s price ratio  Using both price variables improves estimation

17 Is there a safety – fuel economy trade-off? “Car manufacturers don’t respect their CO 2 commitment … legislation to cut CO 2 emissions from cars to come soon” EU Environment Commissioner, 03/11/2006 “Decrease in CO 2 emissions has recently slowed. This is due to strong customer demand for larger and safer vehicles and disappointing consumer acceptance of extremely fuel-efficient cars” European car industry (ACEA), 05/11/2006 “Better car safety does not jeopardise emission reduction … the added weight due to safety interventions is negligible” European Transport Safety Council, 13/11/2006

18 Safety vs. fuel economy Two questions: 1.Does safety affect vehicle mass? 2.Does safety affect fuel consumption / CO 2 emissions?  US studies analyse relationship between traffic fatalities and attributes of vehicles involved in accidents [see Ahmad and Greene, Transp. Res. Record 1941(2005): 1-7]  Earlier results showed that lower fuel consumption leads to less safety  more fatalities  Recent evidence is inconclusive

19 Safety vs. fuel economy: Empirical analysis Car safety data obtained from EuroNCAP website for 193 cars of model years (www.euroncap.com) EuroNCAP provides consumers with independent information about a car’s safety Ratings for three tests are provided: Adult occupant test, pedestrian test, child protection test Score is provided in integer numbers (e.g. 0-30) and then codified in stars (‘excellent’ is 5 stars for adult & children tests, 4 stars for pedestrian test) For each model tested, EuroNCAP provides exact model description (e.g. Peugeot 207cc, 1.6 ‘sport 1’), kerb weight and model year

20 Safety vs. fuel economy: Empirical analysis (2) For each one of the 193 EuroNCAP car models, fuel consumption & CO 2 data were retrieved from the databases of the German Federal Motor Transport Authority (KBA) (purchased on CD-ROMs) Data for 2007 models were obtained from online databases of the UK Vehicle Certification Agency (VCA) (www.vcacarfueldata.org.uk) & of portal Linear regressions: mass i = f(safety i, engine_size i, dsl_dummy, year_dummy) CO 2i = f(safety i, engine_size i, dsl_dummy, year_dummy)

21 Results (1): Safety effect on vehicle mass is very small

22 Results (2): Safety effect on CO 2 is marginally significant, small and negative!

23 Safety vs. fuel economy: tentative conclusion “Better car safety does not jeopardise emission reduction … the added weight due to safety interventions is negligible” European Transport Safety Council, 13/11/2006 ETSC is probably right ! Results are similar if we observe subsets of the whole sample (e.g. if we exclude SUVs and/or superminis, observe family cars and/or MPVs only) Results are similar if safety variable includes both adult+pedestrian test ratings Results are consistent with Ahmad and Greene (2005) who used fatalities as dependent variable  Please comment!


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