Options for Carbon Regulation of the European Car Industry Alex Veitch Transport Strategy Manager Energy Saving Trust LowCVP Conference: Policy Challenge

The case for regulation Long-term carbon regulation for the car industry is required Individual companies should be regulated, rather than associations Flexibility can be built-in to the regulation Emissions trading should be viewed with caution

Voluntary agreement progress Source: EC Monitoring Report 2005, T&E 2006 Target year is 2008 for ACEA; 2009 for JAMA & KAMA T&E figure

Structural issues Association approach is flawed Free riders No control over members’ production and marketing strategies Companies could leave the association Lack of transparency: No official reporting of EU wide company average

The case for regulation A popular step: 70% of people support mpg regulation* Industry certainty: Long-term regulatory framework to drive innovation Global competitiveness: Stay ahead of regulation in China, Japan, US * 70% agreed with the statement: “Car makers should be legally required to make cars that get high MPG (miles-per-gallon)” Mori for EST 2005, Base 1,001

Target: Model Range or Sales Weighted? Model range –Simpler for manufacturers to administer –Risks tokenism - low-numbers of low-carbon cars actually sold Sales weighted average –Drives marketing toward low-carbon models –Sales weighted is already lower than model- range, so better deal for manufacturers

Average CO2 emissions: Best selling car companies in the UK 2005 Source: EST analysis of SMMT data

Regulation option: Max CO2 limit Outlaws inefficient products –Transforms the market –Has worked for white goods However… –Small “tail” of high CO2 cars –No flexibility for niche producers

Car sales in the UK: CO2 distribution Source: SMMT

Regulation option: Company Average Similar to U.S. CAFE standards –Simple structure, companies have ownership –Uniform target is tough for niche producers Refinements for provide flexibility –Percentage reduction target –Company target based on its model range

Internal trading Provides some flexibility –Enables high CO2 producers to purchase credits from low CO2 producers rather than alter their model range However, limited market –Could be a small number of companies earning credits –Risk of “hamstering” – could require a regulator to intervene

External Trading Requires analysis of actual carbon emissions rather than a fleet-average figure This changes the calculation of the impact that each company has on the climate

Average vs. Total Company Emissions Source: SMMT data, with assumed vehicle lifetime of 200,000km.

External Trading Flexibility: In addition to making lower carbon cars, manufacturers could: –Reduce sales –Influence driving behaviour –Influence purchase decisions –Buy credits on the market Problems –Quantifying carbon savings from advice activities

Conclusions Strong case for carbon regulation of the car industry, placed on individual companies Targets and structure of regulation –Sales weighted target better than model range –Percentage target could provide flexibility Caution on emissions trading –Internal trading - insufficient flexibility –External trading - difficult to quantify savings from advice activities

Options for Carbon Regulation of the European Car Industry Alex Veitch Transport Strategy Manager Energy Saving Trust LowCVP Conference: Policy Challenge