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The CO2 Challenge for Passenger Cars in Europe by Patrick ten Brink of IEEP Lyon 5 December 2006
 

The CO2 Challenge for Passenger Cars in Europe by Patrick ten Brink of IEEP Lyon 5 December 2006

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The CO2 Challenge for Passenger Cars in Europe

The CO2 Challenge for Passenger Cars in Europe
and the Potential Role and Impacts of Emissions
Trading

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    The CO2 Challenge for Passenger Cars in Europe by Patrick ten Brink of IEEP Lyon 5 December 2006 The CO2 Challenge for Passenger Cars in Europe by Patrick ten Brink of IEEP Lyon 5 December 2006 Presentation Transcript

    • The CO2 Challenge for Passenger Cars in Europe and the Potential Role and Impacts of Emissions Trading Patrick ten Brink Senior Fellow and Head of Brussels Office Institute for European Environmental Policy (IEEP) ptenbrink@ieep.eu www.ieep.eu Elements build on work by the IEEP Transport Team Malcolm Fergusson & Ian Skinner and partners TNO, CAIR and LAT Lyon 5 December 2006
    • Presentation Structure • Context – history and emissions from transport • The strategy and its measures • The performance and the remaining challenge • Insights on instruments, targets and costs
    • A Brief History • 1990s: Fuel economy not improving • 1993: EU ratifies Framework Convention on Climate Change • 1995: Commission publishes passenger car CO2 strategy • target 120g/km by 2005 (or 2010 at latest) • 1997: Carmakers threatened with legislation • 1998/9: Voluntary Agreements with manufacturers’ associations • 2000: Monitoring Mechanism (1753/2000) established • 2001: CO2 Labelling required (1999/94) • 2005/6: Review of Passenger Car CO2 Strategy Source: Malcolm Fergusson
    • Transport Sector GHG emissions http://dataservice.eea.europa.eu/atlas/viewdata/viewpub.asp?id=2104
    • A Diverse Europe - Trends in transport GHG emissions by country (1990-2003) http://dataservice.eea.europa.eu/atlas/viewdata/viewpub.asp?id=2083
    • Growth in Road Transport contributions http://dataservice.eea.europa.eu/atlas/viewdata/viewpub.asp?id=2082
    • Within transport, cars are the main energy user 450 400 Ships Aircraft 350 Rail & inl. 300 shipping 250 Mtoe Cars 200 150 100 Lorries 50 0 1990 1992 1994 1996 1998 2000 2002 road road rail inland navigation air sea Source: T&E Presentation by Jos Dings building on DGENV presentation
    • Transport and GHG emissions – a problem sector Source: T&E Presentation by Jos Dings; originally from EEA TERM Energy Factsheet
    • Transport pollutants – GHGs a key challenge http://dataservice.eea.europa.eu/atlas/viewdata/viewpub.asp?id=848
    • Passenger Cars CO2 Strategy: 3 pillars EU objective: To achieve a fleet average of new passenger car of 120 g CO2/km by 2012 (equivalent to 4.5 l/100 km diesel or 5l/100km gasoline) Three pillars Agreements with car industry Negotiated in 1999/2000 with the European, Japanese and Korean car manufacturers associations (resp. ACEA, JAMA & KAMA) Member States provide independent monitoring data on new cars sold Target: 140g CO2/km by 2008/2009 Annual Joint Reports Consumer information Directive 1999/94/EC adopted in December 1999 and amended in 2003 Possible future improvements: harmonised label with energy efficiency classes, and inclusion of light commercial vehicles in addition to cars Fiscal measures July 2005 Commission proposal for a Council directive (COM(2005)261) aims at requiring MS that have taxes to base their calculation on CO2 emissions Currently being discussed in Council Annual Communications to the Council and Parliament - see Commission web pages: EU CO2 and cars strategy: Source: DGENV Presentation http://ec.europa.eu/environment/co2/co2_home.htm
    • Consumer information system (1999/94/EC) • labelling of fuel consumption and CO2 emissions • the production of a fuel consumption and CO2 emissions guide • displaying posters in car showrooms • the inclusion of fuel consumption and CO2 emissions data in advertising, brochures, etc. Danish Energy Label
    • Fiscal Measures – nation wide and local Fuel tax; car tax schemes and the London’s congestion charge Fuel Taxes UK fuel price escalator Petrol and diesel tax differentials Car taxes UK - registration taxes moved to CO2 rating London Congestion charge Started in February 2003 Run by Transport for London, TfL Covers 21km², 1.3% of greater London Being expanded and price going up www.t-e.nu
    • The ‘CO2 Agreement’ with Carmakers • Community target was 120g/km by 2005/2010 • Commission negotiated with Associations • Agreement reached on 140g/km • ACEA by 2008; JAMA & KAMA by 2009; Interim targets 2003/4 • Monitoring Mechanism (1753/2000) established EU targets in international context All going in the same direction Japan early leader; EU plan to go further. http://dataservice.eea.europa.eu/atlas/viewdata/viewpub.asp?id=2112
    • Voluntary Commitments: major efforts still needed… 12.4% reduction in 2004 compared to 1995, out of total 25% required by 2008/9… 210 EU15 level in 1995: 200 186 gCO2/km Voluntary 190 commitments: g CO2/km, annual average 140 g CO2/km in 180 2008/9 170 160 150 140 130 EU objective: 120 gCO2/km 120 110 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 ACEA JAMA KAMA EU-15 ACEA (required) JAMA (required) KAMA (required) Source: DGENV presentation CO2 & Cars
    • Progress to Date Some, but it looks like the targets will be missed 220 200 180 grammes CO2/k 160 140 ACEA target ACEA JAMA target JA A M /KAMA KA A M EU target 2010 120 trend ACEA trend JA A M trend KAMA EU target 2012 100 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: T&E Presentation by Jos Dings
    • How well are manufacturers on track? Different challenges for different manufacturers Source: Oct 25 T&E brand by brand progress report
    • The CO2 challenge Increasingly serious concern that the current agreement targets will not be reached Increasing realisation that a new self commitment will not likely result in the 120g/km target being achieved. Increasing political discourse on need for strict targets. But how, much will this cost, and what can help reduce the cost? Studies for DGENV by IEEP, TNO and CAIR Study for DGENT by TNO, IEEP and LAT
    • The Study for DGENV by IEEP et al Service contract to carry out economic analysis and business impact assessment of CO2 emissions reduction measures in the automotive sector Patrick ten Brink Ian Skinner Malcolm Fergusson Dawn Haines IEEP - Institute for European Environmental Policy Richard Smokers Erik van der Burgwal Raymond Gense TNO, The Netherlands Peter Wells Paul Nieuwenhuis CAIR - Centre for Automotive Industry Research, Cardiff Business School, Cardiff University, UK See http://ec.europa.eu/environment/co2/pdf/cars_ia_final_report.pdf
    • Aim of the work The aim of the service contract was to assess the impacts of trading scheme(s) that would allow the target of 120g/km average specific CO2 emissions from new registrations of passenger cars to be met by 2012. Assessment of impact on manufacturers, society and consumer covered the following aspects: • Manufacturer: costs, potential problems of vehicles not meeting requirements and not being allowed on the market, trading costs and benefits • Society: as above, including the value of fuel savings but excluding taxes • Consumer: impact on availability of vehicles, up front price effect and savings. • Environment: CO2 and fuel savings.
    • Targets and Instruments The work looked at 3 types of targets and three instruments: • Targets • a % reduction from a reference year, • a sloped target curve linked to utility criteria (several variations assessed), • and a fixed emissions target to be met by all (120g/km) • Instruments: • Emission reduction requirements for individual vehicles; • a manufacturer’s bubble (ie the manufacturer as a whole can meet the target, effectively allowing burden within the manufacturer’s fleet); and • a trading scheme (ie that allows trading between all manufacturers and hence effectively sharing the burden across the industry as a whole).
    • Utility function and potential target Specific CO2 emissions 700 CO2 [g/km] of cars on the market in 2002 Utility based limit values petrol 2012 600 Utility based limit values diesel 2012 Linear (CO2 [g/km] of cars on the market in 2002) Linear (Utility based limit values petrol 2012) 500 CO2 emission [g/km] y = 8.4146x 400 300 y = 5.7998x 200 100 0 0 5 10 15 20 25 30 35 40 45 50 Utility (V^2/3*P^1/3) (source: IEEP et al (2004), building on data from Polk Utility
    • Technological options for reducing emissions Petrol vehicles Diesel vehicles Reduced engine friction losses Reduced engine friction losses DI / homogeneous charge (stoichiometric) 4 valves per cylinder DI / Stratified charge (stoichiometric) Piezo injectors DI / Stratified charge (lean burn / complex strategies) Mild downsizing with turbocharging Mild downsizing Medium downsizing with turbocharging Medium downsizing Engine Strong downsizing with turbocharging Strong downsizing Variable Valve Timing Variable valve control Cylinder deactivation Cylinder deactivation Variable Compression Ratio Optimised cooling circuit* Optimised cooling circuit* Advanced cooling circuit + electric water pump* Advanced cooling circuit + electric water pump* Exhaust heat recovery* Optimised gearbox ratios 6-speed manual/automatic gearbox mission Trans- Piloted gearbox Piloted gearbox Continuous Variable Transmission Continuous Variable Transmission Dual-Clutch Dual-Clutch Start-stop function Start-stop function Hybrid Regenerative braking Regenerative braking Mild hybrid (motor assist) Mild hybrid (motor assist) Full hybrid (electric drive) Full hybrid (electric drive capability) Improved aerodynamic efficiency Improved aerodynamic efficiency Body Mild weight reduction Mild weight reduction Medium weight reduction Medium weight reduction Strong weight reduction Strong weight reduction Low rolling resistance tyres Low rolling resistance tyres Other Electrically assisted steering (EPS, EPHS)* Electrically assisted steering (EPS, EPHS)* Advanced aftertreatment DeNOx catalyst Particulate trap / filter source: TNO et al 2006
    • Cost Curves – a simple concept, but a bit more complex in reality and to model Fuel and size related cost curves - 6 Medium petrol CO2 vs. costs 30000 200 CO2 emission [g/km] 28000 180 26000 160 price [Euro] 24000 140 cost CO2 22000 120 20000 100 18000 80 e 1 2 3 4 5 6 lin e e e e e e ag ag ag ag ag ag se ck ck ck ck ck ck Ba Pa Pa Pa Pa Pa Pa In the cost modelling a more complex mix of packages was used to create more detailed cost curves. source: IEEP et al 2004 (TNO inputs)
    • Some results – Net Costs to Society • Net societal costs per car to meet 120g/km are of the order of 1-2% of the cost of a car. • An average cost can be as low as 127 Euros/car or 252 Euros/car average depending on what discount rate is used (0% or 5% real respectively). • The costs for society as a whole amounts to a total of 1.84 billion Euros/year under the lower cost targets and instruments (trading route). • This used conservative oil prices (lower than current) • This excludes benefits of reducing CO2 and other pollutants
    • Cost to Manufacturers • Manufacturer costs of meeting the 120g/km target amount to on average 577 Euros/car for the lowest cost target/instrument. • This amounts to 8.36 billion Euros/year for new registrations in EU-15 in 2012. • These figures assume that no costs are passed through to consumers, nor does it reflect that potential for cost reductions of measures over time. • Therefore, real costs to manufacturers will probably be significantly lower, and in cases, if and where full pass through is possible, then costs are considerably lower. • Pass through is facilitated by consumer benefits
    • Targets and Manufacturer costs - Euros/car no pass-through of costs Flexibility % improvement relative target absolute target (Regulated entity) 1 every car 591 741 987 2 manufacturer’s 580 605-635 700 average 3 fleet average 577 577 577
    • Costs to consumers • In many cases, the cost to the consumer is negative – ie the changes bring a net financial benefit. • Car prices are expected to rise by on average around 1200Eur (full pass through of costs + taxes and margins), • for the cheaper options the fuel savings benefits outweigh the costs at the 0% discount rate. • In reality, however, consumers probably apply a rather high discount rate to future benefits, so may not fully appreciate this benefit. • On the other hand the consumer benefit is extremely sensitive to fuel price assumptions; • with fuel prices at current levels, more of the options yield net benefits than the study, and consumer acceptance should increase as a result.
    • Impact of Fuel Price on Consumer Cost 1500 2008 Net costs to consumer [Euro] 1000 500 each car - uniform target (NPV: IR = 5%) 0 each car - all other targets 0.80 1.00 1.20 1.40 1.60 -500 per manufacturer - all targets -1000 all cars (trading) - all targets -1500 -2000 Petrol price [Euro/l] Source: IEEP/TNO/CAIR Data: Polk Marketing Systems
    • Insights on Trading • CO2 credits are traded among manufacturers in g/km per vehicle units – ie different units than in the EU-ETS. • Trading can reduce vehicle costs (excl. taxes and margins) by up to 410 Euros/car which = nearly 6 bn Euros/year. (cf 120 g/km fixed per car target) • The advantages of trading are much more moderate for other targets, ranging from close to zero for the % reduction options to 400 – 2,500 million Euro for the other target-instrument combinations. • Trading volumes range between 201 million Euro with % reduction case, up to 2.57 billion with a fixed target. • Note that trading volumes relate to targets defined at the manufacturer level. There is substantially more internal trading within each manufacturer, which underlines the benefits of a bubble approach relative to the car/segment specific approach. • Buyers and sellers are often very different depending on the target and instrument type.
    • Cost of Reducing CO2 • For options with trading the value of the traded credits = the marginal costs of further CO2 reduction (expressed in Euro/(g/km). • The marginal costs vary little between target / instrument mixes – around 50 Euro/(g/km). • Marginal costs to society are 141 to 174 Euros/tonne CO2 with trading (interest rate 0% and 5% respectively), • The average costs are much lower at 34 to 67 Euros/tonne CO2 (interest rate 0% and 5% respectively). • Prices are higher than currently under the ETS – hence while there are benefits of trading generally, joining any automotive trading scheme to EU ETS would lead to the automotive industry not meeting the 120g/km target. Also complications of different use of terms under trading schemes.
    • Subsequent Study – for DG Enterprise Review and analysis of the reduction potential and costs of technological and other measures to reduce CO2-emissions from passenger cars Richard Smokers, Robin Vermeulen, Robert van Mieghem & Raymond Gense TNO Science and Industry Ian Skinner, Malcolm Fergusson, Ellie MacKay & Patrick ten Brink IEEP - Institute for European Environmental Policy George Fontaras & Prof. Zisis Samaras Laboratory of Applied Thermodynamics Aristotle University of Technology See http://ec.europa.eu/enterprise/automotive/pagesbackground/pollutant_emission/index.htm
    • ‘DGENT Updated results of DGENV study’ For most target-measure combinations the manufacturer costs for reaching a 2012 target of 120 g/km are around €1700 per vehicle compared to average costs of the 2008/9 baseline vehicle emitting 140 g/km. This translates into an additional retail price of €2450 per vehicle. These are significantly higher than the study for DGENV. cost curves (manufacturer costs) cost curves (retail price increase) 10000 p,S 10000 p,S 9000 p,M 9000 p,M 8000 p,L 8000 p,L costs [Euro/veh.] costs [Euro/veh.] 7000 d,S 7000 d,S 6000 d,M 6000 d,M d,L d,L 5000 5000 4000 4000 3000 3000 2000 2000 1000 1000 0 0 0 20 40 60 80 100 0 20 40 60 80 100 CO2 reduction [g/km] CO2 reduction [g/km]
    • Why are they higher ? • The translation from retail price data obtained from literature to manufacturer costs has been done with a different factor (1.44 instead of 2.0), resulting in higher input on the manufacturer costs; • Note that this has no effect on cost to consumers • The effects of autonomous weight increase have been modelled with a different formula resulting in a higher amount of additional CO2- emissions to be compensated; • This assumes continued move toward heavier cars • Cost and CO2-reduction data for individual options have been newly estimated taking into account new literature data, information from industry and evolved expert judgement; • The resulting overall CO2-reduction of packages of measures that target engine and powertrain efficiency has been assessed more conservatively • This assumes that manufacturers will less often be able to choose to most cost effective efficient package of option
    • Weakness of the approach • Ex ante assessment of costs have almost systematically been shown to overestimate the costs - ex-post studies have shown this true retrospectively. • Cost data tends to takes no or little account of innovation / learning – based on costs now • Oil price scenarios used are relatively conservative • Some conservative estimates used, pushing prices up. • Assumptions on future weight growth may or may not end up being true – if not then the costs are an over-estimate. (and if we go for heavier cars even faster then an underestimate of course). • Focuses on costs to one set of industry players. Others will make money on it. Certainly less dramatic a cost to Europe plc, and in fact not necessarily a cost.
    • General conclusions • Reducing CO2 from transport-passenger cars is vital • It is a major technological and social challenge • The existing policy instruments are not proving as effective as hoped • There is a need for additional measures • A range of instruments and targets exist • Costs can be high for manufacturers, society and consumers – yet costs to consumers, given fuel savings, are sometimes negative. • Trading can help reduce costs – there are different winners and losers depending on targets and instruments • Trading prices most likely to be higher than EU-ETS. • IF there is to be a car CO2 trading scheme best to keep separate – different units, and link will reduce reductions from automotive sector + note also more CO2 leakage to outside EU from EU-ETS than cars ET. • There is still controversy over exactly how much it will cost. • There is no controversy that cars specific CO2 needs reducing further.
    • The CO2 Challenge for Passenger Cars in Europe and the Potential Role and Impacts of Emissions Trading Thank You! Any Questions? Patrick ten Brink Senior Fellow and Head of Brussels Office Institute for European Environmental Policy (IEEP) ptenbrink@ieep.eu www.ieep.eu