|Car fleet composition in the EU under the different scenarios. Click to enlarge.|
A new study by the French institute Enerdata, commissioned by the European Federation for Transport & Environment (T&E), suggests that the European CO2 standards for new vehicles due to come into effect in 2012 will lead not only to a European savings on oil (mainly via lower oil import volumes) but also to slightly lower global oil prices. Enerdata concluded that a 0.9% reduction in global oil consumption results in a drop in global oil prices of 1.2%.
Most analyses of the economic assessments of energy efficiency measures normally use fixed oil prices when accounting for economic benefits. By working out that the price of oil will fall when the EU’s regulations fully take effect, the study suggests that the European economic benefits of fuel efficiency have been underestimated, in general by up to 17%, according to T&E.
T&E said it opted for Enerdata because the POLES model developed and run by this institute is the only public model available in Europe they knew of that is capable of calculating oil prices as an output of supply and demand, rather than as an input.
There are two clear messages from this, one good, the other a little dangerous. The good news is that the economic benefits of reducing energy use in transport are greater than they were previously thought. The dangerous part is with the price of oil likely to drop, demand for fuel will go up. So if governments don’t want to see their greenhouse gas reduction targets go up in smoke, they have to take measures to dampen demand for transport. The obvious one is increased fuel taxes, but somehow governments need to make sure the benefits of better technology aren’t wiped out by increased demand for lower-priced fuel.—Jos Dings, T&E Director
The European mandatory carbon dioxide requirements for new light duty vehicles begin phased implementation in 2012, reaching a limit of 130 g CO2/km by 2015. Enerdata examined four scenarios:
Baseline scenario: implementation in the EU27 of the 130 g/km limit by 2012.
Delayed implementation in the EU27 of the Baseline objective (130 g/km) until 2015.
2012 objective plus a 95 g/km target for 2020 in the EU27.
120 g/km by 2012, decreasing to 80 g/km by 2020 and 60 g/km by 2025, in the EU27 plus the EFTA countries Norway and Switzerland
The study did not analyze the impact of biofuels on emissions, consumption or pricing.
The report only assesses the impact of European legislation. It does not consider potential diffusion of the standards to other regions, which, “would certainly lead to a different outcome on international markets, particularly with respect to the price of oil.” The report also notes that although its focus is on CO2 standards, equivalent measures on vehicle oil consumption and fuel efficiency would lead to similar results.
Vehicle emissions targets have two simultaneous effects on the car fleet: it modifies fleet composition through the development of non-emitting vehicles (e.g., hybrids, plug-ins, hydrogen) and at the same time leads to the diffusion of more efficient oil-powered vehicles.
By 2030, in the Enerdata report, the percentage of conventional cars decreases to 88% in Scenario 2 (the least constraining) compared with 66% in Scenario 4 (the most stringent). The main competitor for oil-based vehicles appears to be the plug-in hybrid, running on both oil and power, followed by purely electric vehicles. The development of plug-in hybrids stems mostly from their low investment costs, the report notes.
Over time, total road transport emissions decrease, even though indirect emissions (due mainly to power production for electric and plug-in vehicles) are set to increase. In the Baseline case, the emissions induced by road transport amount to 858 MtCO2 in 2030 (including 34 MtCO2 of indirect emissions) and to 724 MtCO2 in Scenario S4 (including 87 MtCO2 of indirect emissions).
The Baseline scenario and Scenario 2 suggest a 20% reduction in oil consumption for this category of vehicles; Scenario 3 a 30% reduction; and Scenario 4 a 40% reduction. Scenario 4 represents a 58 Mtoe saving in 2030 compared with the Baseline scenario. The most constrained scenario represents a 0.9% reduction in global oil demand in 2030, according to the analysis, which in turn induces an international oil price decrease of 1.2%, from 80€/bl to 79€/bl.
Consequently, the implicit reactivity of the oil price to the global decline in oil demand appears to be 1.7 (1.6-1.8) and 1.25 (1.2% - 1.3%) by 2020 and 2030, respectively. This reactivity is not an “elasticity” as such, as it also captures complex substitution processes between fuels and technologies and mixes short-term and long-term effects. It should be noted that this reactivity of oil price to consumption decreases over time, as the international market has more time to adjust to the evolution of European demand (hence also much lower reactivities than those that can be observed on the daily market, for instance at the end of 2008 and in early 2009).
Diffusion of European CO2 emissions standards to other regions will obviously have a far greater impact on the international oil market, most especially in fast-developing Asia.