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Study Finds That CO2 Standards for Vehicles Can Reduce Price of Oil

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.




There seems to be a relationship between engine displacement, weight, fuel consumption and CO2 emissions. I would not be surprised to learn that less CO2 leads to less consumption, leads to less demand for oil and lower oil prices.



You have it backwards, less consumption leads to less CO2. Displacement and weight do play a part, but so does aerodynamics, friction, balance and proportion.

Diesels are more efficient and create less CO2 than gas engines.


With regards to the price of oil:
It is not as simple as first-year Economics would suggest. The supplier, a monopolistic entity, wants a certain price target irrespective of the actual cost of delivering oil. They will adjust supply levels to demand expectations so that they can optimize profit with the highest price possible. As costs of oil production fluctuate, so does the suppliers profit expectation.

With regards to GHG and conservation:
Reduction of energy use as a primary goal is an overly-simple double-edged sword - it may reduce GHGs in the short-term but it does not help economies nor promote rich and fulfilling (population expanding) lives in the long-term. The key is to produce GHG-free energy in large supply (with the goal of replacing high-GHG energy sources) so that people can do what they do best: consume, live, and prosper. No-one wants to buy high GHG-causing consumables, so then don't villify them into thinking it is the only way. It just so happens that much of the energy available happens to be that way - its not their fault. Sacrifice and hard-conservation is only beneficial socially and psychologically in the short-term. Since the problem is long-term, you are asking for civil unrest and reduced productivity by discouraging consumption (Soft-conservation is dealing with waste and energy efficiency - comparably easy and of small effect). Technology in the promotion of clean living is the only way. Government can lubricate the process by financially guiding industry into this path, especially when investment money is hard to come by. Argue-not how the best way to reduce energy - but how to make the energy clean, cheap, and widely available.


As a bright-green I second Jer's analysis.


It is obvious that less consumption is less CO2 emitted. This may be why California is talking about CO2. States can not set fuel economy standards, but may be able to set CO2 emissions.


If you reduce demand (say by taxation), the base price will fall. This works within a single market.

The problem with oil is that it is a global market.
If Europe increases taxes on fuel, reducing demand, the rest of the world will have more oil, which they can consume any way they like.

If EVERYONE reduced demand (either by taxation, or by developing more efficient engines, the price of oil would really fall.

However, I wouldn't like to predict by how much, as the spot price of oil is very volatile (Look at 2007/8 for an example).

The worry is that every million barrels of oil that Europe avoids will be consumed by China or India.


To me, it is the fact that India and China will consume more over time. That is why Europe and the U.S. should reduce consumption. If we do it through natural gas, hybrids, PHEV, telecommuting or other means, it is lowering our consumption.


As I see it - it is a fact that India and China will consume more over time regardless of what others do. That is why we HAVE to reduce consumption.


Sorry JosephT,

Diesel engines reach higher efficiency because the fuel has a higher energy content. By virtue of its higher carbon content it actually produces more carbon emissions.

Ships diesel engines (piston engines) which burn fuel oil reach even higher levels of thermal efficiency (55%) but this fuel has an even higher carbon content

I think JosephT missed the whole point of the article. Pricing in externalities can reduce demand up to a point... but we still need to move crap around and this calls for high CO2 fuels.

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