Study finds technology cost of achieving European 2020 LDV CO2 targets more than offset by resultant fuel savings
|Provisional 2030 economic impact of achieving the 2020 targets in the two Phase I scenarios—Current Policy Initiatives and Tech 1— compared to baseline. Source: Cambridge Econometrics.Click to enlarge.|
A report published by Cambridge Econometrics and Ricardo-AEA concludes that overall, the cost of technologies required to meet proposed European 2020 CO2 regulations for vehicles (95 g/km for cars and 147 g/km for vans) will be more than offset by the resultant fuel savings. The technical and macro-economic study, commissioned by the European Climate Foundation, focuses on light-duty vehicles.
The project is taking a phased approach. This first report (Phase I) examines only the impact of improving the efficiency of fossil-fueled vehicles, in which efficiency gains are delivered by the improvement of the internal combustion engine vehicle, including lightweighting, engine downsizing and hybridization. The Phase II report, to be presented mid-2013, examines the impact of the gradual penetration of advanced powertrains, such as battery-electric vehicles and fuel cell electric vehicles, and the gradual replacement of fossil fuels with increasing levels of indigenous energy resources, such as electricity and hydrogen.
The Phase I study assesses two scenarios against a reference case in which vehicle efficiency is frozen at the current level.
Under the Current Policy Initiatives scenario, cars and vans achieve the EU’s proposed 2020 CO2 target of 95 g/km and 147 g/km, but efficiency improvements moderate to a rate of less than 1% per year thereafter.
In the second scenario, Tech 1, cars and vans achieve slightly higher efficiency levels in 2020 and continue along a similar trajectory of around 3% annual improvement. Over-achieving on targets is a plausible scenario, the report argues, because several automakers have already met their 2015 goals ahead of time.
In the Tech 1 scenario, gasoline and diesel hybrid electric vehicles are deployed at an ambitious rate. The scenario assumes market penetration of HEVs of 10% of new vehicle sales in 2020, 22% in 2025 and 50% in 2030.
The analysis showed that meeting the 2020 targets would increase spending on vehicle technology, therefore generating positive direct employment impacts, but potentially adding €1,000-€1,100 (US$1,294-US$1,423) to the capital cost of the average new car in 2020, compared to the 2012-manufactured car.
However, these additional technology costs would be offset by fuel savings of around €400 (US$518) per year, indicating an effective break-even point for drivers of approximately three years. At the EU level, the cost of running and maintaining the European car fleet would become €33-35 billion (US$43-US$45 billion) lower each year than in a “do nothing scenario” by 2030, leading to positive economic impacts including indirect employment gains.
Even when using the highest-case costs for technology the GDP impact remains unchanged overall, while around 413,000 net additional jobs are created. This derives from the fact that most of the money spent on fuel leaves the European economy, while most additional money spent on fuel-saving technology remains in Europe as revenues for the technology suppliers. For example, EU companies that supply fuel-efficient start-stop mechanisms would benefit from an increase in revenue, due to an increase in demand for their products.
The impact in Phase II are typified by higher costs of technology and greater avoided fuel costs. In addition, there is a new dimension from the substitution of oil, which is largely imported, with electricity and hydrogen, which are largely generated from indigenous energy resources. The findings will carry particular significance in light of concerns that rising costs of imported energy might act as a brake on Europe's future economic recovery.—“An Economic Assessment of Low Carbon Vehicles”
Data on the cost of low carbon vehicle technologies was largely been sourced from the auto industry itself, with the study supported by a core working group including Nissan, GE, the European Association of Automotive Suppliers (CLEPA), and the European Storage Battery Manufacturers Association (Eurobat).
Fuel price projections for the study were based on the IEA’s World Energy Outlook, while technical modeling was carried out using the transport policy scoping tool SULTAN (developed by Ricardo-AEA for the European Commission) and the Road Vehicle Cost and Efficiency Calculation Framework, also developed by Ricardo-AEA. Macro-economic modeling was done using the E3ME model, which has previously been used for several European Commission and EU government impact assessments.