Options for Carbon Regulation of the European Car Industry

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

2. 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

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

4. 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

5. 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 EST2005, Base 1,001

6. 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

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

8. 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

9. Car sales in the UK: CO2 distribution Source: SMMT

10. 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

11. 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

12. 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

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

14. 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

15. 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

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