Car fuel economy standards deliver 2-year payback

The Climate Change Authority has suggested that if Australia were simply to match the US fuel economy standards for new cars we'd save 59m tonnes of CO2 and save consumers $8500 on fuel over the life of the average car.

The Climate Change Authority, in what was supposed to be its dying days until Clive Palmer had his 'Road to Damascus' conversion, has been busy producing a range of research reports providing ideas on how we might progress carbon reduction policy in lieu of the current emissions trading scheme.

The hope is that they might do something useful and constructive that the Coalition Government might be willing to consider even though they want the organisation gone.

Today the CCA has released a report finding that if Australia simply matched the United States’ motor vehicle fuel economy standard for new cars, we’d reduce emissions by 59 million tonnes of CO2 over the period to 2025 at a net benefit to the economy of $580 per tonne of CO2 avoided.

Motorists would be expected to pay about $1500 extra for such a new car but with less than a 2-year payback because fuel savings are estimated at $830 per year and a total of $8,500 over the lifetime of the car.

The chart below illustrates that at present Australia’s light vehicle new car sales averages a little under 200 grams of CO2 per kilometre travelled and the business-as-usual trajectory is for this to trend downwards to 156g by 2025 (top light blue line). This would mean our cars were about 50 per cent more polluting than the average new US vehicle sold based on enacted EPA regulations (red line) and 100 per cent worse than the European cars (bottom aqua-green line) based on their regulations. The Climate Change Authority has then examined a scenario where from 2018 Australia would transition to a similar performance standard as the US.

Australia’s motor vehicle CO2 emissions per kilometre compared to projections for US and EU

Graph for Car fuel economy standards deliver 2-year payback

Source: Climate Change Authority (2014) Light vehicle emissions standards for Australia – Research Report

The report goes into quite a bit of detail about how such a standard could be implemented in Australia in a way that would ensure consumers continue to have a very wide choice of vehicles to meet their needs and recognise suppliers.

The government would convert its fleet-wide average CO2 intensity or fuel consumption target into continuum of targets that adjust depending upon the size or footprint of the car (entitled ‘limit curves’), as illustrated in the chart below. This means the standard would not force everyone into small hatchbacks. Instead motor vehicle suppliers are still free to sell big cars – if that’s what they’ve specialised in – without penalty provided they are reasonably fuel efficient big cars. Also, a supplier can still sell, say, some high performance inefficient V8 cars that exceed the limit curve level provided they offset this by also selling some highly fuel efficient cars that outperform the limit curve.

Illustrative example of how emissions standard is adjusted to account for different sizes of vehicles

Graph for Car fuel economy standards deliver 2-year payback

Source: Climate Change Authority (2014) Light vehicle emissions standards for Australia – Research Report

The entire point of the scheme is that it drives reductions in emissions and improvements in fuel efficiency by accelerating technological advance, not by constraining consumer choice.

Interestingly, the Climate Change Authority does not recommend that suppliers be able to buy and sell credits for going beyond the standard between one another to offset sales that exceed the standard. One would think this would improve flexibility and lower compliance costs. However, the CCA believes the market is too small to justify the extra administrative cost involved in trading.

Environment Minister Greg Hunt has indicated on a number of occasions, most recently at a Carbon Market Institute conference, that he can see some merit in such standards. In addition the winding up of Australia’s local manufacturers makes such an idea more politically palatable according to both him and one of his Coalition predecessors – Robert Hill.

However, given their agenda to cut red tape, it’s not all that clear whether Hunt’s colleagues can also be sold on such an idea, even if all we’d be doing is matching standards already in place overseas.