Fuel efficiency standards – a no-brainer

I’m very pleased that I will be posting at Brian Bahnisch’s Climate Plus on climate policy and possibly other matters. I will crosspost content here.

The (possibly reprieved) Climate Change Authority has continued to produce high-quality analysis that a sane federal government should examine very closely, and its latest report is no exception. It advocates for a mandatory emissions target for light vehicles (that is, vehicles you can drive on a car licence) sold in Australia, and proposes some design principles and options for implementation.

The proposed scheme would establish “fleet-wide” emissions targets for manufacturers, with an adjustment for vehicle footprint; that is, the target for a particular vehicle is adjusted by the size of that vehicle. As the report puts it,

The standard should differentiate obligations based on the size (footprint) of the vehicle, ensuring equity across suppliers while maintaining consumer choice and maximising flexibility. This approach ensures that the option to lightweight vehicles,
a major emissions reduction strategy in new vehicle design, is maintained.

I’m a bit ambivalent about this, and it shows one of the weaknesses in this kind of regulatory mandate as compared to alternative approaches like simply increasing fuel taxes. All things being equal, smaller vehicles are more fuel efficient than larger vehicles; encouraging people to make the switch away from vehicles than they need would actually be a good thing. But a flat target would encourage manufacturers who sell an above-average proportion of small cars to not do anything, as they will be able to meet their targets without actually improving their vehicles beyond business as usual.

In any case, what is most striking about this is how out of step with global practice Australia is; most other OECD countries have an enforceable fuel efficiency target of one kind or another. As Evan Beaver pointed out on Twitter, it was mostly another aspect of the multitude of small-beer decisions taken to protect the Australian car industry. Since the demise of Corolla production, Australia’s domestic producers have exclusively churned out large vehicles, mostly with large, not particularly sophisticated petrol engines. When combined with Australia’s low levels of fuel taxation, this further encouraged Australians to indulge their long-standing penchant for large, powerful and thirsty vehicles. The consequence of this is one of the most fuel-inefficient light vehicle fleets in the world, matched only by the USA with its love for Ford F-150s and Chevy Suburbans.

One of the great things about doing this is that it’s actually a net win for the country even ignoring the social costs of climate change; the extra costs of more fuel efficient technologies in vehicles are more than outweighed by the lifetime value of the fuel savings. As a society, the report estimates that rather than paying costs to avoid carbon emissions, every tonne of carbon emissions avoided through this policy would also result in a net saving of over $350. You might wonder why this policy is actually necessary; the short answer is that both consumers and businesses seem to undervalue emission savings when considering a new vehicle purchase. I’d prefer to fix this with fuel taxes and congestion charging, but if that’s not on the table it’s a reasonable alternative.

Even within a model range, the savings by simply changing the mix of drivetrain variants available are substantial. The Climate Change Authority compared the fuel efficiency of models available in both the UK and Australia, and found that, on average, the most efficient models available in Australia emit 20% more emissions than the most efficient models available in the UK. That probably overstates the difference between the typical models sold in Oz and Blighty, as many of the economy specials sold are heavily compromised to the point of impracticality and sell in tiny numbers. But even if you assume a 5% difference in the economy of your average Pommy Toyota Corolla and the Australian equivalent, that adds up to a lot of money.

Based on the data in the report and my assumption that Australian fuel usage is 5% higher than it might otherwise be purely because of the engine variant choices within a model range due to the lack of fuel economy targets, this results in Australian consumers and businesses burning about 1.2 billion litres more petrol than they otherwise might. At the current fuel price, that’s 1.8 billion dollars a year, every year, wasted, in that long and ultimately futile attempt to keep the Australian car industry alive.

The demise of the Australian car manufacturing industry represents an opportunity to fix a number of boneheaded transport policies. It would be nice if this anomaly was one of them.

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One Response to Fuel efficiency standards – a no-brainer

  1. Florence nee Fedup says:

    Anyone else get notice of electricity rises.

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