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March2017 MinisterialForumonVehicleEmissions RegulationImpactStatement ClimateWorksAustralia,incollaborationwithFutureClimateAustralia,welcomesthe opportunitytomakethissubmissioninresponsetothethreeconsultationpapers- ‘DraftRegulationImpactStatementImprovingtheEfficiencyofNewLightVehicles’; ‘DraftRegulationImpactStatementonNoxiousEmissionsStandardsforLightand HeavyVehicles’;and‘DiscussionPaperonImprovingFuelQualityStandards’. WecongratulatetheMinisterialForumonVehicleEmissions,theDepartmentof InfrastructureandRegionalDevelopment,andtheDepartmentoftheEnvironment andEnergyfortheirworkinaddressinglightvehicleemissionsinAustralia.Wehope thatthissubmissioncanassisttheForumandtheDepartment’sindesigning standardswhichmaximizebenefitstotheAustralianeconomyandenvironment. Wewelcometheopportunitytodiscussanyofthepointsraisedinthissubmissionfurther. ClimateWorksAustraliaisaleadingindependentorganisationactingasabridgebetween researchandactiontoidentify,modelandenableend-to-endsolutionstoclimate change.Sinceourlaunchin2009,ClimateWorkshasmadesignificantprogressand earnedareputationasagenuineandimpartialadvisertokeydecisionmakersfromall sidesofpoliticsandbusiness.Ourcollaborativeapproachtosolutionsthatwilldeliverthe greatestimpactencompassesathoroughunderstandingoftheconstraintsof governmentsandthepracticalneedsofbusiness.Wedothisbylookingforinnovative opportunitiestoreducegreenhousegasemissions,analysingtheirpotential,resolving obstaclesandhelpingtofacilitateconditionsforourtransitiontoaprosperous,netzero emissionsfutureby2050.ClimateWorkswasco-foundedbyTheMyerFoundationand MonashUniversityandworkswithintheMonashSustainableDevelopmentInstitute. FutureClimateAustralia(FCA),anot-for-profitorganisationestablishedin2007,hasbeen integralinthedevelopmentandimplementationofawiderangeofpracticalinitiatives contributingtotheimprovementoffuelefficiencymeasuresinpassengervehicles,and anactivecontributorinthedevelopmentofpolicyintheautomotivesector. ThesubmissionhashadinputanddrawsoncurrentevidencefromInternationalCouncil forCleanTransportation(ICCT)andGlobalFuelEconomyInitiative(GFEI). 1. Introduction AsasignatorytotheParisAgreementtolimitglobalwarmingtolessthan2°Cabove pre-industriallevels,andstrivingtolimitwarmingto1.5°C,Australiahasnow committedtotheglobaltransitiontonetzeroemissions.Australiahasproposedan economy-widetargettoreducegreenhousegasemissionsby26to28percentbelow 2005levelsby2030.Thisincludestheinvestigationofopportunitiestoimprovethe efficiencyoflightvehicles. ThetransportsectorisoneofthefastestgrowingsourcesofemissionswithinAustralia, increasingby47.5percentsince19901,howeveritalsorepresentsthemostfinancially attractiveemissionsreductionopportunityacrosstheAustralianeconomy.2The transportsectoraccountsfor17percentor92MtCO2e3ofAustralia’semissionsin 2013to14,withPassengerandLightCommercialvehiclescontributing62percentof thesector’stotalemissions.4Thesector’semissionshavebeenprojectedtorisebya further6percentto2020,toreach97MtCO2e,drivenprimarilybypopulationand incomegrowthforpassengertravelandeconomicgrowthforfreighttransport.5 Asitstandshowever,Australiaisoneofthefewremainingdevelopedcountries withoutlightvehicleCO2emissionstandardsinplace,withstandardscoveringover80 percentoftheglobalautomotivemarket.6Thishasmeantthatincomparisontoour globalpeers,Australiahasscoredpoorlyintheenergyefficiencyofitslandtransport sector.TherecentAmericanCouncilforanEnergy-EfficientEconomy(ACEEE) InternationalScorecardrankedAustralialastoutof16majorOECDcountriesforthe energyefficiencyofourtransportsector.7 Over1.1millionnewlightvehiclesweresoldinAustraliain20148,makingitthe11th largestvehiclemarketglobally.9Thesenewsaleswerecomprisedofapproximately80 percentpassengervehiclesand20percentlightcommercialvehicles.10Lightvehicles includeallmotorvehiclesunder3.5tonnesgrossvehiclemass,includingpassenger vehicles,sportsutilityvehicles(SUVs)andlightcommercialvehicles,butexcluding motorcycles.11Afuelefficientorlowemissionsvehicleisconsideredtobeavehicle withthelowestpracticableimpactontheenvironmentandingeneral,canbeclassified intermsofnetCO2emissionsandtailpipeair-pollutantemissions. BestpracticelightvehicleCO2emissionsstandardsandrelevantcomplementary measuresmustbedesignedwithafocusonmaximisingarangeofpositiveoutcomes- financialsavingsforvehicleowners,improvedenergysecurity,andleastcostemissions reductions.TheconditionsarenowoptimalforAustraliatosetthepolicyandprogram frameworkfortheimprovementoflightvehiclefueleconomyandtosetusonthepath towardslowerandultimatelyzeroemissionslightvehiclesinAustralia. 1 DIICCSRTE(2013) ClimateWorksAustralia(2010) 3 CO2eorcarbondioxideequivalent,usedtodescribehowmuchglobalwarmingagiventypeandamountof greenhousegasmaycause,usingthefunctionallyequivalentamountorconcentrationofcarbondioxideas thereference. 4 DIICCSRTE(2013) 5 DCCEE(2010) 6 InternationalCouncilonCleanTransportation(2015) 7 AmericanCouncilforanEnergy-EfficientEconomy(ACEEE)(2014) 8 FederalChamberofAutomotiveIndustries(FCAI)(2015) 9 Bandivadekar(2013) 10 NationalTransportCommission(2013) 11 ClimateWorksAustralia(2014) 2 ClimateWorksandFCAsupportstheimplementationofTargetA(105gCO2e/km)tobe phasedinfrom2020to2025.ThedraftRegulationImpactStatementshowsthatTarget Aprovidestheopportunitytodeliverapproximatelyover6percentofAustralia’s2030 emissionsreductiontargetatthelowestcostofabatementacrosstheeconomy,whilst deliveringthegreatestnetbenefitofallTargetsofAUD$13.9billionto2040.Itprovides anadditional19Mtofabatementto2030and67Mtto2040overTargetB,whilst deliveringanadditionalAUD$3.5billioninnetbenefitto2040.ComparedwithTarget C,itprovidesanadditional41Mtofabatementto2030and140Mtto2040,whilst deliveringanadditional$8.1billioninnetbenefitto2040. ThesearesignificantbenefitsasAustralialookstoachieveitsemissionsreduction objectivesatleastcost,whilereducingcostoflivingexpensestoAustralianhouseholds andoperatingcoststoAustralianbusinesses.WealsorecommendthattheMinisterial Forumconductacostbenefitanalysisofanevenmoreambitioustargetof95gCO2/km by2025,aswebelieveitwilldelivergreaternetbenefitsandistechnicallyfeasible basedonachievementsinothermarkets. Table1:EstimatedbenefitsofdraftRISTargetstringenciesandadditionalbenefitof TargetA(DraftRISandClimateWorksanalysis) Cumulative Abatementto 2030(Mt) Cumulative Abatementto 2040(Mt) Netbenefitto 2040 ($billion) TargetA (105gCO2/km) 65 231 13.9 TargetB (119gCO2/km) 46 164 10.4 TargetC (135gCO2/km) 25 91 5.8 Additionalbenefitof TargetAvsB (TargetA-B) 19 67 3.5 Additionalbenefitof TargetAvsC (TargetA-C) 41 140 8.1 TargetStringency Asummaryofkeycommentsandpositionsinthissubmissionareoutlinedbelow: 1. TheintroductionofCO2emissionsstandardscanbeachievedwithoutimmediately improvingfuelquality. 2. Ashortlead-time(lessthantwoyears)providesampletimetoprepareforthe introductionofthestandard. 3. AmorestringentstandardbeyondTargetAisachievableandlikelytoprovide greaternetbenefitduetotechnologyadvancementsandcostreductions. 4. Therearesignificantimplicationsofimplementinglessstringentstandardsor delayingimplementationofstandardsfromaneconomic,socialandenvironmental perspective. 5. Complementarymeasuresareimportanttodriveconsumeruptake. 6. Whilstdiscrepanciesexistbetweenon-roadandin-labperformance,astandardwill stillprovidesignificantsavingstoconsumersandtheenvironment. 2. Summaryofkeycommentsandpositions TheintroductionofCO2emissionsstandardscanbeachieved withoutimmediatelyimprovingfuelquality Australia’sfuelqualitystandardsdonotprovideanyimpedimenttoimmediately implementingCO2emissionsstandards.Claimstothecontraryappeartoconflateor confusefuelqualityrequirementstomeetEuro5/6standards,whichaimtolimitnoxious emissions-NOx,HC,COandparticulates,withfuelrequirementstomeetCO2emissions standards.Largely,thesetwoobjectivescanbeconsideredindependently,exceptinthe specificcircumstancewherefuelefficient‘lean-burn’enginetechnologyisusedforwhich low-sulfurfuelisrequired.Theevidenceshowsthatvehiclemanufacturersarenot turningtoleanburntechnologieseveninmarketswherelowsulfurfuelisavailable.12 ClimateWorksandFCAsupportstheintroductionofmorestringentnoxiousemissions standardsandtheimprovementoffuelqualitytodeliveronthese.Considerationalso needstobegiventothedesignofCO2emissionstandardstoensuretheydonothave perverseoutcomesintermsofnoxiousemissions. However,wedonotsupportdelayingtheintroductionoflightvehicleCO2emission standardsduetoAustralia’spresentfuelquality.Contrarytotheevidencelinkingfuel qualityandnoxiousemissions,thereisnocorrespondingevidencebasesuggestingultralowsulfurfuelisaprerequisitetomeetfueleconomy(CO2)standards.Infact,thereis evidencethatAustralia’scurrentfuelqualitystandardsdonotinhibitdeploymentoffuel efficientvehicletechnologies.ClimateWorksandFCAhavepreviouslysuppliedevidence fromtheICCTwhichconcludesthatthepresentqualityoffuelavailableforroad transportacrossAustraliadoesnotpresentanyimpedimenttoreducingvehicleCO2 emissionsinlinewithlevelsoutlinedinthedraftRegulationImpactStatement.13 TheICCT,citingtheUSEnvironmentalProtectionAgencyfindings14,goesontostate that‘lowsulfurfuel…mightbeimportantforfuturelong-termlow-GHGcombustion technologiesthatareindevelopmentstages’.Specifically,‘lean-burnGasolineDirect Injection(GDI)’enginesfittedwithadvancedafter-treatmentsystemsareidentifiedasa technologythatwouldrequireultra-lowsulfurfuel.Thecurrentevidenceisthatleanburntechnologieshavenotenjoyedsignificantuptake,evenincountrieswhere10ppm fuelisavailable.A2011study‘LeanGDITechnologyCostandAdoptionForecast:The ImpactofUltra-LowSulfurGasolineStandards15’foundthat: …themarketpenetrationofleangasolinedirectinjection(GDI)enginesinEurope willpeakatabouttwopercent(2%)in2010,thesamemaximumpenetration levelthetechnologyreachedinJapan10yearsago.AsinJapan,leanGDIwillnot beameaningfultechnologypathforEuropeanfleetaverageCO2compliance beyond2013.InNorthAmerica,theopportunityforleanGDIwillbelimitedtoa narrownumberofnaturally-aspiratedenginesthatcannotaccommodate advancedvariablevalvetiming,abuilding-blocktechnologynecessaryforHCCI functionality.Between2015and2020,themaximumpotentialshareforleanburnenginesintheU.S.isprojectedtoreachthreepercent(3%),anddecline thereafterasobservedinJapanandEurope. 12 McMahon,K.,Selecman,C.,Botzem,F.,andStablein,B.(2011) InternationalCouncilonCleanTransportation(2014) 14 EnvironmentalProtectionAgency(EPA)(2000) 15 McMahon,K.,etal.(2011) 13 Automotivemanufacturershaveawiderangeoftechnologieswithwhichtorespondto fueleconomy(CO2)standards,asshowninFigure1below,ofwhichonlytheleanburn technologynotedaboveisadverselyaffectedbysulfurcontentinfuels.Fuelqualityis alsonotanissueforelectricandotherzeroemissionsvehicleswhichwillcontributeto achievementofadvancementsinlightvehicleCO2emissionsperformance. Figure1:Rangeoftechnologiesusedforfueleconomy(CO2)standards(ICCT,2014) Ashortlead-time(lessthantwoyears)providesampletimeto preparefortheintroductionofthestandard ClimateWorksstronglysupportstheproposedTargetAof105gCO2/kmwithashort phaseinperiodwhereacalculatedpercentagereductioninemissionscanbeapplied eachyeartoeachyearlyfleet.Withastartingfleetefficiencyof184gCO2/km(NEDC)in 2015,TargetAcorrespondstoa5.5%annualreduction.16 ItisrecognisedthattheUS2017to2025standardsrequireabouta4.1percentannual reduction,howeveritisimportanttonotethattheUSisa‘technologyforcing’market, wherehighvolumeautomotivetechnologydevelopmentandimplementationfollows robustprocesses,whichfrominitialconcepttomarketlaunchcantakeuptofiveyears. Withthatsaid,theU.S.CAFEstandardswereannounced18monthspriorto enforcement.Australiaisstartingfromadifferentbaseline,wherethedevelopmentof newvehiclesisnotrequiredbutratherrevisedproductionschedulesforvariantsof existingmodelsthatarecurrentlymanufacturedtomeetcurrentstandardsintheUS, EUandJapan.Figure2belowillustratestypicaltechnologydevelopmenttimelines.17 16 BasedontheICCTtooltoconverttheseNEDCvaluestoWLTP(Kühlweinetal.2014)andassumingAustralianfleetdiesel shareofaround30percent,leadstoTargetAstringencyofabout120gCO2/kmwhilethe2015fleetaveragesabout190 gCO2/km,ora4.5percentannualreduction. 17 Ricardo(2016) Figure2:TechnologyDevelopmentTimelines AsoutlinedbytheICCT: TheaverageleveloftechnologycurrentlyinstalledonvehiclesinAustralialags thatforvehiclesintheUS,Europe,andJapanbymanyyears.Thus,Australiaisa ‘technologytaker’,meaningthatthestandardsaredesignedtobringtechnology toAustraliathatisalreadyinwidespreaduseinmuchoftheworld.Thisismuch easier,requiresmuchlessleadtimethantechnologyforcingstandards,and allowsforlargerannualreductions. TheICCTalsonotesthatthedraftRegulationImpactStatementandsupporting documentationhasbeenpublishedwellinadvanceofpotentialimplementationdates ofeither2018or2020.Assuchthestandardscanbeflexibleenoughthatifthereare changesincircumstancesthatresultininsufficientleadtime,theycanbephasedin moreslowlyatthebeginningofthecomplianceperiodandfastertowardstheend. AninterestinginternationalcomparisonisSaudiArabia,whichhasasimilarvehiclefleet toAustralia’sandisalsoa‘technologytaker’.SaudiArabiaintroducedstandards, applicabletoallnewandusedpassengervehiclesandlighttruckswhetherimported fromoutsideormanufacturedincountry,whichwereeffectiveasof1January2016 andwillbefullyphasedinby31December2020.Areviewofthetargetswillbecarried byDecember2018,atwhichtimetargetsfor2021to2025willbeset18. LikeTargetAproposedinthedraftRegulationImpactStatement,SaudiArabia’starget requiredthesameleveloftechnologyonvehiclesasintheUS,withathreeyearlag time,therebyharmonisingthestandardsandsimplifyingmanufacturercompliance. 18 InternationalCouncilforCleanTransportation(2014) AmorestringentstandardbeyondTargetAisachievableandlikely toprovidegreaternetbenefitduetotechnologyadvancements andcostreductions ThedraftRegulationImpactStatementconsidersthreedifferentlevelsofstandard stringency,basedonthe‘strong’,‘medium’and‘mild’standardsanalysedbythe ClimateChangeAuthorityin2014.19Indeterminingtheappropriatelevelfora standard,theClimateChangeAuthoritysuggestedtwomainconsiderations: • maximisingthenetbenefitsfromstandards;and • seekingtoalignAustralia’sstandardswithcomparablemarketsifthereare opportunitiestodoso. Inordertoassessthefirstconsideration,theClimateChangeAuthorityundertook analysistoidentifywhichtargetdeliversthelargestnetbenefitbasedonmodelling undertakenbytheCSIROin2013,andinternationalevidenceofthecostsof technologiestomeetthestandards,againundertakenin2014.Itwasalsonotedthat ‘ifitwassoinclined,however,thegovernmentmightwishtoconsiderwhether strongerstandardsinphaseonewoulddeliverevenlargernetsocialbenefits’. WhilstthedraftRegulationImpactStatementhasconsideredupdatedanalysisto informitscostbenefitanalysis(furthercommentaryonthisbelow),ithasnotrevisited thestringencyofthestandardsmodelledbytheClimateChangeAuthority.Webelieve thatbynotlookingatamorestringentstandard,thepossiblestandardwhichcould deliverthemaximumnetbenefithasnotbeenassessed.Thisdoesnotallowfora discussionofthetechnicalfeasibilitytoimplementsuchastandard,ifitweretodeliver maximumnetbenefit.ClimateWorksandFCArecommendsthattheMinisterialForum runacostbenefitanalysisonastandardwhichreflectsadoptingtheEU2020standard withafiveyeardelay(i.e.95gCO2e/km). Inregardstotheanalysisusedtoinformthecostbenefitanalysis,wesupporttheICCT’s positionthat: Costsofefficiencytechnologieshavedecreased,andagreatervarietyof technologieshavebecomeavailable,sincethestudiesusedinBITRE’scostbenefitanalysiswerecompleted. ThedraftRegulationImpactStatementalsorightlyemphasisestheuncertaintywith technologycostforecasts,citingtheEuropeanConsumerOrganisation20(BEUC)who ‘emphasisethatinex-anteestimates,productioncostsareoftenlargely overestimated’,andRicardo-AEA21whoalsostatethatthe‘costsofdeploying technologiesfornewvehicleshavebeenlowerthananticipated’inregardstoprogress undertheEU’slightvehicleCO2regulation.ThedraftRegulationImpactStatementalso citestherecentUSEPA22assessmentofprogresstowardstheUSlightvehicleCO2 standards,whichfinds‘awiderrangeoftechnologiesexistformanufacturerstouseto meettheMY[ModelYear]2022-2025standards,andatcoststhataresimilarorlower, thanthoseprojectedinthe2012rule’.Thisisanimportantconsiderationwhenmaking longrangecostforecasts,andissimilarinotherrapidlydevelopingtechnologyfields suchassolarPV,wheredeploymentratesanddecreasesincostsoftechnologyoften farexceedprojections. 19 ClimateChangeAuthority(2014) BEUC(2013) 21 Ricardo-AEA(2014) 22 UnitedStatesEnvironmentalProtectionAgency(2016) 20 Developmentsinzeroemissionsvehicles,particularlyelectricvehiclesgiventhe standardstimeframe,haveadvancedsignificantlyinrecentyears.Thecostofelectric vehicleshasbeenfallingfasterthanpreviousforecastandBloombergNewEnergy Financeestimatedthattheycouldreachparitywithconventionalinternalcombustion vehiclesasearlyas202523,meaningthatcoststoachievethestandardwillbelower thananticipated.ItisunclearastowhetherthedraftRegulationImpactStatement consideredtheroleofelectricvehiclesinmeetingastandard,asTableB7specifically looksatestimatedadditionalcapitalandcompliancecostsfor‘non-electric’fleetonly. Ifso,thenitispossiblethatelectricvehiclesmaydrivedownaverageadditionalcapital costsforstandardcomplianceduringthe2020to2025timeframe. AsAustraliaisa‘technologytaker’withanincreasinglylargeproportionofourfleet sourcedfrommarketswithstandardsalreadyinplace,Australiacanexpecttoreplicate therateofimprovementinashortertimeframethanpreviouslyseeninmarketssuch astheUnitedStatesandEurope.24 Basedonthis,wewouldarguethattechnologycostsusedinthedraftRegulation ImpactStatementareoverlyconservative,andhenceunderestimatethenetbenefitto theAustralianeconomy.ThesensitivityanalysisruninthedraftRegulationImpact StatementinTableB12providesanexampleoftheimpactoflowercapitalcosts,and showsthatNetPresentValueincreasesbyalmostAUD$2billionovertheassessment periodcomparedtostandardvaluesusedinthebasecase. ClimateWorksandFCArecommendsthattheMinisterialForumworkwiththeICCTto reviewthecapitalcostsusedinthecostbenefitanalysistogreaterreflect: 1. Thelatestresearchintermsoftechnologycoststomeetthestandardsin othermarkets; 2. TheimplicationsofAustraliabeingatechnologytakerandrelativelaggardin vehicleefficiencyontechnologycosts;and 3. Theimpactofelectricvehiclesonstandardadditionalcostsbefurther investigatedbytheMinisterialForum. ClimateWorksandFCAalsoencouragestheMinisterialForumtoconsiderthe implicationsofdifferentownershipmodelsemerginginthelightvehiclespace, especiallyonpassengervehicles.Thesemodels,suchascarshare,andincreaseofUber etc,willhaveimplicationsforkilometrestravelledpervehicle,andwillreducecapital expenditureforbroaderconsumers.WewelcomediscussingthiswiththeMinisterial Foruminmoredetail. Therearesignificantimplicationsofimplementinglessstringent standardsordelayingimplementationofstandardsfroman economic,socialandenvironmentalperspective ApartfromthetechnicaldesignaspectsoflightvehicleCO2emissionsstandards,the stringencyofthestandardandthetimingforimplementationarekeyelements.These twoissuescarrymajorimplicationsforthecostandbenefitstotheAustralianeconomy, societyandenvironment,andshouldbebasedonwhatisrealisticallyachievableby industryanddeliversthegreatestnetbenefit. 23 24 BloombergNewEnergyFinance(2016) ClimateWorksAustralia(2016) ThissectionprovidesasummaryoffurtheranalysisundertakenbyClimateWorks, drawingoffanalysisprovidedbyMOV3MENT,toassesstheimplicationsofstandard stringencyandtiming. StandardStringency Thefirstpieceofanalysisassessesimpactofstringencyofthetargets.Itpresentsthe benefitofthesestandardsagainstBAUasprovidedinthedraftRegulationImpact Statement,andcontraststhemoststringenttarget(A)withleaststringent(C)overtwo differenttimeframes:to2030(Figure3),andto2040(Figure4).Resultsarepresented intermsofemissionreductions(cumulativeabatementandagainsttheGovernment’s 2030target25),cumulativefuelsavingsandnetbenefit(netbenefitto2040only).This analysisdrawsonthedatapresentedinthedraftRegulationImpactStatement. Figure3:ComparisonofRISTargetstringencylevelsonemissionreductions(DraftRIS andClimateWorksanalysis) Figure4:ComparisonofRISTargetstringencylevelsonfuelsavingsandnetbenefit (DraftRISandClimateWorksanalysis) 25 DepartmentoftheEnvironmentandEnergy(2016) StandardImplementationTiming Thesecondpieceofanalysisassessestheimpactofthetimingforstandard implementation.ItcontrastsTargetAaspresentedinthedraftRegulationImpact Statement(2020to2025implementation)withadelayedscenario(2022to2027 implementation,twoyearslaterthandraftRegulationImpactStatement).Theanalysis iscompletedfortwodifferenttimeframesto2030andto2040(Table2).Resultsare presentedintermsofemissionreductions(cumulativeabatementandagainstthe Government’s2030target26),cumulativefuelsavings,netbenefit(to2040only)and numberofadditionalvehiclescovered27bythestandard. TheanalysisdrawsoffmodellingprovidedbyMOV3MENT,whereasimplelinearmodel hasbeenusedwhichassumesaparallelrateofimprovementtoTargetAinthedraft RegulationImpactStatementoverafiveyearperiod,usingadifferentstartdateanda flataverageof17,000km/yeardrivenbyeachvehicle.Whilethismodellingis illustrative,itdemonstratestheneedforfurtheranalysisbasedtheimplicationsofthis usingtheGovernment’sownCBAmodel. Table2:ImpactoftimingofimplementationofTargetAto2030and2040(MOV3MENT andClimateWorksanalysis) % % contribution contribution Cumulative No. Target Cumulative to2030 to2030 fuelsavings additional implementation Abatement target target ($M,7% vehicles timing (Mt) (26%=990M (28%=1055 discount) covered(M) T) Mt) Delayedvsdraft RIS(2yearslater) to2030 -17.6 -1.8% -1.7% $4,920 -2.2 Delayedvsdraft RIS(2yearslater) to2040 -40.0 -1.8% -1.7% $8,321 -2.2 Anydelayinimplementingvehicleemissionsstandardswillresultinemissionsandfuel uselock-in,wherealargerproportionofvehiclesonourroadswillbelessefficientthan theywouldbewithastandardinplace.Thisreducesthepotentialbywhichvehicle emissionsstandardscancontributetoAustralia’s2030emissionsreductiontarget,and reducesthepotentialfuelsavingsthesevehicleswillhaveovertheirlifetime. Theanalysispresentedaboveshowsthatbydelayingimplementationbytwoyears comparedtothetiminginthedraftRegulationImpactStatement,from2020to2022, wouldresultinanadditional2.2millionvehiclesbeingsoldwithoutastandardinplace. AsAustralianlightvehicleshavealonglifespanofapproximately20years,thishas significantimplicationsfortheirlifetimeemissionsandfueluse,asdiscussedinthe followingsections. ImplicationsforCO2Emissions Thestringencyandimplementationtimingofastandardhasasignificantimpactonthe emissionsreductionpotentialwhichcanbeachievedinthelightvehiclesector,andthe contributionthissectorcanmaketomeetingAustralia’s2030emissionsreduction target.ThemoststringentstandardanalysedinthedraftRegulationImpactStatement (TargetA)willdeliver41MtCO2eadditionalcumulativeabatementfrom2018to2030 thantheleaststringent(TargetC).To2030,TargetAwilldeliverafurther3.9to4.1per centoftheGovernment’semissionsreductiontargetthanTargetC,andbetween6.2to 6.6percentofthetargetintotal.Thedifferencebetweenthetargetsisevenmore profoundto2040,withTargetAdelivering140MtCO2eofadditionalcumulative abatementfrom2018to2040thanTargetC. 26 27 DepartmentoftheEnvironmentandEnergy(2016) Assumes1.1millionnewlightvehiclesalesperyear. Fromatimingperspective,delayingimplementationofthestandardby2yearswill resultin17.6MtCO2eofcumulativeabatementbeinglostto2030;alossof1.7to1.8 percentoftheGovernment’semissionreductiontarget.Theimpactsoftimingare evenmoresignificantto2040,atwoyeardelayedtargetwouldlose40MtCO2e cumulativeabatementoverthisperiod. Thedifferencebetweenthisabatementpotentialhassignificantimplicationsforother sectorsoftheAustralianeconomyandthecommunitymorebroadly.TheAustralian Governmenthasa2030emissionsreductiontargetthathasbeencommittedto throughtheUNFCCCprocess;anyabatementnotachievedinthelightvehiclesector willneedtobemadeupforinothersectorsorpurchasedthroughinternationalcarbon permits.Researchconductedbyanumberoforganisations,includingClimateWorks, RepuTex28andEnergetics29,hasshownthatabatementinthelightvehiclesectoristhe cheapestacrosstheeconomyandprovidesanetreturn,asdemonstratedbythedraft RISownestimatesof-AUD$47/tCO2costofabatement.Henceanyotherformof abatementpursuedtoachievethe2030targetwillcomeatagreaternetcost. Ultimately,thiscostispassedontotheAustralianeconomyandconsumers. ThedraftRegulationImpactStatement,specificallyTable9,estimatesthatthiscost differenceisintherangeofAUD$700million,forthediscrepancybetweenTargetA andTargetCto2030andbasedonacostofabatementofAUD$35pertonneCO2e. IftheabatementwastobeachievedthroughamechanismsuchastheEmissions ReductionFund,whichhadanaveragecostofabatementacrossthefirstthreeauctions ofAUD$12.10pertonneCO2e,toachieveafurther17.6to41MtCO2eofcumulative abatementto2030(therangepresentedintheanalysisabove),wouldcost approximatelyanadditionalAUD$212toAUD$492million. ItshouldbenotedthatClimateWorksviewstheEmissionsReductionFundresultstobe aconservativeestimateofthecostofabatement,asabatementcoststo2030arelikely tobesignificantlyhigherthanearlyresultsoftheEmissionsReductionFundwherelow costabatementopportunitieshavebeenfunded.Thisisdemonstratedbythe assumptionusedinthedraftRISofAUD$35/tCO2e.Eventhisfigureislikelytobe conservative,astheInternationalEnergyAgency30estimatesacarbonpriceinthe rangeofUS$100/tCO2eby2030inOECDcountriestoachieveemissionreductionsin linewithlimitingglobalwarmingto2degrees,letalonewellbelow2degreesas stipulatedintheParisAgreement. ImplicationsforFuelSavings Theimplicationsforpotentialfuelsavingsrelatedtothestringencyandtimingofalight vehicleCO2emissionsstandardarealsoquitesignificant.BasedonthedraftRegulation ImpactStatementanalysisto2030,TargetAdeliversanadditionalAUD$6.8billionin cumulativefuelsavingsthanTargetC,andto2040TargetAdeliversAUD$16.7billion moreincumulativefuelsavings.ThedraftRegulationImpactStatementhighlightsthat foranaverageperformingpetrolvehicle,thedifferencebetweenTargetAandTargetC resultsinanannualadditionalfuelsavingofbetweenAUD$197toAUD$29531peryear (AUD$3.80-AUD$5.70perweek)foradriverdoing15,000kmperyear,andbetween AUD$328toAUD$49332peryear(AUD$6.30-AUD$9.50perweek)foradriverdoing 25,000kmperyear. 28 RepuTex(2015) Energetics(2016) 30 IEA(2016) 31 Rangebasedonpetrolpricerangeof$1.00/Lto$1.50/L. 32 Rangebasedonpetrolpricerangeof$1.00/Lto$1.50/L. 29 Table3:ComparisonofRISTargetstringencylevelsonfuelsavingsandexpenditure (DraftRISandClimateWorksanalysis) TargetStringency Reductionin Reductionin Annualadditional averagelow averagemiddle fuelsavingsover incomehousehold incomehousehold BAU($)33 fuelspend(%)34 fuelspend(%)35 TargetAvsBAU(15,000 km/yr) $362-543 9.7-14.5% 7.2-10.9% TargetCvsBAU (15,000km/yr) $165-248 4.4-6.6% 3.3-5.0% Lostopportunity (A-C,15,000km/yr) $197-295 5.3-7.9% 3.9-5.9% TargetAvsBAU(25,000 km/yr) $604-906 16.1-24.2% 12.1-18.1% TargetCvsBAU(25,000 km/yr) $276-413 7.4-11.0% 5.5-8.3% Lostopportunity (A-C,25,000km/yr) $328-493 8.8-13.2% 6.6-9.9% Toputthisintocontext,in2012theaverageAustralianmiddleincomehouseholdspent AUD$96perweekonhouseholdenergy,ofwhichfuelforvehicleswasAUD$59,or61 percent.36Byadoptingthemoststringenttarget(TargetA)comparedtothemost lenient(TargetC),thiscoulddeliveranapproximatefurther4percentto10percent reductionintotalhouseholdenergycost. Thecostimplicationsforlowincomehouseholdsisevenmoresignificant,aslow incomehouseholdsspentonaverageapproximatelythreetimestheamountoftheir grosshouseholdweeklyincomeontotalhouseholdenergycostscomparedtohigh incomehouseholds(in2012,10percentoflowincomehouseholdgrossweeklyincome wasspentonhouseholdenergycosts).In2012lowincomehouseholdsspentan averageofAUD$72perweekonenergy,withAUD$42perweek,or58percent,spent onfuelforvehicles.Byadoptingthemoststringenttarget(TargetA)comparedtothe mostlenient(TargetC),thiscoulddeliveranapproximatefivepercentto13percent reductionintotalhouseholdenergycostforlowincomehouseholds.Thisisasignificant costsavinggivencurrentissueswithincreasinghouseholdenergycosts37and pressuresoncostofliving.TheClimateChangeAuthoritystatesthat“overtime,the substantialfuelsavingsfromstandardsarelikelytobenefitlowincomehouseholds, particularlyasmoreefficientvehiclesareresoldintothesecondhandmarket”.38 Theimpactthattiminghasonfuelsavingsshowsthatbydelayingimplementationofa lightvehicleCO2emissionstandardby2years(TargetAimplementedin2022to2027), newlightvehicleownerswouldfaceanadditionalAUD$4.9billionincumulativefuel coststo2030,andanadditionalAUD$8.3billionto2040,comparedtothetiming presentedinthedraftRegulationImpactStatement(2020to2025).39 ImplicationsforHealth ThedraftRegulationImpactStatementdoesnotprovideanassessmentofthe estimatedhealthbenefitsfromtheimplementationoflightvehicleCO2emission 33 Rangebasedonpetrolpricerangeof$1.00/Lto$1.50/L. BasedonABS2012Householdenergyconsumption 35 BasedonABS2012Householdenergyconsumption 36 AustralianBureauofStatistics(2012) 37 http://www.abc.net.au/news/2016-02-10/abs-energy-stats-show-61-per-cent-increase/7153660 38 ClimateChangeAuthority(2014) 39 Datawasnotavailablefromthisanalysistocalculateaveragesavingperdriver. 34 standards.Whenconsideringthestringencyofastandard,TargetAdeliversover2.6 timesmorefuelsavingsthanTargetCto2030,andover2.5moresavingsto2040.In termsoftargettiming,ifthetargetisdelayedbytwoyears,thenitincreasesfueluseby 7,000MLto2030,and16,000MLto2040. Reducedfueluseofthismagnitudecouldhaveflowoneffectstoreducenoxious emissions,resultinginreducedhealthimpacts,notingthatstandardswouldneedtobe designedwhichdon’tencouragedieselisationwithoutappropriatenoxiousemission standardsinplace.Thereductioninhealthcostswillbroadlycorrespondtothe reductioninfueluseifthiswerethecase.GiventhatTargetAwilldeliver2.6times morefuelsavingsthanTargetC,itshouldreducehealthcostsbyasimilarproportion. ClimateWorksandFutureClimateAustraliarecommendsthattheMinisterialForum considerthehealthbenefitsoflightvehicleCO2emissionstandardsintheircostbenefit analysis,utilisingasimilarmethodologyasappliedinthedraftRegulationImpact Statement‘VehicleEmissionsStandardsforCleanerAir’. Weknowthatvehiclesaresignificantcontributorstolevelsofhydrocarbons,oxidesof nitrogen,carbonmonoxideandparticulatematterintheair,whichcanadverselyaffect acuteandchronichealthconditions40,includingrespiratoryillness,cardiovascular diseasesandcancer.Ithasbeenestimatedthatroadvehiclesarethesecondandthird largestsourceofPM2.5intheSydneygreatermetroarea,andthesecondandfourth largestsourceofNOx.41 TheWorldHealthOrganizationestimatesthatgloballyin2012,approximately3.7 milliondeathswereattributabletoambient(outdoorairpollution).42Whileingeneral theairqualityinAustraliacomparesfavourablytoarangeofothercountries,our monitoringandreportingsystemsarenotexpansiveorsufficientlygearedtoprovidean accurateaccountoftheactualairqualityexperienceinAustralia. InitsCleanAirforNSWConsultationPaper43,theNSWEPAstatesthefollowingin regardstothepublichealthimpactsandcostsofairpollution: Eachyear,airpollutionleadsto: • 520prematuredeathsand6,300cumulativeyearsoflifelostinSydney (Morganetal.2013); • 1,180hospitaladmissionsinSydney(Broomeetal.2015);and • anestimatedAUD$6.4billion(2015AUD)inhealthcostsintheNSW GreaterMetropolitanRegion(GMR)(DEC2005). Airpollutionfromroadvehiclesisanegativeexternality,thehealthcostsarenotborne directlybythevehiclemanufacturersnorowners,butsharedbythecommunity.The draftRegulationImpactStatementacknowledgesthatthereareconsiderable uncertaintiesintheanalysisaroundtheactualhealthcostsofvariouspollutants,most notablyNOx,giventhewiderangeoffigureincurrentliterature.Assuch,thehealth costsusedforthisanalysiswereconservativeestimates. ImplicationsforNetBenefit Lookingattheimpactofstandardstringency44onnetbenefitto2040showsthatthere isasignificantdifferencebetweenthemoststringenttarget(TargetA)andtheleast stringent(TargetC)aspresentedinthedraftRegulationImpactStatement.Thisshows thatTargetAdeliversanadditionalAUD$8billioninnetbenefittotheAustralian economybeyondTargetCoverthis22yeartimeframe,whilstdeliveringafurther140 MtCO2eofabatement.Thisresultsinanaveragecostofadditionalabatementoverthis periodof-AUD$58/tCO2e. 40 ClimateChangeAuthority(2014) NSWEnvironmentProtectionAuthorityandOfficeofEnvironmentandHeritage(2016) 42 WorldHealthOrganization(2014) 43 NSWEnvironmentProtectionAuthorityandOfficeofEnvironmentandHeritage(2016) 44 Analysiswasnotavailablefortheimplicationofstandardimplementationtiming. 41 Toputthisincontext,byadoptingthemoststringentstandardasopposedtotheleast stringent,thisaloneisestimatedtodeliverapproximately12timestheestimatednet benefitofimplementingbothEuro6andEuroVInoxiousemissionsstandardsforlight andheavyvehicles45-notingthathealthbenefitshavebeenexcludedfromthelight vehicleCO2standardnetbenefitcalculation,butincludedinthenoxiousemissions calculation.Thishighlightsthesignificanceofimplementingthemoststringent standardwhichistechnicallyfeasibleattheearliestimplementationdate,asthe benefitstoAustraliansocietyarelargerthanotheropportunitiesinthisarea. Complementarymeasuresareimportanttodriveconsumeruptake Ashasbeenconsistentlyshowninothermarkets,implementinglightvehicleCO2 emissionsstandardsshouldnothappeninisolation.BestpracticelightvehicleCO2 emissionstandardsandrelevantcomplementarymeasuresmustbedesignedwitha focusonmaximisingarangeofpositiveoutcomes-financialsavingsforvehicleowners, addressingtechnicalandinfrastructureissues,improvedenergysecurity,andachieving leastcostemissionsreductions.Theymustalsobedesignedtosupportthemarketing oflowemissionsvehicles,toassistconsumerchoice. WhilecomplementarymeasuresareoutsidethescopeforthedraftRegulationImpact StatementoflightvehicleCO2emissionsstandards,theirimportancetooverallpolicy developmentswarrantsinclusionanddiscussion.Itishardtoassesssomeofthe technicalfeaturesofstandarddesign(suchassupercreditsetc),withoutfully understandingthecomplementarymeasuresthatwillbeintroduced. ClimateWorksandFCAhavepreviouslyoutlinedkeycomplementarymeasuresrequired tosupporttheintroductionofalightvehicleCO2emissionsstandards,initsresponse theMinisterialForumonVehicleEmissionsDiscussionPaper.46Asummaryofthese measuresisprovidedunderfivebroadcategoriesbelow.Wearehappytohavefurther dialoguewiththeMinisterialForumonthesemeasuresasitworkstoimplement standards. InformationandEducation Educationandawarenessactivitiesshouldincludeprovidinginformationaboutfuel savings,totalcostofownershipandrelevantpurchasingincentivesatdealerships,on consumerlabels,websites,andthroughadvertisingcampaigns. Publicevents,includingride-and-drivewithexpertpanelsforfleetmanagersand decisionmakersandincreasedplacementoflowemissionsvehiclesingovernment fleets,increaseawarenessofnewtechnologies.Finally,theplacementofvehiclesin taxi,company,rental,andcar-sharingfleetscanalsohelptoovercomethebasic foundationallackofawarenessandacceptanceregardingavailablelowemissions vehiclemodels. Inaddition,anoverarchingvisionforimprovingthefueleconomyofAustralia’snew lightvehiclefleetwouldbeamajordriverforsupportivepolicy.Theestablishmentof supportiveinstitutionalandpolicyframeworksconsistingofthecreationofanagenda settingorganisationforloweremissionsvehicleswouldensureacoordinatedapproach intermsofpoliciesandcomplementarymeasures. 45 Thebenefit-costanalysisofoption6–mandatingbothEuro6andEuroVIforlightandheavyvehicles–estimatedanet benefitof$675millionovertheperiod2016to2040,asperthedraftRegulationImpactStatementVehicleEmissions StandardsforCleanerAir. 46 ClimateWorksAustraliaandFutureClimateAustralia(2016) FleetPurchasingPolicy Theimportanceoffleetpurchasingpoliciesiscrucialinthesupportanduptakeoflow andzeroemissionvehicles.TheopportunitynowexistsfortheAustralianGovernment toleadbyexamplethroughfleetpoliciesdesignedtopromoteadoptionofradically loweremissionsvehicles. In2015,approximately46percentofnewvehiclepurchasesinAustraliawereby fleets47withfleetstypicallyturningvehiclesoverinthreetofiveyears,andindoingso providingasignificantproportionofvehiclesintothesecond-handmarket.Fleet operatorsalsogenerallyhaveagoodunderstandingofthetotalcostofownership,duty cycleandaremoreunderstandingofissuesstemmingfromthedeploymentofnew technology.Ahighproportionoffleetpurchasesarenovatedor‘userchooser’leases whereanindividualnominatesthemakeandmodelofcarthattheywishtoobtain. Fleetmanagers,withtheirlevelofknowledge,canpotentiallybegreatadvocatesfor efficientvehicles.48 Taxationandotherpolicymeasures Severalbasicdesignprinciplesappearimportantinpolicyimplementation.Consumer interestcouldbemotivatedbysettingincentivesforthepurchaseoffuelefficientand loweremissionsvehiclesincludingbothfinancialandnonfinancialmechanisms. Financialincentivescouldbeintheformofannual(includingtaxrebates,registration andstampdutyreductions,parkingfeedeductionsandvehicleemissiontaxes)or punctualincentives(includingdifferentialroadtollsandpricing,freeorreducedparking fees,higherfuelprices).49Non-financialincentivescanincludebenefitssuchaspriority lanesandreservedparkingspaces. Othertaxationpoliciesmeasuresinclude:exemptionofloworzeroemissionsvehicles fromLuxuryCarTax(LCT)orthereplacementofthisschemewithanEmissionsTaxfor LuxuryVehicles;exemptionofloworzeroemissionsvehiclesfromFringeBenefitsTax (FBT)toaccountfortheirhighercapitalcostsintheperiodthroughtotheirexpected pricingparitywithinternalcombustionenginevehicles;andconsiderationforthe extensionoftheFBTexemptiontonovatedleasingarrangementsandbeyondthe sunsetperiodforthebusinessfleetvehicleexemption. Alternativefuelsandelectricvehicles Thedeploymentofalternativefuelledvehiclesrequiresboththerightinfrastructure anddevelopedsupplychains. Todeveloptherightinfrastructureforalternativefuelsfederal,stateandlocal governmentscouldutiliseurbanplanningpowerscoupledwithgrantprogramstowards businessestostimulatetheinstallationofinfrastructurededicatedtoloweremissions vehicles. Supplychainsforloweremissionsvehiclescanbestimulatedbypolicyinterventionina varietyofways.Governmentprocurementisapowerfulpolicytoolthatcanbe consideredatalllevelsofgovernment.Governmentprocurementcouldrepresenta majordemandintheloweremissionvehiclemarket,consequentlydevelopingsupply chains.FederalandStategovernmentscouldalsoestablishvoluntaryagreementsorset bindingtargetsonmanufacturersorsupplierstoincreasemodelavailabilityinAustralia andcontributetothedevelopmentofspecificsupplychains. 47 FederalChamberofAutomotiveIndustries(FCAI)(2015) Wikstrom(2014) 49 ClimateWorksAustralia(2015) 48 Advancementofemergingtechnologiesandpracticeswhichcan improveefficiency Thebroad-scaleadvancementofnewandemergingtechnologiescanbringsignificant changesinthetechnologiesutilisedforpersonaltransportation,andalsoinmoving economiesawayfrompetroleumandreducingtheenvironmentalfootprintof transportation.Withstandardsortargetsinplace,industrycanbeincentivisedto promoteadvancedtechnologiestoachievereductionsinCO2emissions. Thedevelopmentofintelligenttransportationsystems(ITS)provideadvancedand innovativeapplicationsrelatingtodifferentmodesoftransportandtrafficmanagement. IfITSbecomesaccessibletotenpercentoftheAustralianfleet,thebenefitsintermsof improvedtrafficmanagementandsafetywouldflowontotheentirefleet. Whilstdiscrepanciesexistbetweenon-roadandin-lab performance,astandardwillstillprovidesignificantsavingsto consumersandtheenvironment AnAustralianlightvehicleCO2emissionsstandardshouldbeimplementedusing accepted,widely-usedtestprocedurestominimiseregulatoryburden.Australia presentlyusestheNewEuropeanDriveCycle(NEDC)forfueleconomyandCO2 emissionratings.NEDCistheCO2emissionstandardinEuropeandmanyother markets,whileotherstandards(egUSCAFEstandard)areoftenexpressedas ‘normalisedtoNEDC’forcomparativepurposes.Intheperiod2017to2020,theNEDC willbephasedouttobereplacedwiththeWorldwideHarmonizedLightVehiclesTest Procedure(WLTP). ClimateWorksandFCAsupportseffortstoimprovethecorrelationoftestresultstoreal worldexperienceandforthatreasonitwouldseemlogicaltoimplementanAustralian CO2standardusingtheWLTPtocoincidewiththeinternationalimplementationofthat standardin2020. TheWLTPisbeingintroducedtoaddressthegrowingdisparitybetweenemissions recordedundertestconditionsandso-called‘real-world’emissions.TheICCThas demonstratedthatthisdivergencehasgrownfromaroundninepercentofgreater emissionsinthe‘realworld’in2001toover40percentin2015.50 50 InternationalCouncilonCleanTransportation(2016) Figure5:Divergencebetweenreal-worldandmanufacturers’type-approvalCO2 emissionsvaluesforvariousreal-worlddatasources,includingaverageestimatesfor privatecars,companycars,andalldatasources51 TheICCTprojectsthatthisdivergencewillgrowfurthertoalmost50percentby2020, asshowninFigure6.Thereasonsfordivergencearevariedbuttechnologydeployment isprojectedtorepresentthegreatestincreasebetweennowand2020.Thatis, deploymentofincreasinglyadvancedtechnologydistortsthetestresultsfurtherfrom realworldoutcomes. Figure6:Estimateofthereasonsforthediscrepancybetweentype-approvalandrealworldCO2emissionlevelsfornewpassengercarsinthepastaswellasinthefuture, withandwithoutintroductionoftheWLTP52 51 52 InternationalCouncilonCleanTransportation(2016) InternationalCouncilonCleanTransportation(2016) ThiseffectisfurtherseeninasimulationofWLTPvsNEDCresultsforarangeof technologiesinFigure7.IftheWLTPisacceptedasacloserrepresentationof‘real world’thanNEDC,thenitisclearthatincreasinglevelsoftechnologysophistication resultingreaterlevelsoftestresultdistortion. Figure7:RicardovehiclesimulationsrunsandresultingNEDC-WLTCconversionfactors53 SomecommentatorshavearguedthiseffectmaynegateanybenefitsofaCO2 standard.Thatis,thatperceivedbenefitsortestresultswillnotbematchedbyreal worldoutcomes.Perhapscounterintuitively,thebenefitsobtainedintherealworldcan beexpectedtoatleastequalandperhapsexceedthenotionalbenefitscalculatedusing testresults. Thefollowingexampledemonstratesthis.ThedraftRegulationImpactStatement assumes2025BAUandTargetAemissionsof145gCO2/km(NEDC)and95gCO2/km (NEDC)respectively,witharealworldadjustmentfactorof10percentandtarget savingsof55.7gCO2/km. ThesecalculationshavebeenrepeatedinFigure8belowasExample2.Example1 providesthesamecalculationusingnotionaltestresultswithoutanyrealworld adjustment.Example3and4usethetestdivergencefiguresreportedbyICCTinFigure 6above.Example3usesthefigurefor2014andassumesnofurthertechnological deployment.Thisisanunlikelyscenariobutisincludedforcomparisonpurposes. Example4isconsideredthemostrealisticscenario.ThisusestheICCTadjustment factorfor2020(thelatestavailableusingtheNEDCtestcycle)andshowaverysimilar resulttotheRISoutcome. 53 InternationalCouncilonCleanTransportation(2014) Insummary,evenafterallowingfordeploymentofincreasinglysophisticated technologyandassumingthatthisresultsintestresultsincreasinglydivergentfrom ‘realworld’theRISestimateofprojectedsavingsundertheTargetAscenarioappears sound.Ofcourse,shouldtheWLTPbeadoptedasthebasisoftheCO2standard,the testresultsandrealworldresultswouldbeexpectedtoalignevenmoreclosely. Figure8:EstimatedreductioninpassengervehiclegCO2/kmemissionsusingdifferent testdivergenceassumptions 3. ResponsetoImprovingtheEfficiencyof NewLightVehicle ThedraftRegulationImpactStatement‘ImprovingtheEfficiencyofNewLightVehicles’ takesaconsiderablestepforwardintermsofaligningAustraliawithbestpractice vehicleefficiencystandardsintheUS,EU,Japan,Mexico,SaudiArabia,andother markets.Australiahasasignificantopportunitytoreduceemissionsfromthetransport sector,whichwillbecrucialinmeetingbothinternationalandnationaltargets. ClimateWorksandFCAstronglysupportstheproposedTargetAstringencyand responsestokeyissuesoutlinedinthedraftRegulationImpactStatementaredetailed below,andarebasedonthetechnicalresponsesubmittedbytheICCT.54 Whatcouldberegulated? Whatparameter(CO2emissionsorfuelconsumption)shouldbeusedforan Australianfuelefficiencystandardandwhy? ClimateWorksandFCAsupporttheICCT’ssubmissionrespondingtothekeyquestions raisedinAppendixAofthedraftRegulationImpactStatementImprovingthe‘Efficiency ofNewLightVehicles’.InrelationtowhatparametersshouldbeusedforanAustralian fuelefficiencystandard,thatsubmissionstates: SincetheGovernmentprimarilyseekstoreduceCO2emissionsthroughimproved vehicleefficiency,aCO2emissions-basedstandardispreferable.Incontrasttoa fuelconsumption-basedstandard,aCO2emissionsparameterisindependentof typeoffuelburned.Thus,alternative,lowcarbonfuelsareequallyencouraged. Furthermore,Australia’sGreenVehicleGuidealreadyusesCO2asametricfor vehicleefficiency.EvidencedbyAustralia’sfuelconsumptionlabellingprogram, measuringefficiencyintermsofCO2emissionseasilytranslatesintofuel consumption.Thus,usingCO2astheefficiencyparameterisbothadministratively easierandmorestraightforward,aswellasmoretechnologyneutralthanusing fuelconsumptiontomeasureefficiency. Internationallyandasapointofcomparison,theUSandRepublicofKoreauseboth fueleconomyandCO2emissionsstandards.TheEUandIndiauseCO2emissions standards.JapanandChinausefueleconomy.InAustralia,theexistingADR81/02 collectsbothCO2emissionsandfuelconsumptiondataatamodel-specificlevel.55 Anadditionalquestiontoconsideriswhethertostructurethestandardtoinclude emissionsofothergreenhousegasesbeyondCO2emissions.Theseothergreenhouse gasescouldincludenitrousoxideexhaustemissionsfromthecombustionoffueland emissionsofhydrofluorocarbons(HFCs)fromvehicleairconditioningsystems.In general,emissionsoftheseothergreenhousegasesarerelativelysmallcomparedwith theCO2emissionsfromavehicleoveritslifetime,andareunlikelytowarranttheextra effortandcomplexityofinclusion.Internationalstandardshavealsonotgenerally includedtheseemissionsdirectly,althoughsomeconsidertheminthecalculationof off-cyclecredits.56 54 InternationalCouncilonCleanTransportation(2017) ClimateChangeAuthority(2014) 56 ClimateChangeAuthority(2014) 55 Howcouldefficiencybemeasured? Howshouldavehicle’sefficiencyforthepurposesofanAustralianfuel efficiencystandardbeassessedandwhy? TheICCTsubmissionrespondingtothedraftRegulationImpactStatement,statesthat forthepurposesofanAustralianfuelefficiencystandard,vehicleefficiencyshouldbe assessedbythefollowmethod: AustralianDesignRule(ADR)81/02currentlyusestheNEDCtestasthe standardizedlaboratorytestappliedtoallnewlightdutyvehicles. TheUNEconomicCommissionforEurope(UNECE)WorldForumfor HarmonizationofVehicleRegulations(WP.29)hasformallyadoptedthe WorldwideharmonizedLightvehiclesTestProcedure(WLTP).57Thetestcycle doesmorethansimplyharmonizeglobaltestingprocedures:itimprovesthetest procedureandclosesloopholes,thusprovidingmorerealisticresultsthatare closertorealworldemissions.58 ThemorerealisticemissionsdatadeliveredbytheWLTPleadstotheadjustment oftheEUtargetof95gCO2/km(basedupontheNEDC)in2020to100-102 gCO2/kmontheWLTP.59Thus,adoptionofWLTPinADR81/02willnotgreatly affectthenecessarytargetsundertheproposedfuelefficiencystandard.Several marketsarealreadypreparingtoadopttheWLTP:theEUissettoadoptWLTPin 2017-18,Japanwilladoptin2018-19.ThetestcyclesintheUSshowsimilar resultstotheWLTP. TheproposedTargetAforMY2025essentiallymatchesthestringencyoftheUS 2025standards,andtheEuropean2020/21standardswhenallstandardsare convertedtotheirNEDCequivalent.60 ConvertingtheTargetAstandardtoWLTP,assumingdieselmarketsharestays relativelyconstantat30%61,usingtheICCT’stestcycleconversionfactors62,leads toamodifiedtargetof120gCO2/km.Again,thisisverysimilartothestringency oftheUSstandardsfor2025.Becausethestringencyofthestandardsisbroadly thesame,numerouspossibletechnologiestomeetTargetAarealreadyavailable intheUSandEUmarkets(amongothers). Howcouldasalesweightedaveragetargetbeapplied? HowshouldasalesweightedaveragetargetbeappliedinAustraliaandwhy? Internationally,themostcommonformsoflightvehicleemissionsstandardsthathave beenevaluatedareeitheraflatstandardoranattribute-basedfleet-averagestandard. Aflatstandardisappliedtosectionsofthefleetorthefleetasawhole,andusuallyas anabsolutecaporuniformpercentagereductionofemissionsintensitywhichapplies toeverymanufacturer.Ontheotherhand,anattribute-basedfleet-averagestandardis wherethelevelofthestandardvarieswithanattributeofthevehicle,typicallyvehicle massorsize.63 57 Mock(2013) Mock,P.,Kühlwein,J.,Tietge,U.,Franco,V.,Bandivadekar,A.,German,J.(2014) 59 Mock,P.,etal(2014) 60 ClimateChangeAuthority(2014) 61 NationalTransportCommission(2016) 62 Kühlwein(2014) 63 ClimateChangeAuthority(2014) 58 ClimateWorksandFCAsupporttheICCT’sresponseregardinghowasalesweighted averagetargetcouldbeappliedinAustralia: AsacknowledgedinthedraftRegulationImpactStatement,attribute-based standardsequitablyspreadtheregulatoryburdenacrossallmanufacturerswhile respectingconsumerchoice.Attribute-basedstandardsprovideavarietyofways formanufacturerstocomplybylinkingthetargettothefleetmix,whichmay changeovertime. Incontrast,flatstandards,whileadministrativelysimple,arenotnearlyas equitableasattribute-basedstandards,astheydisproportionatelydisadvantage manufacturersatbothendsoftheemissionsspectrum.ThedraftRegulation ImpactStatementacknowledgesthatabsolutelimits/capscouldreduce consumerchoicebyforcingmanufacturerstostopofferinglargervehicle models.64Anduniformpercentageimprovementssetaterribleprecedent,asthey penalizemanufacturersthathavealreadyimprovedvehicleefficiencyandreward technologylaggardswithalessstringentstandard. Ifanattributebasedstandardisadopted,whatattributescouldbe usedtodeterminemanufacturertargets? Ifanattributebasedstandardisadopted,whichattributeshouldbeadopted inAustraliaandwhy? Ifanattribute-basedstandardisthepreferredoption,adecisionneedstobemadeon themostappropriateattributetoadopt.Todate,thetwoattributesused internationallyareeithermassorvehiclesize,usuallymeasuredasthe‘footprint’ofthe vehicle.ClimateWorksandFCAsupportstheICCT’ssubmissioninrelationtowhat attributescouldbeusedtodeterminemanufacturertargets,statingthat: Footprint-indexedstandardsmoredirectlyandefficientlyencouragemass reduction(lightweighting),whichistheprimarymeansforreducingvehicleload, thanmass-indexedstandards.Sincelightweightingpromisestobeoneofthe leastcostwaystoincreaseefficiency65andtherebycomplywiththestandards, footprint-basedstandardsreducecompliancecosts.Furthermore,footprintbasedstandardsencouragebettersafetydesignthanmass-basedstandards.66 Weight-basedstandardscanencouragesmallervehicles,whichhasnegative safetyimpactsforthevehiclefleet.Size-basedstandardsencouragelighter vehicleswhilemaintainingvehiclesize.Aslongassizeismaintained,safety impactsarenegligible,orevenpositive.67 Powertrainefficiencyimprovementsgeneratethesamebenefitunderamass- andfootprint-basedstandard.Underafootprint-basedstandard,thesame efficiencyimprovementderivedfromweightreductionmovesamanufacturer closertothetargetemissionlevelbythesameamount.Incontrast,amass-based standarddoesnotreducethedistancetocompliancegiventhesameefficiency benefitduesolelytoweightreduction(refertoFigure9below).Thus,weightreducingtechnologiesarenottreatedequallyunderthetwoseparate standards.68 64 ClimateChangeAuthority(2014) EnvironmentalProtectionAgency(EPA)(2016)andInternationalCouncilforCleanTransportation(2017) 66 NationalHighwayTrafficSafetyAdministration(US)(2006) 67 InternationalCouncilforCleanTransportation(2009) 68 GermanandLutsey(2011) 65 Figure9:Twodifferentincentivesforvehicleloadreductionvialightweighting understandardsbasedonmassorfootprintasutilityparameter69 In2014,Ricardo-AEAcompletedastudyfortheEuropeanCommissioncomparing footprint-andmass-basedstandards.70Itwasfoundthatoverallcompliance costsare16percentlowerunderafootprintstandardthanamassstandard.All butonemanufacturershowedreducedcostsusingfootprintastheutility parameter.Thestudyalsofoundthatmassastheutilityparametermayresultin other,rivalmanufacturersbenefittingfromweightreductioneffortsbyan individualmanufacturer,providingacompetitivedisincentivetoreduceweight. Finally,thestudyreinforcesindependentfindingsthatweightreductioncanbe achievedatlowercoststhanoriginallyanticipated,duetoimprovedmaterials anddesignoptions. Althoughtheevidencesupportsmorecost-effectivefootprint-indexedstandards, suddenlyswitchingfromthedesignofEUCO2standardstoafootprint-based standardmayprovidesomemanufacturerswithacompetitiveadvantage. Utilisingfootprintfromthebeginningprovidesuniformaccountingforall methodsofimprovingvehicleefficiency,costslessoverallforthevastmajorityof manufacturers,andavoidspossibleadministrativeandcompetitiveproblemsifa switchisdeemednecessarylater.Finally,theobjectiveofattribute-based standardsistopreserveconsumerchoice.Sizeisautilitydesiredbyconsumers, whileweightisinvisibletocustomersandisnotdirectlyvalued. Footprintastheutilityparameterpreservessizeandmoreefficientlyencourages lightweighting,whichimprovesvehiclehandlingandperformance.Asexplained above,footprintalsoresultsinloweroverallcostsofcompliance,andtechnology costscontinuetofallwhilenewadvancementsroutinelycometomarket.Thus consumerchoiceisnotlimited.Infact,numerousefficiencytechnologiesalso improveperformance. 69 70 Mock(2011) Kollamthodi(2014) Howcouldtargetsbeappliedtodifferentvehicletypes? Howshouldafuelefficiencystandardbeappliedtoeachlight vehiclecategoryandwhy? ClimateWorksandFCAsupportstheICCT’sresponseregardinghowanattribute-based fleet-averagestandardshouldbeappliedtoeachlightvehiclecategoryinAustralia: TheUSfootprintsystemisidealandshouldbeappliedbyAustraliatoeachlight dutyvehiclecategory.Thesystemappliesa‘target’toeachvehicle,basedupon itsfootprint.Theoverallstandardforeachmanufactureristhesales-weighted averageofthetargetsforeachofthevehiclesitactuallyproduces.Notethatthis generatesdifferentstandardsforeachmanufacturer,basedupontheirunique mixofvehiclesactuallyproduced. Compliancewiththeindividualmanufacturer’sstandardisalsoasalesweighted average,thistimebasedontheactualefficiencyorCO2ofeachvehicleactually produced.Notethatthismeansthatnoteveryvehiclehastomeetitsindividual target–manyvehiclescanbebelowtheirtargetsaslongastheyareoffsetby othervehiclesthatexceedtheirtargets.Thissystemallowsmaximumflexibility tomanufacturers,tominimizethecostofcompliance,andtreatseveryvehicle equally,regardlessofsize. IfSUVsaresubjecttoadifferenttargettopassengercars,howshouldSUVs bedefined,andwhy? Alllightvehicleemissionsstandardsappliedinternationallycoverpassengervehiclesat aminimum,andthemajorityalsocoverlightcommercialvehicles.Theclassificationand delineationofvehicleboundariesdiffersbetweencountries;forexample,largervehicles suchasfour-wheeldriveandSUVsareclassifiedaspassengervehiclesinsomemarkets andaslighttrucksorlightcommercialvehiclesinothers.71WesupporttheICCT submissionwhichoutlineshowdifferentvehicletypesshouldbecategorisedinAustralia: ThetechnologiesavailabletoimproveefficiencyofbothM1vehicles(cars& SUVs)andN1vehicles(LCVs,comprisinglighttruckssuchaspickupsandvans) areverysimilar.Hence,thebestpracticeistoregulateallvehicles(M1andN1) together,underthesametargetcurve.Currently,nocountryregulatesallM1 andN1vehiclesunderthesamestandard.Thus,Australiacouldbeapioneeras thefirstcountrytoregulatealllightdutyvehiclestogether. WhilesomepeopleuseLCVsasapersonaltransportvehiclejustlikeacaroran SUV,therearemanylegitimateusersofLCVswhoneedthefundamentalload carrying/towingcapacityprovidedbyLCVs,andwhichaffectsoverallCO2 emissionsofthosevehicles.Combiningthestandardsintoonemayprovidea disadvantagetosomeofthesevehicles,especiallyifthestandardisnotattribute based.Underanattribute-basedstandard,however,considerationcanbegiven tothelargersize/massoftheLCVswhilemaintainingonesetofstandardsforall lightvehicles.Indeed,LCVsgenerallyhavealotofemptyspaceinside,anddonot carrytheextraseatsandotherconsumerfeaturesofcars/SUVs.Therefore,LCVs aretypicallymuchlighterfortheirsizethanasimilarsizedpassengervehicle,and consequentlyhavebetterfuelefficiency.Inthisway,asinglefootprint-based standardcanapplytoalllightvehicles,whereasamass-basedstandard(which penalizesLCVsfortheirlightweightrelativetotheirsize)willlikelyrequirea separatestandardforcars&SUVsandanotherforLCVs(asisthecaseinEurope, thesplitstandardsintheUSisexplainedbelow). 71 ClimateChangeAuthority(2014) Iftwocurvesaredeemednecessary,theyshouldbeseparatedintoM1(again, carsandSUVs)andN1(LCVs).SinceM1vehiclesarebasedoncarplatforms, havingacurveforcars&SUVs,ratherthancarsonly,wouldprovideaconsistent targetforvehiclesbasedoncarplatformsandforwhichsimilarmethodsof improvingefficiencyapply.However,thefollowingexplainssomeofthehistorical drawbacksofseparatetargetcurves. Separatecar/SUVstandardsandLCVstandardscreatesanincentivefor manufacturerstoreclassifysomeofthelarger/heavier/lessefficientcarsand SUVsasLCVsthroughsimpledesignchanges,withoutaffectingtheunderlying engine/transmissionoroverallutilityofthevehicle–oritspurchasebycustomers fornon-commercialuse. Globally,N1vehiclesaretypicallyrestrictedtovehiclesdesignedtocarrycargo, suchaspickupsandboxedvans(FordTransit,e.g.).SUVsandminivansunder 3500kgareclassifiedasM1vehicles.OnlyintheUSareminivansandSUVsunder 3500kgconsideredN1vehicles.SincesomemanufacturershavemoreN1sales thanM1,asplitstandardmayimpactrelativecompetitivenessamong manufacturers.Additionally,N1vehiclestendtohavelessefficiencytechnology applied(althoughthereisnotechnicalreasonwhythesameamountofefficiency cannotbeapplied).AstheN1standardsinEuropereflectthelowerlevelof technologyonthebaselinevehicles,theEUstandardsforN1arerelatively lenient,resultinginmanufacturersmeetingtheirfuturetargetswellinadvance.72 WhenUSfueleconomystandardswereinitiallyformulatedunderthe1975 EnergyPolicyandConservationAct,lighttruckswereonly20%ofthemarketand minivansandcar-basedSUVsdidnotexist.Thus,theinitialfocuswasoncar standards,withtheestablishmentoflight-truckstandardsdelegatedtoNHTSA. Whenthelargercar-basedminivansandSUVsbegandeveloping,NHTSA includedthemintrucks.Acknowledgingsomeoftheissueswiththis classification,EPAandNHTSAsubsequentlyreclassifiedall2wdSUVslessthan 6,000lbsGVWRascars,butleft4wdSUVs,larger2wdSUVs,andminivans astrucks. Unfortunately,thelessstringentstandardfortrucksstronglyincentivizes manufacturerstoreclassifycarsastrucks,byincreasingthegroundclearanceof carssothattheycanbeclassifiedasSUVsandeliminating2wdversionsofsmall SUVs.Lessefficient4wdversionsremain,alongwiththeadditionofvehicleswith highergroundclearance,whichdirectlyincreasefleetfuelconsumption. Additionally,thiseasesmanufacturercompliance,sothattheyneednotinstall availabletechnologyonothervehicles.Mostlighttrucks(exceptforcertainSUVs andpickups)arebasedoncarplatforms;andpickupsaremuchlighterthan truck-basedSUVsofthesamesize(duetoemptybed).Thesetwofacts,plusthe applicabilityofsimilartechnologiestoallvehiclesregardlessofplatform,indicate thatthereisnotechnicalreasontohaveseparatecurvesforM1andN1vehicles. ItistimetoalsoendtheartificialdistinctionbetweenM1andN1vehiclesforfuel efficiencyandgreenhousegasemissions.Asinglefootprintfunctionwillstillgive largertrucksalessstringenttargettomeet,whileavoidingvehicleclassification gamesandhelpingtoensurefuelconsumptionandGHGemissiongoalsare actuallymet. 72 Mork(2013) Howcouldtargetsbephasedinfrom2020to2025? Howshouldtargetsforafuelefficiencystandardbephasedinandwhy? Therearearangeofdifferentoptionsforcompliance,fromannualtoperiodic compliance;othervariations,suchascumulativecomplianceoveranumberofyears, arealsopossible.TheICCTresponseregardinghowtargetsforafuelefficiencystandard shouldbephasedinaresupportedbyClimateWorksandFCA. Annualtargetsencourageannualratesofefficiencyimprovements,whichhave greaterenvironmentalbenefitsthanaperiodicphase-in.Annualtargetsalsoset interimgoalsformanufacturers,ensuringtheydonotwaituntilthelastminute tocomply.Twootherimportantbenefitsarethatflexibilitymechanismsarenot implementablewithoutannualtargetsandadoptionofannualtargetswould harmonizewithotherinternationalstandards.Thecombinationofinterimgoals andflexibilitymechanismsallowsregulatorstojudgewhethermanufacturersare puttingforththeirbestefforts,and,iffallingshortofthestandards,providesthe capacitytorelaxthemandates. Ifannualtargetsareadopted,whattargetsshouldapplyineachyearfor eachsegmentandwhy? Ifannualtargetsareadopted,adecisiononthetimingofanappropriatestartyearfora standardisrequired.Whilethereneedstobeconsiderationforappropriateleadtime toallowforindustrydevelopments,itisimportanttonotethatgreaterenvironmental andeconomicbenefitswillbeachievedbyintroducinglightvehicleemissionsstandards early.WesupporttheICCT’scommentsinrelationtowhattargetsshouldapplyineach yearandforeachsegment. AftersettingtheinitialfleetwidegoalunderTargetA(105gCO2/km,NEDC),the calculatedpercentagereductioninemissionscanbeappliedeachyeartoeach yearlyfleet.Withastartingfleetefficiencyof184gCO2/km(NEDC)in2015, TargetAcorrespondstoa5.5percentannualreduction;usingtheICCTtoolto converttheseNEDCvaluestoWLTP73andassumingAustralianfleetdieselshare ofaround30percent,leadstoTargetAstringencyofabout120gCO2/kmwhile the2015fleetaveragesabout190gCO2/km,ora4.5percentannualreduction. Whilethismightbeabitaggressiveifthestandardsweretechnologyforcing,for exampletheUS2017to2025standardsrequireabouta4.1percentannual reduction,itisimportanttounderstandthatAustraliaisstartingfromadifferent baseline.Theaverageleveloftechnologycurrentlyinstalledonvehiclesin AustralialagsthatforvehiclesintheUS,EuropeandJapanbymanyyears. Therefore,Australiaisa‘technologytaker,meaningthatthestandardsare designedtobringtechnologytoAustraliathatisalreadyinwidespreadusein muchoftheworld.Thisapproachisconsiderablyeasier,requiresmuchlesslead timethantechnologyforcingstandards,andallowsforlargerannualreductions. Giventhecomparablestandardsinothervehiclemarketsandtheavailabilityof existingtechnologytocomplywiththosestandards,a5.5percentannual reductionforatechnologytakerisquitefeasible.Usingapercentagebased targetalsoallowsforflexibilityinthestandardbasedonchangingfleetmix.. ThepublicationofthedraftRegulationImpactStatementandsupporting documentscomefarinadvanceofeither2018or2020whenthestandards wouldbeimplemented.Thus,finalizingthestandardsthisyear(2017)provides amplelead-timeforimplementationin2020.Furthermore,thesoonerthe standardsarefinalized,thegreaterstabilityandregulatorycertaintytheyoffer forthefuture.Thestringencyofthestandardcouldberampedupovertime,as necessary,butthiswoulddelayimplementation. 73 Kühlweinetal.(2014) TheU.S.CAFEstandardswereannounced18monthspriortoenforcement.Saudi Arabia,whichhasavehiclefleetverysimilartoAustralia’sandisalsoa technologytaker,gaveevenlessleadtime.74LikeTargetAproposedinthedraft RegulationImpactStatement,SaudiArabia’stargetrequiresthesamelevelof technologyonvehiclesasintheUS(albeitlaggingbythreeyears),thereby harmonisingthestandardsandsimplifyingmanufacturercompliance. Manufacturersarealreadyanticipatingefficiencystandardsglobally,thus extendedleadtimeisnotcriticalfortechnologytakers. Ifapercentagephaseinisadopted,whatpercentageshouldapplyineach yearandeachsegment,andwhy? ClimateWorksandFCAsupporttheICCT’sresponseregardingwhatpercentageshould applyineachyearandeachsegment: 5.5percentperyear(or4.5percentperyearusingWLTP)wouldplaceAustralia roughlyinlinewiththeUSattheendofthephase-inin2025,combiningless stringentinitialrequirementswithafasterrateofefficiencyimprovement.This ensuresthatthetechnologiesputonvehiclessoldinAustraliawillbeonparwith thebesttechnologiesusedintheUSandEUby2025.75Sinceallvehiclesare importedbeginningin2018,littleextraburdenwillbeplacedonmanufacturers tomeetthesestandards,astheyonlyneedtoexportthesamevehiclesto AustraliathattheyarealreadyplanningtosellintheUS,Europe,andJapan. Therelativelylowburdenisfurthersupportedbyreducedtechnologycostsand greatervarietyofavailabletechnologies.Althoughseveralnewstudiesand publicationsregardingtechnologycostarereferencedinthedraftRegulation ImpactStatement,thereisstillnewerinformationanddatathatshouldbetaken intoaccount,andwhichwillreducethecostsofthefuelefficiencyprogram. Forexample,thetechnicalsupportdocumenttoUSEnvironmentalProtection Agency’sProposedDetermination76updatescostandefficiencyvaluesfor numeroustechnologiescomparedtothedraftTechnicalAssessmentReport.77In thatreport,costs/vehicleforbringingtheMY2021fleettoMY2025standardsis $986forpassengercars(US$749)and$1339forlighttrucks(US$1018), seeTableIV.4. InthedraftRegulationImpactStatementinTable10,thecostsforbringingthe AustralianFY2021fleettoFY2025TargetAstandardsis$1158forpassengercars and$2344forLCVs-thesenumbersweredeterminedbysubtractingthe2021 costsfromthe2025costs.ThedraftRegulationImpactStatementpredictedcosts pervehicleareapproximately1.2xand1.75xthecostsestimatedbytheUS EnvironmentalProtectionAgency. TheAustralianandUSbaselinefleetsaredifferentinshareofpassengercarsand LCVs,aswellasshareofdieselandgasoline.However,dieseltechnologycosts areexpectedtocontinuetodecrease,beloweventhecostspresentedbytheUS EnvironmentalProtectionAgency.78Lightweightingcostsareexpectedto decreaseaswell,witha15%reductioninlighttruckmasscostinglessthan$733 (US$557)in2025.Thus,despitethedifferencesbetweentheAustralianand Americanbaselinefleets,thetechnologiesthatshowthegreatestbenefitforthe AustralianfleethavesignificantlydecreasedcoststhanthoseusedintheBITRE 74 BandivadekarandPosada(2014) ClimateChangeAuthority(2014) 76 USEnvironmentalProtectionAgency(2016) 77 USEnvironmentalProtectionAgency(2016) 78 InternationalCouncilforCleanTransportation(2009),MartecGroup(2016)andMeszler,D.,German,J.,Mock,P., Bandivadekar,A(2016) 75 benefit-costanalysis.Thus,basedsolelyonupdatedtechnologycosts,costper vehiclewilllikelybe1.2x-1.75xless(thatis57%-85%ofthecostsinthedraft RegulationImpactStatementinTable10).ThiswouldincreasetheTargetAnet benefitsto$16,330m-$20,870mandthebenefit-costratioupfrom1.86to2.183.26.ICCTisevenmoreoptimisticaboutthetechnologiesavailablefor compliance.79 Finally,ICCT’scommentsonUSEnvironmentalProtectionAgency’sProposed Determination80demonstratethatevenEPA’sProposedDeterminationdidnot considerorincorporatethelatestavailabletechnologydevelopments.For example,AtkinsonandMillercycleenginesimproveconventionalgasolinevehicle efficiency,e-boostingand48Vmildhybridsystemsgreatlyimprovegasolineand dieselefficiency,electricvehiclebatterycostshavefallendramatically,and lightweightingcontinuestoadvance.UpdatingBITRE’scostanalysiswiththis dataisimportant,asonlythemostrecenttechnologystudiescanprovide accuratestartingpointsforfutureprojections. Wenoteherethat,whileregulatorydesigniscrucial,stringencyisequally important.ThestringencyofTargetAeffectivelybringstechnologytoAustralia thatisalreadyinwidespreaduseinmuchoftheworld,includingintheworld’s moststringenteconomies.Asdiscussed,thesetechnologiesareavailableat decreasingcostsandwiderapplicability.However,updatedcostsandbenefits cannotbeaddressedwithoutaskingquestionsofstringency. WhatflexibilityarrangementsshouldbeallowedunderanAustralianfuel efficiencystandardandwhy? Themajorityofinternationalmarketshavesomeflexibilitymechanismsthatlowerthe coststosuppliersofmeetingtargets.Thedetailsofflexibilitymechanismsusedbykey internationalmarketswereoutlinedbytheClimateChangeAuthority81andincluded: • UnitedStates,permitsliablepartiestobankpreviouslyaccruedcreditsand tradeexcesscreditswithotherpartieswithinstatedtimeframes.Theabilityfor liablepartiestoborrowfromfutureyearstomeetcomplianceobligationsis alsoallowed. • EuropeanUnion,standardsspecifythatmanufacturersareableto‘pool’ emissionsundercertainconditions,whichineffectactsasatradingsystem. • China,underitsPhaseIIIstandardsallowsforthebankingofexcesscreditsthat areachievedinacomplianceyear,whichcouldthenbeusedwithinthephase period(2012to2015). • Japan,thestandardallowsmanufacturersto‘pass’creditsbetweentheirown modelsindifferentweightclasses.Forexample,creditgivenforamodelthat surpassesitsweight-classtargetcanbepassedtoamodelinanotherweight classtohelpmeetitstarget. WesupporttheICCT’scommentsinrelationtowhatflexibilityarrangementsshouldbe allowedunderanAustralianfuelefficiencystandard. Intheory,wesupportallflexibilitymechanismsprovidedthattheyareproperly implemented.Specificflexibilitymechanismswesupportinclude:credittrading amongvehiclecategories,credittradingbetweenyears,credittradingbetween companies(pooling),derogations(concessionalarrangements,exemptions,or relaxationsoftherule),andfiscalandnon-fiscalfines. 79 InternationalCouncilforCleanTransportation(2009)andMeszler,D.,et.al(2016) InternationalCouncilforCleanTransportation(2016) 81 ClimateChangeAuthority(2014) 80 Banking,borrowingandtradingshouldbeallowedwithinacomplianceperiod, assumingthestandardsarephasedinannually.Thereisnopointinbanking creditsforaperiodicallyphasedinstandard. Carry-forwardcreditsaregiventoover-compliantmanufacturersforuseinfuture modelyears.Carry-backwardcredits,ontheotherhand,wouldbeappliedto pastmodelyears. Allowingmanufacturerstobank,borrow,andtradecarry-forwardcredits betweencomplianceperiodsencouragesover-compliance,whichimprovesthe energysecurityandglobalwarmingbenefitsofthestandardsandestablishesa moreefficientbaseline,effectivelyallowingmorestringentstandardstobesetin thenextphase. However,banking,borrowingandtradingcarry-backwardcreditsbetween complianceperiodswouldcompromisetheeffectivenessofthestandardto reduceemissions.Furthermore,standardsforeachsuccessivephasetypically aren’tknownuntilonlyafewyearsinadvance,thusmanufacturersshouldnot relyonborrowingandtradingfortheseunknowns. Insummary,banking,trading,andborrowingbothstylesofcreditswithina complianceperiod,andbanking,borrowing,andtradingcarry-forwardcredits betweenperiods,incentivizemanufacturerstoover-performwithinacompliance period,ifthestandardsarerelativelylenient.Conversely,disallowinginter-period bankingwouldonlyencourageaminimumamountofimprovement. Furthermore,bankingbetweenperiodsallowsmanufacturerstocomplyevenif productdevelopmenttimelinesdonotmatchupwiththestart(orend)ofanew complianceperiod. Applyinganexpirationdateforbankedcredits,forexamplethreeyears ratherthanfiveyearsasusedintheUS,preventsexcesscreditsfrombeing carriedforward. Whatotherincentivescouldastandardadopttoencourage supplyofmoreefficientvehiclesunderastandard? What,ifany,creditsshouldanAustralianfuelefficiencystandardadoptto furtherencouragethesupplyofmoreefficientvehicles,andwhy? ClimateWorksandFCAbelievethatsupercreditsshouldbeappliedforultra-low emissionsvehicleswiththeaimofencouragingvehicleavailabilityandsupplyin Australia,whilstminimisinganyeffectonoverallincreasesinemissions.Whilstwe appreciatethatsuper-creditsmayinfactreduceefficiencygainsinnon-electric vehicles,webelievethebenefitofearlyuptakeofelectricvehicles,whichareultimately requiredtodecarbonisethepassengervehicletransportsector,outweighsthis. IntheEUandtheUS,theintroductionofultra-lowemissionsvehiclesisencouragedby theadoptionofsupercredits;theyarealsosupportedbyamuchlargermarket,federal andstatecomplementarymeasuresandlocalisedefficienciesinlogistics,marketingand regulatorycompliance. InAustraliawitharelativelymodestmarketbyworldstandards,thereareminimal complementarymeasuresandcountryspecificregulatorycompliancerequirements. Asaresult,automotivemanufacturersneedtojustifythesupplyofultra-lowemissions vehiclestoAustraliaintheshorttermandtheintroductionofsuper-creditsforthese vehiclescouldsupportthisjustification. Atraditionalsuper-creditstructurehasproventoberelativelyineffectiveatdriving overallsupplyintothemarket.However,duetothefactorsstatedabove,this conclusionmaynotbereplicatedinAustraliatothesameextent. RegardlessofitsforecastefficacyinAustralia,webelievethataFlexibleUltra-Low CarbonVehiclemandatewouldbemoreeffectiveatincreasingmodelavailabilityin Australia,aswellasreducetheimpactonoverallfleetemissionsoutcomes. TheflexiblemandatewasintroducedbyMEPFionaHall,rapporteuroftheEuropean Parliament’sIndustryCommittee,aspartofthediscussionaroundtheEUemissions standards.Thissystem,illustratedbelow,encouragesallcarmakerstomakeavailable arangeofultra-lowemissionsvehicles,andrewardsthosethatdomore.82 Figure10:FlexibleUltra-LowCarbonVehiclemandate Modellinghasbeendoneoftheeffectiveweakeningoftheoverallfleetemissions standardsthroughtheuseofsuper-credits,andhasshownthattheFlexiblesuper creditsapproachinfactstrengthentheoverallfleetemissionstarget,andonlyaffects itseffectivenesswhenelectricvehiclemarketsharereaches5%,atwhichpointthe systemcanbereviewedorphasedout. Importantly,theflexiblemandateistechnologyneutral.Soautomakerscanchooseto investinthesupplyofultra-lowemissionsvehicles(whetheritbebatteryelectric vehiclesorotherwise),andtherebyachieveanadvantageinoverallrequiredemissions targets,ortheycaninvestmoreinoverallfleetemissionsreductions,takinginto accountthe‘penalties'fornotsupplyingenough,ornothavingavailable,ultra-low emissionsvehiclesinthemarket. Asmoreultra-lowemissionsvehiclesaresoldinthemarket,thebusinesscasebecomes easiertojustifyduetothecostefficienciesthatcomewithhighervolumes. ThedraftRegulatoryImpactStatementeven-handedlyconsidersthevarietyof creditsavailable.TheICCTsupportsoff-cycleandair-conditioningcredits,aslong astheyareverifiableanddonotweakenthestringencyofthestandardby duplicatingon-cyclebenefits.Validationprocedures,performedbythe government,canserveasameansforverifyingoff-cyclebenefitsbeforegranting credits.Forexamplesofsuchprocedures,seetheUSEnvironmentalProtection AgencyandNationalHighwayTrafficSafetyAdministration83andtheecoinnovationsrequirementsintheEU2020standards.84 82 TransportandEnvironment(2013) UnitedStatesEnvironmentalProtectionAgencyandUSEPAandNationalHighwayTrafficSafetyAdministration(US)(2010) 84 EuropeanCommission(2011) 83 Theprocessgrantingoff-cyclecreditsintheUSdoessuffersomeproblems,which haveaninterestingsolution.IntheUS,grantingoff-cyclecreditsisavery contentiousissue,primarilybecauserealworlddataonnationwidetravel behaviorandconditionsdoesnotexist.ManufacturersandtheUSEnvironmental ProtectionAgencyarefrustratedbecauseeveryapplicationforanewcredit requiresthemanufacturertogeneratedata,followedbyalengthyandtime consumingprocesswhereEnvironmentalProtectionAgencytriestoresolveissues andobtainmoreinformationfromthemanufacturerbeforegrantingthe approval.Thesolutiontothisissueistoconductajointprogramwith manufacturersandotherinvestedentitiestogathercomprehensivedataon nationwide,year-roundtravelbehaviorandconditions.Thiswillallowthe governmenttoestablishstandardizedproceduresforgrantingoff-cyclecredits, streamliningtheapprovalprocessandprovidingknowncreditsequallytoall manufacturers. SupercreditsareextremelyimportanttotheAustralianmarketbecauseitwill encouragemodelavailabilityandsupplyinarelativelylowvolumemarket.Withalack ofcomplementarymeasuresandfinancialincentives,wemusthelpautomanufacturers improvetheirbusinesscasefortheintroductionoflowemissionsvehicles,andsuper creditswillhelpthemdothat. Implementedbadlyhowever,andsupercreditscanhaveanegativeeffectonoverall fleetemissionsstandards,whichClimateWorksandFCAdoesnotsupport.Witha Flexiblesupercreditsscheme,theoverallfleetemissionsprofilestrengthensinthe mediumterm,beforeneedingreviewwhenelectricvehiclepenetrationishigher. Whichentitiescouldberequiredtocomply? Whichentitiesshouldberequiredtocomplywithafuelefficiency standard,andwhy? Inrelationtowhichentitiesshouldberequiredtocomplywithafuelefficiencystandard, ClimateWorksandFCAagreewithstatementsincludedintheICCTsubmission: AllentitiesresponsibleforAustraliancertificationofavehicleundertheMotor VehicleStandardsAct1989shouldalsobetheentitiesrequiredtocomplywith thefuelefficiencystandard.Fromapracticalview,thiseliminatesanydisputes betweenentitiesofwhoisresponsibleforthedifferentrequirementsandthisis consistentwithEUandUSstandards(underwhichdomesticmanufacturersor licensedimportersareresponsibleforcompliance). Shouldallentitiesbesubjecttothesamerequirements? Whatconcessionalarrangementsshouldbeofferedtolowvolume suppliersunderanAustralianfuelefficiencystandardandwhy ClimateWorksandFCAsupporttheICCT’sresponseregardingconcessional arrangements,andwhethertheseshouldbeofferedtolowvolumesuppliers: Specialprovisionsforsmallvolumemanufacturerscouldbeconsidered.However, anattribute-basedstandarddoesnotputmanufacturersofalimitedproductline atacompetitivedisadvantage,asthestandardadjuststhestringencyforeach vehiclesuchthattheamountoftechnologyrequiredforallvehiclesisrelatively consistent.Inaddition,anyconcessionalarrangementsneednotrelyonvolume inAustralia.Manylow-volumemanufacturersproducethesamevehicles globally,whicharesubjecttovariousstandardsworld-wide. Thus,anysmallvolumemanufacturerprovisionsshouldbelimitedto manufacturerswithlimitedengineeringcapacity,i.e.manufacturerswith worldwidesalesoflessthan3,000vehiclesperyear. Anotheralternativeistoallowatemporaryleadtimeallowance.Thatis,low volumemanufacturersarenotsubjecttolowerstandards,butreceiveslightly moreleadtime.Forexample,alowvolumemanufacturermaybeallowedto meet2020standardsin2021,butmustmeet2025standardsin2025. Whatpenaltiescouldbeappliedifentitiesfailedtocomply? Whatpenaltiesshouldbeappliedtoentitiesthatfailedtocomplywith afuelefficiencystandardandwhy? Allcountriesthathaveastandardinplaceemploysomeformofpenaltyfornoncompliance,withthetypeandstringencyofpenaltiesvaryingacrosscountries.In relationtowhatpenaltiesshouldbeappliedtoentitiesthatfailedtocomplywithafuel efficiencystandard,ClimateWorksandFCAsupportscommentsmadebytheICCT, statingthat: Itisimportanttosetfinancialpenaltiesatalevelhighenoughtoprovideastrong incentivetocomplywiththestandardratherthansimplypaythepenalty. Inotherwords,thepenaltiesshouldbehigherthanthecostoftechnology requiredtoreduceCO2emissionsinordertomakecompliancethemorecosteffectiveoption. Recenttechnologystudieshavefoundthatmostconventionaltechnologiescost lessthanAUD$50perpercentimprovement,withfullhybridsanddieselscloseto AUD$100perpercentimprovement.85Therefore,thefinancialpenaltyshouldbe atleastAUD$75perpercentimprovementandpreferably,closetoAUD$100per percentimprovement. TheEuropeanCommissionpenaltyof€95/gCO2/kmisacceptable,asitisalmost exactlyAUD$100perpercentimprovementandensureswidespreadcompliance. Toputthatfigureintocontext,theexpectedcostofcompliancewithfuture2025 standardsof70gCO2/km(NEDC),isestimatedtobebetween€1000and€2150. Startingwitha2014baselinefleetataround120gCO2/km(NEDC),this correspondstoacompliancecostof€20-€43/gCO2/km,orlessthan$50per percentimprovement.86Thusthepenaltyof€95/gCO2/kmismorethantwo timesthecostofcompliance. IntheUS,CAFEpenaltieshavebeenlowhistorically.UntilMY2019,thepenalty correspondstoAUD$55/mpgshortfall,orlessthanAUD$30perpercent improvementin2025.Butthesepenaltiesareincreasingdramatically,to AUD$145/mpgshortfallbeginningin2019,orclosetoAUD$75perpercent improvement.Startingwitha2014fleetat31.5mpg,thecoststoreachanestimated 51.4mpgislessthanAUD$1,61087oraroundAUD$81/mpgreduction,whichismore thanthecurrentCAFEpenalties,butlessthantheincreasedpenalties. 85 InternationalCouncilforCleanTransportation(2016) Mock(2016)andMeszler,D.,German,J.,Mock,P.,Bandivadekar,A.(2016) 87 EnvironmentalProtectionAgency(EPA)(2016) 86 References AmericanCouncilforanEnergy-EfficientEconomy.2014.The2014InternationalEnergy EfficiencyScorecard.ViewedMarch2,2016:http://aceee.org/research-report/e1402. 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