Download Ministerial Forum on Vehicle Emissions

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
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Forfurtherinformation,contact:
ScottFerraro,HeadofImplementationatClimateWorks Australia,Level16,41Exhibition
Street,Melbourne,Victoria,Australia3000.
P:+61399028040E:[email protected]
HenryO’Clery,CEOatFutureClimateAustralia,POBox44,Koonwarra,Victoria,Australia3954.
P:[email protected]