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Fuel consumption of European cars: The effect of standards, taxation and safety. Theodoros Zachariadis Economics Research Centre, University of Cyprus COST 355 meeting, Madrid, May 2007. Contents.

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fuel consumption of european cars the effect of standards taxation and safety

Fuel consumption of European cars: The effect of standards, taxation and safety

Theodoros Zachariadis

Economics Research Centre, University of Cyprus

COST 355 meeting, Madrid, May 2007

contents
Contents
  • The effect of standards on fuel economy (Clerides and Zachariadis, “Are standards effective in improving automobile fuel economy?”, July 2006)
  • Some recent results, trying also to explain the share of diesel cars in each country
  • Do vehicle safety requirements compromise fuel economy?
rationale of the study on fuel economy standards
Rationale of the study on fuel economy standards
  • Share of transportation in energy use and GHG emissions steadily rising
  • It will take time for biofuels and new technologies (hybrids, fuel cells etc.) to be effective

 Improve fuel economy of conventional engines/fuels

FE improvements may be attained through:

  • Higher fuel prices
  • FE standards / industry voluntary commitments
  • CO2-based vehicle taxation
  • Autonomous technical progress

How much improvement from which measure?

previous similar work
Previous similar work
  • Espey (Energy Economics, 1996); Johansson & Schipper (J. Transp. Econ. Policy, 1997)
  • Greene (Energy Journal, 1990)
  • Gately (Energy Journal, 1992)
  • Small & Van Dender (UC Irvine, 2005)

What is new in our study:

  • 18 countries, 20 cross-sections, period: 1975-2004
  • Period with & without FE standards, with high & low fuel prices
  • FE standard is explicitly addressed as a variable
regression results
Regression results

Notes: Estimation carried out with the Arellano-Bond GMM procedure. Robust t-statistics in brackets. *, ** and *** denote significance at 10%, 5% and 1% level. Last column reports the probability of the Arellano-Bond test for second order serial correlation of residuals.

policy implications 1
Policy implications – 1
  • Are FE standards significant for reducing automobile fuel consumption?
  • Use data from AT, BE, FR, DE, IT, JP, SE and UK
  • Split data in two periods: ‘pre-standard’ (1980-1994) and ‘with standards’ (1995-2004)
  • Re-estimate model without STD variable: i) for ‘pre-standard’ period ii) for entire period
  • Perform a Wald test and a Chow test to examine stability of estimated coefficients
  • Both tests reject the null of coefficient stability

 structural break, i.e.FE regulations made a difference

policy implications 2
Policy implications – 2
  • Given a future FE (or CO2) target to be met without tighter standards, how much should prices increase?
  • In the US, tightening current CAFE standard by 10% is equivalent to raising gasoline price by 36 US cents’2004 / gallon (result is similar with those of other studies)
  • In Europe, stated policy target of 120 g CO2/km – 25% tighter ‘standard’; retail fuel prices might have to double to induce similar fuel savings
policy implications 3
Policy implications – 3
  • How might fuel consumption evolve without further standards and at today’s fuel prices?

Time trend coefficient: α1 insignificant, near zero

  • i.e. no ‘autonomous’ improvement per year ?
  • Changing consumer preferences towards more powerful and comfortable cars have cancelled out any autonomous technical progress
  • European long-term models, assuming that FE will continue to improve at fast rates even without post-2010 FE regulations, may have to be revisited
policy implications 4
Policy implications – 4
  • Are taxes always the most efficient measure?

“To tackle an externality, impose a tax and let the market work”

But:

  • Taxes less effective because of consumer myopia
  • Impact of higher taxes on the whole economy?(e.g. sectors that use fuel as an intermediate good)
  • Political acceptance of higher taxes
  • Major externalities (accidents, congestion) associated with miles driven, not with fuel consumed
conclusions of the study on fe standards
Conclusions of the study on FE standards
  • If there were no standards in force, car fuel economy would not have improved considerably
  • Very high fuel price increases required in Europe if fuel economy to be improved without standards
  • Absent technological breakthroughs or an economic recession, FE will only improve further with tighter standards
  • Raising fuel taxes is not an option for Europe, could be considered in the US together with stricter standards (modified CAFE rules)
recent extensions
Recent extensions
  • Focus on European countries only
  • Fuel consumption may also depend on:
    • total vehicle taxes (registration, circulation, insurance etc.)
    • urbanisation and population density
    • ratio of retail gasoline/diesel price
  • Except for gasoline/diesel ratio, other variables not available as a time series but only as a country-specific figure for a given year (i.e. fixed effect)
  • Efficient estimation of dynamic panel models wipes out fixed effects, therefore adding these as explanatory variables is not possible
  • Feedback requested: are national data on vehicle taxation available for several years?
effect of gasoline diesel price ratio
Effect of gasoline/diesel price ratio
  • Price ratio was constructed from retail fuel prices (source: IEA)
  • To avoid endogeneity/collinearity:
    • Gasoline price is the average of the previous three years
    • Gasoline/diesel ratio is the current year’s price ratio
  • Using both price variables improves estimation
is there a safety fuel economy trade off
Is there a safety – fuel economy trade-off?
  • “Car manufacturers don’t respect their CO2 commitment … legislation to cut CO2 emissions from cars to come soon”

EU Environment Commissioner, 03/11/2006

  • “Decrease in CO2 emissions has recently slowed. This is due to strong customer demand for larger and safer vehicles and disappointing consumer acceptance of extremely fuel-efficient cars”

European car industry (ACEA), 05/11/2006

  • “Better car safety does not jeopardise emission reduction … the added weight due to safety interventions is negligible”

European Transport Safety Council, 13/11/2006

safety vs fuel economy
Safety vs. fuel economy

Two questions:

  • Does safety affect vehicle mass?
  • Does safety affect fuel consumption / CO2 emissions?
  • US studies analyse relationship between traffic fatalities and attributes of vehicles involved in accidents [see Ahmad and Greene, Transp. Res. Record 1941(2005): 1-7]
  • Earlier results showed that lower fuel consumption leads to less safety  more fatalities
  • Recent evidence is inconclusive
safety vs fuel economy empirical analysis
Safety vs. fuel economy: Empirical analysis
  • Car safety data obtained from EuroNCAP website for 193 cars of model years 2000-2007(www.euroncap.com)
  • EuroNCAP provides consumers with independent information about a car’s safety
  • Ratings for three tests are provided: Adult occupant test, pedestrian test, child protection test
  • Score is provided in integer numbers (e.g. 0-30) and then codified in stars (‘excellent’ is 5 stars for adult & children tests, 4 stars for pedestrian test)
  • For each model tested, EuroNCAP provides exact model description (e.g. Peugeot 207cc, 1.6 ‘sport 1’), kerb weight and model year
safety vs fuel economy empirical analysis 2
Safety vs. fuel economy: Empirical analysis (2)
  • For each one of the 193 EuroNCAP car models, fuel consumption & CO2 data were retrieved from the 2001-2006 databases of the German Federal Motor Transport Authority (KBA) (purchased on CD-ROMs)
  • Data for 2007 models were obtained from online databases of the UK Vehicle Certification Agency (VCA) (www.vcacarfueldata.org.uk) & of portal www.carpages.co.uk
  • Linear regressions:

massi = f(safetyi, engine_sizei, dsl_dummy, year_dummy)

CO2i = f(safetyi, engine_sizei, dsl_dummy, year_dummy)

safety vs fuel economy tentative conclusion
Safety vs. fuel economy: tentative conclusion
  • “Better car safety does not jeopardise emission reduction … the added weight due to safety interventions is negligible”

European Transport Safety Council, 13/11/2006

    • ETSC is probably right !
  • Results are similar if we observe subsets of the whole sample (e.g. if we exclude SUVs and/or superminis, observe family cars and/or MPVs only)
  • Results are similar if safety variable includes both adult+pedestrian test ratings
  • Results are consistent with Ahmad and Greene (2005) who used fatalities as dependent variable
  • Please comment!
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