5.4.2.1 Light-duty Vehicles

The following estimate of the overall GHG emissions reduction potential and costs for improving the efficiency of the world’s light-duty vehicle fleet (thus reducing carbon emissions), is based on the IEA Reference Case, as documented in a spreadsheet model developed by the IEA for the Mobility 2030 project (WBSCD, 2004b). The cost estimates for total mitigation potential are provided in terms of ‘societal’ costs of reductions in GHG emissions, measured in US$/tonne of carbon (tC) or carbon dioxide (CO₂); the costs are the net of higher vehicle costs minus discounted lifetime fuel savings. Fuel savings benefits are measured in terms of the untaxed cost of the fuels at the retail level, and future savings are discounted at a low societal rate of 4% per year. These costs are not the same as those that would be faced by consumers, who would face the full taxed costs of fuel, would almost certainly use a higher discount rate, and might value only a few years of fuel savings. Also, they do not include the consumer costs of forgoing further increases in vehicle performance and weight. Over the past few decades, increasing acceleration performance and vehicle weight have stifled increases in fuel economy for light-duty vehicles and these trends must be stopped if substantial progress is to be made in fleet efficiency. Because consumers value factors such as vehicle performance, stopping these trends will have a perceived cost – but there is little information about its magnitude.

The potential improvements in light-duty fuel economy assumed in the analysis, and the costs of these improvements, are based on the scenarios in the MIT study summarised in Box 5.5. The efficiency improvements as mentioned in this study are discounted somewhat to take into account the period in which the full benefits can be achieved. Further, fleet penetration of the technology advances are assumed to be delayed by 5 years in developing nations; however, because developing nation fleets are growing rapidly, higher efficiency vehicles, once introduced, may become a large fraction of the total fleet in these nations within a relatively short time. The technology assumptions for two ‘efficiency scenarios’ are as follows (Table 5.9a).

Table 5.9a: Fuel economy and cost assumptions for cost and potentials analysis

The high efficiency and medium efficiency scenarios achieve the following improvements in efficiency for the new light-duty vehicle fleet (Table 5.9b):

Table 5.9b: Efficiency improvements new light-duty vehicle fleet

Table 5.10 shows the light-duty vehicle fuel consumption and (vehicle only) CO₂ emissions for the Reference scenario and the High and medium efficiency scenarios. In the Reference case, LDV fuel consumption increases by nearly 60% by 2030; the High Efficiency Case cuts this increase to 26% and the Medium efficiency scenario cuts it to 42%. For the OECD nations, the Reference Case projects only a 22% increase by 2030, primarily because of moderate growth in travel demand, with the High efficiency scenario actually reducing fuel consumption in this group of nations by 9% and the Medium efficiency scenario reducing growth to only 6%. This regional decrease (or modest increase) in fuel use is overwhelmed by the rapid growth in the world’s total fleet size and overall travel demand and the slower uptake of efficiency technologies in the developing nations. Because no change in the use of biofuels was assumed in this analysis, the CO₂ emissions in the scenarios essentially track the energy consumption paths discussed above. Figure 5.16 shows the GHG emissions path for the three scenarios, resulting in a mitigation potential of about 800 (High) and 400 (Medium) MtCO₂ in 2030.

Table 5.10: Regional and worldwide Light-duty vehicle CO₂ emissions (vehicle only) and fuel consumption, efficiency and reference cases

Note: EECCA = countries of EasternEurope, the Caucasus and Central Asia.

Figure 5.16: Light-duty vehicle CO₂ emissions for three scenarios

Table 5.11 shows the cost of the reductions in GHG emissions in US$/tCO₂ for those reductions obtained by the 2030 new vehicle fleet over its lifetime, assuming oil prices of 30 US$, 40 US$, 50 US$ and 60 US$/bbl over the vehicles’ lifetime.^[36] Note that the costs in Table 5.11 do not apply to the carbon reductions achieved in that year by the entire LDV fleet (from Table 5.10), because those reductions are associated with successive waves of high efficiency vehicles entering the fleet during the approximately 15 year period before (and including) 2030.

Table 5.11: Cost of CO₂ reduction in new 2030 LDVs

Note: EECCA = countries of EasternEurope, the Caucasus and Central Asia.

The Table 5.11 results show that the ‘social cost of carbon reduction’ for light-duty vehicles varies dramatically across regions and with fuel prices (since the cost is the net of technology costs minus the value of fuel savings). The results are also quite different for the High and Medium efficiency scenarios, primarily because the estimated technology costs begin to rise more steeply at higher efficiency levels, raising the average cost/tonne of CO₂ in the High efficiency scenario. For the High efficiency scenario, CO₂ reduction costs are very high for the OECD countries aside from North America, even at 60 US$/bbl oil prices, reflecting the ambitious (and expensive) increases in that scenario, the relatively high efficiencies of those regions’ fleets in the Reference Case, and the relatively low km/vehicle/year driven outside North America; on the other hand, the costs of the moderate increases in the Medium efficiency scenario are low to negative for all regions, reflecting the availability of moderate cost technologies capable of raising average vehicle efficiencies up to 30–40% or so.

The values in Table 5.11 are sensitive to several important assumptions:

• Technology costs: the costs assumed here appear to be considerably higher than those assumed in WEO 2006 (IEA, 2006a).
• Discount rates: the analysis assumes a low social discount rate of 4% in keeping with the purpose of the analysis. As noted, vehicle purchasers would undoubtedly use higher rates and would value fuel savings at retail fuel prices rather than the untaxed values used here; they might also only value a few years of fuel savings rather than the lifetime savings assumed here. WEO 2006 on the other hand, used a zero discount rate, substantially reducing the net cost of carbon reduction.
• Vehicle km travelled (vkt): this analysis used the IEA/WBCSD spreadsheet’s assumption of constant vkt over time and applied these values to new cars. Actual driving patterns will depend on the balance of increasing road infrastructure and rapidly increasing fleet size in developing nations. Unless infrastructure keeps pace with growing fleet size, which will be difficult, the assumption of constant vkt/vehicle may prove accurate or even optimistic.
• Efficiency gains assumed in the Reference scenario: the Reference scenario assumed significant gains in most areas (aside from North America), which makes the Efficiency scenarios more expensive.

Table 5.12 shows the economic potential for reducing CO₂ emissions in the 2030 fleet of new LDVs as a function of world oil price.^[37] The values show that much of the economic potential is available at a net savings, ‘if consumer preference for power and other efficiency-robbing vehicle attributes is ignored’. Even at 30 US$/bbl oil prices, over half of the total (<100 US$/tCO₂) potential is available at a net savings over the vehicle lifetime; at 40 US$/bbl, over 90% of the 718 Mt total potential is available at a net savings.

Table 5.12: Economic potential of LDV mitigation technologies as a function of world oil price, for new vehicles in 2030

The regional detail, not shown in Table 5.12, is illuminating. In the High Efficiency scenario, of 793 Mt of total potential, 445 Mt are in OECD North America and are available at a net savings at 40 US$/bbl oil (and at less than 20 US$/tCO₂ at 30 US$/bbl oil). The next highest regional potential is in OECD Europe at 104 Mt, but this potential is more expensive: at 30 US$/bbl oil. Only 56 Mt is available below 100 US$/tCO₂, and becomes available at below 100 US$/tCO₂ only at 60 US$/bbl oil. China has the next highest total emissions (2030 Reference case emissions of 303 Mt) but only a moderate potential of 36 Mt. This potential is fully available at a net savings only if oil is 50 US$/bbl or higher – perhaps not surprising because China has ambitious fuel economy standards embedded in the Reference Case and has relatively low driving rates, which make further improvements more difficult and expensive.