Vehicle efficiency standards
Mandatory vehicle-efficiency standards require newly registered vehicles to emit less tailpipe CO2 emissions than a specified threshold value (usually specified in gCO2/km or similar) by a certain target date. Alternatively, such standards may be expressed as fuel economy standards that require vehicles to surpass a certain fuel-efficiency value (usually provided in miles/gallon of fuel or similar). A vehicle’s tailpipe CO2 emissions and fuel consumption are typically assessed in standardised laboratory vehicle test procedures.
Vehicle CO2 (or fuel economy) standards for light- and heavy-duty vehicles have been introduced in major car markets around the world, including China, the European Union, the United States, Japan and India. Standards for heavy-duty vehicles have been introduced more recently and are more heterogeneous in terms of policy design.
CO2 standards usually provide for flexibility. For example, they are typically defined as corporate average targets. This means that a vehicle manufacturer (or a pool of manufacturers, if pooling is allowed) must ensure that “only” the average of all their newly registered vehicles in a specific market meets the target. Further, low- and zero-emission vehicles (LZEVs, including electric vehicles) may count as more vehicles, and/or may be the subject of specific requirements, in terms of market shares. The latter may come with weaker requirements in terms of gCO2/km overall. This aims to provide specific incentives to the market deployment of LZEVs, as they face greater barriers to entry. This also reduces the stringency of the requirement for conventional fuel vehicles, unless this is calibrated to account for the multipliers applied to LZEVs. CO2 standards may also allow other exceptions, e.g. for small or niche vehicle manufacturers.
Vehicle efficiency standards may have additional flexibility or incentive mechanisms. One of these is the possibility to “bank” credits that have been gained by overachieving targets in a certain year and to use them in future years (and/or trade them with other manufacturers that fall short of their targets). Another flexibility mechanism is the so-called “off-cycle” energy efficiency improvements to vehicles (improvements that are not captured by vehicle test procedures). They may also count towards achieving the vehicle CO2 standards. Similar to the multipliers for EVs, these can reduce the stringency of the overall requirement.
Limit values for CO2 standards typically depend on either the average mass or footprint (size) of the vehicles that a manufacturer sells in the respective market. This is to account for the existence of different vehicle sizes and not to penalize (or favour) manufacturers that sell comparatively larger (or smaller) vehicles. Vehicle manufacturers have to pay penalties in case their vehicle sales surpass, on average, the specific target value in the respective market. The choice of which vehicle size metric to use (i.e. weight or footprint) has a significant impact on the efficacy and scope of the standard. In particular, standards based on footprint are better suited than standards based on weight metrics to ensure that light weighting technologies are part of the solutions adopted by manufacturers to improve fuel economy and lower tailpipe CO2 emissions per kilometre.
Vehicle CO2 standards may also be set for imported vehicles.
Setting CO2 emission standards for different vehicle types (or tightening them where they are already in place) can reduce CO2 emissions from the respective vehicle types and drive the uptake of alternative fuel vehicles.
The CO2 impact of vehicle standards depends to a large degree on the stringency, enforcement and compliance mechanisms, and any potential discrepancy between vehicles’ CO2 efficiency according to test procedures “on paper” and their efficiency in “real-world” driving conditions. Studies have shown that the discrepancy between test values and real-life values has been significant, reaching more than 40% across different global regions in the late 2010s. This is because test procedures in controlled laboratory environments do not necessarily reflect real-life driving conditions and driver behaviour. There is also a certain degree of flexibility in test procedures that may be “exploited”, as well as loopholes in the regulation. New test procedures (such as the so-called Worldwide Harmonized Light Vehicle Test Procedure, WLTP), on-road testing of fuel consumption and CO2 emissions under real driving conditions, and not-to-exceed limits for the real-world gap have been developed and continue to evolve in a way that helped and is still helping to reduce the gap between on-paper and real-life CO2 emissions.
The CO2 impact of vehicle standards will further depend on whether potential CO2 benefits may be offset by rebound effects (e.g. drivers using their vehicles more thanks to fuel cost savings). Preferences for heavier (and hence less efficient) vehicles may also jeopardise the CO2 effects of vehicle standards, unless the policy is designed to manage these. This may be especially the case where vehicle standards are defined separately for different weight or size classes (e.g. distinguishing between cars and “light trucks” rather than considering the vehicle market as a single entity).
The main costs related to vehicle efficiency standards (i) are related to the technology deployments needed for manufacturers to comply with the standards and also (ii) need to account for fuel savings occurring as a result of this same deployment. These costs (and the benefits from fuel savings) are likely to be passed on to consumers. Indirect costs may also be related to congestion effects in case rebound (see section on CO2 impacts).
Considering also co-benefits of vehicle efficiency standards (see respective section), vehicle standards have shown to be highly cost effective from a societal point of view. Adopted US vehicle standards for the period to 2025 were estimated to help consumers save more than USD 2 800 in total fuel costs over the vehicle’s lifetime, with a net savings of USD 1650 after taking into consideration the upfront increased vehicle costs. Further, buyers of model year 2025 vehicles are estimated to fully recoup their investment into a more fuel-efficient vehicle in the third year of ownership. European CO2 standards for cars to 2014 were estimated to have benefitted society more than EUR 6 billion, equating to benefits of EUR 46 per tonne of CO2 saved.
The co-benefits of vehicle efficiency standards relate to fuel cost savings for consumers, reductions in pollutant or noise emissions (especially where standards incentivize the uptake of electric vehicles), related health benefits, and increased energy security. Another co-benefit may be the value of time saved for refuelling thanks to reduced fuel demand. For heavy vehicles, where pollutant emission standards are set on a per-unit energy basis (rather than per-kilometre, as in the case of light vehicles), reduced energy use per kilometre also results in direct co-benefits in terms of local pollutant emission reduction.
Studies have also shown that vehicle CO2 emission standards can alleviate equity concerns with regards to the access to cars of lower-income groups. This is because fuel savings for consumers trickle down to second-hand vehicle buyers (frequently from relatively lower-income groups), who are less exposed to increased vehicle technology costs than new-vehicle buyers (due to depreciation).
The only adverse effect that could be identified is a potential rebound effect, where consumers may decide to drive more due to fuel cost savings thanks to more efficient vehicles. This would have negative effects on road congestion (and result in time and related economic losses) and limit the (co-)benefits of the measure with regards to emission reductions and energy security.
ITF (2021) Transport Climate Action Directory – Vehicle efficiency standards
https://www.itf-oecd.org/policy/vehicle-efficiency-standards
EPA, Environmental Protection Agency (2017) Final Determination on the Appropriateness of the Model Year 2022-2025 Light-Duty Vehicle Greenhouse Gas Emissions Standards under the Midterm Evaluation. https://docs.house.gov/meetings/GO/GO28/20191029/110157/HHRG-116-GO28-20191029-SD004.pdf
Fritz, M; Ploetz, P; Funke, S (2019) The impact of ambitious fuel economy standards on the market uptake of electric vehicles and specific CO2 emissions. https://doi.org/10.1016/j.enpol.2019.111006
ICCT, The International Council on Clean Transportation (2010) Size or Mass? The Technical Rationale for Selecting Size as an Attribute for Vehicle Efficiency Standards. https://theicct.org/sites/default/files/publications/ICCTpaper_sizewt_final.pdf
ICCT, The International Council on Clean Transportation (2017) Consumer benefits of increased efficiency in 2025-2030 light duty vehicles in the U.S. https://www.theicct.org/sites/default/files/publications/US-LDV-Efficiency-Consumer-Benefits_ICCT_Briefing_21062017_vF.pdf
ICCT, The International Council on Clean Transportation (2017) Footprint versus Mass: How to best account for weight reduction in the European vehicle CO2 regulation. https://theicct.org/sites/default/files/CO2-reduction-technologies_fact-sheet_10102017_vF.pdf
ICCT, The International Council on Clean Transportation (2017) From laboratory to road: a 2017 update of official and "real-world" fuel consumption and CO2 values for passenger cars in Europe. https://theicct.org/sites/default/files/publications/Lab-to-road-2017_ICCT-white%20paper_06112017_vF.pdf
ICCT, The International Council on Clean Transportation (2019) The flawed benefit-cost analysis behind proposed rollback of the U.S. light-duty vehicle efficiency standards. https://theicct.org/sites/default/files/publications/ICCT_US-rollback-CBE-flaws_20190621.pdf
Ricardo-AEA (2015) Evaluation of Regulation 443/2009 and 510/2011 on the reduction of CO2 emissions from light-duty vehicles. https://doi.org/10.2834/64489
Ricardo Energy & Environment (2018) Assessing the impacts of selected options for regulating CO2 emissions from new passenger cars and vans after 2020. https://ec.europa.eu/clima/sites/clima/files/transport/vehicles/docs/ldv_post_2020_co2_en.pdf
TNO (2018) Support for preparation of the impact assessment for CO2 emissions standards for Heavy Duty Vehicles. https://ec.europa.eu/clima/sites/clima/files/transport/vehicles/heavy/docs/support_impact_assessment_hdv_en.pdf
Yang, Z (2018) Overview of Global Fuel Economy Policies. https://theicct.org/sites/default/files/Global-Fuel-Economy-Policies-Overview_ICCT_ZYang_20032018.pdf
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