Global Competitiveness in Fuel Economy and Greenhouse Gas Emission Standards for Vehicles February 1

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Global Competitiveness in Fuel Economy and
Greenhouse Gas Emission Standards for
VehiclesFebruary 10th, 2005Amanda SauerWorld
Resources Institute
World Resources Institute
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Overview of Presentation

• Climate change and automobiles
• Comparison of fuel economy and GHG emissions
  regulations around the world
• Impacts of these regulations on competitiveness
  and value creation in the auto industry

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Climate Change and Automobiles
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• Auto industry in policymakers crosshairs because
  of CO2 emissions released from burning of fuel
• Transport accounts for 30 of OECD CO2 emissions
• Cars and light trucks account for 20 of U.S.
  emissions.
• Industry is part of the problem
• Light trucks, SUV phenomenon
• Disregard for fuel economy
• but also part of the solution
• New hybrid and diesel technologies, and
  ultimately fuel cells

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Climate Change and Automobiles

• Pressure to reduce vehicle CO2 emissions
• Direct vehicle use emissions make up 75 of CO2
  releases
• Related fuel production emissions make up a
  further 14
• EU, Japan, California, Canada all focused on
  vehicle use emissions

Materials
Assembly
Fuel production
Vehicle Use
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Fuel Economy and GHG Emissions Regulations
in the Worlds Major Auto Markets
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• European Union ACEA agreement seeks 25
  reduction in vehicle CO2 emissions levels by 2008
  (from 1995 levels). Agreement may be extended an
  additional 10 by 2012.
• Japan requires 23 reduction in vehicle CO2
  emissions by 2010 (from 1995 levels).
• Australia voluntary commitment to improve fuel
  economy by 18 by 2010.
• Canada has proposed a 25 improvement in fuel
  economy by 2010.
• China Introduced new fuel economy standards in
  2004 weight-based standards to be introduced in
  2 phases (2005 and 2008).
• California CARB approved GHG emissions
  reductions for automobiles, currently under
  legislative review.
• New York Clean Cars Bill proposing to follow
  California standards is currently in committee.
  Several other NE states have indicated they will
  follow CAs lead.

An and Sauer, 2004 for the Pew Center on Global
Climate Change
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Overview of Vehicle Fuel Efficiency and GHG
Standards Around the World
An and Sauer, 2004 for the Pew Center on Global
Climate Change
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Issues of Comparing Vehicle Standards around the
World

• Differences in test driving cycles
• Fuel economy vs. fuel consumption vs. CO2
  emissions
• Regulatory vs. voluntary
• Differences in vehicle categories and
  weight-classes
• Corporate fleet averages vs. minimum requirements

An and Sauer, 2004 for the Pew Center on Global
Climate Change
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Conversion factors to CAFE-equivalent MPG and
EU-equivalent CO2 emission rate of g/km
An and Sauer, 2004 for the Pew Center on Global
Climate Change
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Methodology to Compare Fuel Economy Standards
Worldwide
1. Research country/region-specific fuel
economy/GHG standards and future targets
2. Convert fuel economy/GHG standards into fleet
averages (assume that fleet composition remains
constant for weight/size or vehicle type targets
and that all voluntary targets will be met)
3. Choose reference standards (in this example,
US CAFE)
4. Apply conversion factors (from table on
preceding slide)
5. Countries/regions now converted to reference
standards and are comparable
An and Sauer, 2004 for the Pew Center on Global
Climate Change
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Comparison of Fuel Economy and GHG Emission
Standards
An and Sauer, 2004 for the Pew Center on Global
Climate Change
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Impacts on the Automobile Industry Risks and
Opportunities
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Lower-carbon Technology Options

• Carbon constraints will force OEMs to add new
  technologies, some of which may lead to
  competitive gains
• Key technologies
• Incremental Technologies (fuel injection,
  continuously variable transmission etc.)
• Diesel Technology (compression-ignition)
• Hybrid Technology
• Fuel Cell Technology

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Carbon Reduction PotentialKey engine
technologies that provide mid- to long-term
reductions of vehicle carbon emissions
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Carbon-intensity of SalesDependency of 2002
sales in US, EU and Japan on vehicles of high-,
medium- and low-carbon intensity
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High worse than 20.7 on-road mpg Low better
than 27.5 on-road mpg Medium between 20.7 and
27.5 on-road mpg
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Aggregate Value ExposureEstimated cost per
vehicle to meet most likely carbon constraint
scenarios in US, EU and Japan
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25x difference in Value Exposure across the
industry
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Management Capacity for Low-Carbon Technologies
Measure of OEMs capacity to develop and
commercialize main low-carbon technologies
hybrids, diesels fuel cells
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Carbon Positioning of Leading OEMsSuccess in a
carbon-constrained market will require moving
into the top-right quadrant
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Honda
Renault
PSA
Nissan
Toyota
VW
Decreasing Carbon Risks (estimated cost per
vehicle to meet new carbon constraints)
GM
Ford
DaimlerChrysler
BMW
Increasing Carbon Opportunities (management
capacity score on low-carbon technologies)
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Implications of Carbon Constraints for Future
EarningsEstimated changes in forecast earnings
from inclusion of carbon constraint factors
ranges reflect alternative regulatory scenarios
in US, EU and Japan.
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Conclusions
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• The European Union (EU) and Japan have the most
  stringent standards in the world.
• The fuel economy and greenhouse gas emission
  performance of the U.S. automobile fleet -- both
  historically and projected based on current
  policies -- lag behind most other nations.
• These GHG and fuel economy regulations create
  financial risks and opportunities for automobile
  companies.
• In our analysis, we found the financial
  implications of these regulations to range from
  10 to -14 of operating income.
• Overall, the automobile industry is becoming
  increasingly global in scope with these
  regulations are becoming increasingly stringent
  (with the exception on the U.S.). Therefore fuel
  economy will become a major driver in the
  financial performance of automobile companies.

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Contact Information
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• Amanda Sauer
• Associate
• 202 729 7689
• amanda_at_wri.org
• Changing Drivers report available at
• http//capitalmarkets.wri.org
• Comparison of Fuel Economy and GHG Emissions
  Standards
• report available at
• http//www.pewclimate.org