Fuel efficiency standards – a no-brainer

Hi.  You might know me from such blogs as the late, great Larvatus Prodeo. For those of you who don’t, my day job is teaching software engineering at Monash University, but I’ve had a long-standing interest in public policy, and particularly the intersection between climate change and public policy. I hope you find my posts an interesting addition to the blog!

The (possibly reprieved) Climate Change Authority has continued to produce high-quality analysis that a sane federal government should examine very closely, and its latest report is no exception. It advocates for a mandatory emissions target for light vehicles (that is, vehicles you can drive on a car licence) sold in Australia, and proposes some design principles and options for implementation.

The proposed scheme would establish “fleet-wide” emissions targets for manufacturers, with an adjustment for vehicle footprint; that is, the target for a particular vehicle is adjusted by the size of that vehicle. As the report puts it,

The standard should differentiate obligations based on the size (footprint) of the vehicle, ensuring equity across suppliers while maintaining consumer choice and maximising flexibility. This approach ensures that the option to lightweight vehicles,
a major emissions reduction strategy in new vehicle design, is maintained.

I’m a bit ambivalent about this, and it shows one of the weaknesses in this kind of regulatory mandate as compared to alternative approaches like simply increasing fuel taxes. All things being equal, smaller vehicles are more fuel efficient than larger vehicles; encouraging people to make the switch away from vehicles than they need would actually be a good thing. But a flat target would encourage manufacturers who sell an above-average proportion of small cars to not do anything, as they will be able to meet their targets without actually improving their vehicles beyond business as usual.

In any case, what is most striking about this is how out of step with global practice Australia is; most other OECD countries have an enforceable fuel efficiency target of one kind or another. As Evan Beaver pointed out on Twitter, it was mostly another aspect of the multitude of small-beer decisions taken to protect the Australian car industry. Since the demise of Corolla production, Australia’s domestic producers have exclusively churned out large vehicles, mostly with large, not particularly sophisticated petrol engines. When combined with Australia’s low levels of fuel taxation, this further encouraged Australians to indulge their long-standing penchant for large, powerful and thirsty vehicles. The consequence of this is one of the most fuel-inefficient light vehicle fleets in the world, matched only by the USA with its love for Ford F-150s and Chevy Suburbans.

One of the great things about doing this is that it’s actually a net win for the country even ignoring the social costs of climate change; the extra costs of more fuel efficient technologies in vehicles are more than outweighed by the lifetime value of the fuel savings. As a society, the report estimates that rather than paying costs to avoid carbon emissions, every tonne of carbon emissions avoided through this policy would also result in a net saving of over $350. You might wonder why this policy is actually necessary; the short answer is that both consumers and businesses seem to undervalue emission savings when considering a new vehicle purchase. I’d prefer to fix this with fuel taxes and congestion charging, but if that’s not on the table it’s a reasonable alternative.

Even within a model range, the savings by simply changing the mix of drivetrain variants available are substantial. The Climate Change Authority compared the fuel efficiency of models available in both the UK and Australia, and found that, on average, the most efficient models available in Australia emit 20% more emissions than the most efficient models available in the UK. That probably overstates the difference between the typical models sold in Oz and Blighty, as many of the economy specials sold are heavily compromised to the point of impracticality and sell in tiny numbers. But even if you assume a 5% difference in the economy of your average Pommy Toyota Corolla and the Australian equivalent, that adds up to a lot of money.

Based on the data in the report and my assumption that Australian fuel usage is 5% higher than it might otherwise be purely because of the engine variant choices within a model range due to the lack of fuel economy targets, this results in Australian consumers and businesses burning about 1.2 billion litres more petrol than they otherwise might. At the current fuel price, that’s 1.8 billion dollars a year, every year, wasted, in that long and ultimately futile attempt to keep the Australian car industry alive.

The demise of the Australian car manufacturing industry represents an opportunity to fix a number of boneheaded transport policies. It would be nice if this anomaly was one of them.

11 thoughts on “Fuel efficiency standards – a no-brainer”

  1. Welcome back Robert. I am planning to do an update on my proposal to use an offset credit trading scheme based system.
    The last time I looked a 10% increase in the price of fuel might be expected to give a 2% reduction in the countries fuel bill in the first 12 months rising to 6% after a few years. I am all in favour of raising and indexing the fuel tax as a means of increasing the revenue needed to the government to be supplying the services appropriate to a real first world country – but as a tool for reducing emissions?
    There are questions that need to be asked about any proposal. for example:
    Does it provide incentives for reducing small car emissions as well as those of larger cars?
    How does it deal with electric cars? The roads would be better without large energy guzzlers no matter what the source of energy is?
    Does it help people who really do need a larger vehicle (large families?) or 4WD (Outback?)
    How do you avoid people movers becoming the luxury car of the future?

  2. Nice article Robert, but I have a few questions. Engine technology is vastly improved these days and is also – thanks to globalisation – much better shared between manufacturers. There aren’t huge gains to be made through mechanical efficiency these days. What varies the most is vehicle mass. Heavier vehicles consume more fuel, simply as they require more energy to accelerate to a given speed than lighter variants. I’ve seen fleet data which shows negligible fuel efficiency gains from the use of a 4 cylinder variant of the same vehicle available with a 6 cylinder engine. Drivers are simply forced to push the pedal harder on the 4 cylinder variant.

    But the real issue is not the fuel efficiency of a given motor vehicle, but the efficiency of transporting a given person. The big difference here is that a less efficient vehicle can be used to transport two people, while a more efficient vehicle one person. By targeting fuel efficiency at the vehicle level, you risk penalising the more efficient transport option in some cases. This is an advantage of petrol excise, which charges on the base of fuel usage and leaves the buyer to figure out how to make most (cost-)efficient use of the fuel.

  3. Delbified@2, I partly agree. I would much prefer a combination of higher fuel taxes, congestion charging, more priority given to non-cars on roads, more PT infrastructure etc etc etc, but you can’t let the perfect be the enemy of the good, and these standards aren’t going to stop any of those things happening.

    Furthermore, there are wins to be had with powertrain technology; turbocharged small engines do beat larger naturally aspirated ones for fuel efficiency; there’s engine stop-start (and, longer term, hybrids). But, yes, simply replacing a six-cylinder engine with a four-cylinder engine at a similar technological level doesn’t get you much.

    John Davidson@1, one of the points arguably in favour of this scheme is because the scheme is weighted by car size, small cars have just as much of an incentive to have the latest efficiency tech installed as large ones – it tries to take size out of the equation.

  4. Interesting article Robert. A further point raised with me by a friend with expertise in fuel efficiency is this. He some time ago, he bought a new diesel Holden Cruze. Good patriotic thing to do, right? Well, maybe. It had the same engine as that fitted by General Motors to equivalent cars in the UK. But he was very disappointed with the poor fuel efficiency of his Cruze – about 20% worse than the equivalent UK model (with a very similar vehicle mass).
    His conclusion was that the Australian car was tuned differently from its UK counterpart. If he put his foot down hard in his Cruze, there was screaming of tyres and rubber left on the road. So it seemed that efficiency was being sacrificed for performance (or at least one aspect of performance – very fast acceleration). When he asked if his car could be re-tuned to better meet his preference for increased fuel economy and a little less immediate acceleration, of course the answer was ‘no’. So he now drives the equivalent size Skoda …. and is very happy with the much improved fuel economy he is getting! And just another reason for the demise of Australian car manufacturing!
    So in terms of your argument Robert, there may well be efficiency gains that can be made to some cars in the Australian fleet simply through effective incentives that, over time, change the over-all consumer preference of the new car-buying public (and businesses).

  5. Welcome on board, Robert! For those who came in late Robert was a significant part of the Larvatus Prodeo legend. You can find his posts here.

    He also has his own blog at A Bent Ghost.

  6. Thanks everyone for the kind welcome.

    Without going in to too much technical detail, there are a number of ways in which vehicles might conceivably be tuned for better fuel economy, some of which come down to consumer preference. There are a few which relate to Australian conditions, most notably Australia’s relatively lax standards for petrol and diesel fuel.

  7. Hi Robert, great to see you posting here. Look forward to reading more.

    Re. 6-cylinder vs 4-cylinder, I briefly drove a friend’s 0.9l 2-cylinder turbo Fiat 500 the other day…that was fun 🙂

    Heaps of power and torque for its size (62kw, 145Nm), and just 3.6l/100km (90g CO2/km)

    Lots of newish-type features, engine stop-start, switch between auto/paddle-control manual etc.

    They’re deceptively roomy too. The front is really spacious – it feels like you’re in a much larger car. The back is kind of cramped, but fine for their kids for the next 5-10 years.

    What it doesn’t feel like at all to drive is one of those death-box Astras or 323s from the 80s. I’d happily take it long distances on the freeway.

    I’m wondering how much modern safety features and handling have also helped shift attitudes to small cars in Australia?

  8. I’m concerned about discussion over improving cars, not because of “letting the perfect be the enemy of the good”, but because I think the number one priority must be getting people out of cars.

    That’s for environmental reasons of course, but also because I’m concerned about health and equity as well. Car dominance leads to less healthy populations and public spaces. These are important considerations.

  9. Nick@8, agreed. My current car is a VW Polo GTI – the next size up from the 500, but still a compact car. It’s comfy, ridiculously economical, and a lot of fun to drive (it’s also had a mechical which means I’m currently driving around in a borrowed V8 Holden ute, but that’s another story…).

    Val@9, I agree that a shift away from the private car is a very good idea, and think that policymakers should be actively encouraging it for the reasons you mention. But there are limits to what such a policy can achieve, and the rate at which it can be achieved.

  10. Val: Thinking about Brisbane I would say most of the trips we take around the city are far more practical (and cheaper) using our small car. This remain so until the city becomes much bigger than it is at the moment. Hence the importance of reducing the impact of the car. Practicality includes shorter routes, much shorter travel times, ability to carry stuff we might need and avoiding long walks after dark in the rain.
    I would also say that there are trips that could be more practical using public transport instead of driving if the service and price were a bit better than it is now.
    We need to be looking at ways of improving both the car and public transport.

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