The Right EU Policy Framework for Reducing Car CO₂ Emissions

Abstract

This chapter analyzes how the EU should change its environmental policies on cars and fuels in order to help achieve the target for a 60% cut in greenhouse gas emissions from transport in Europe by 2050 announced in January 2011. In order to achieve this target, fuel economy standards for cars and low carbon standards for fuels should be tightened significantly, and minimum taxes on petrol and diesel should be raised. But the primary purpose of the paper is to make specific recommendations on how vehicle and fuel policy should be designed to facilitate such deep emissions cuts in the future. The CO₂ standards for cars the EU agreed in 2008 are a big step forward compared to the flawed voluntary commitment of the industry; it has taken CO₂ from a Corporate Social Responsibility issue to a bottom line issue and once again demonstrated that emissions can be cut more quickly and cheaply than previously thought possible. But apart from a still-too-low level of ambition, the law suffers from a couple of design flaws. First, the evidence is that the rather impressive recent cuts in official CO₂ emissions do not yet translate to equally impressive savings on the road. Carmakers have gained a lot of grams by testing their cars’ consumption more cunningly, instead of making them really more efficient. Second, future standards should not be weight-based but rather size-based. Third, tailpipe CO₂ emissions as the regulated metric will have to be replaced by something more resembling energy efficiency. On taxation, Europe’s major problem is too low a level of taxation of diesel. This is to a large extent explained by a fear member states have of losing revenue through diesel tourism by trucks if they raise diesel taxes. EU-level efforts to raise minimum levels of diesel taxation should be applauded. But North America’s International Fuel Tax Agreement offers a structural way out – essentially it taxes truck diesel on the basis of fuel used in a state rather than sold, making it possible for states to raise diesel taxes without losing any of the extra revenue to other countries. But it is Europe’s climate policy in transport fuels that is in most need of a clean-up. Current policy increases rather than reduces greenhouse gas emissions of a liter of fuel. Scrapping the 10% biofuels target, leaving only a low carbon fuel standard in place, and getting the carbon accounting right for both biofuels and fossil fuels are the two top priorities.