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[Issue 1 2012]

Climate Change Mitigation: The Importance of Passenger Vehicle Standards
Global Fuel Economy - Latin America 8-9 March 2010

The Mexican government is developing standards for improved fuel economy and lower CO2 emissions from new cars. A regulatory proposal is expected on the basis of joint work by the Ministry of Environment (SEMARNAT) and the National Energy Efficiency Commission (CONUEE).

The Ministry’s National Ecology Institute (INE) convened an international workshop Climate Change Mitigation: The Importance of Passenger Vehicle Standards,to examine the design of standards with support from the Global Fuel Efficiency Initiative (GFEI) and the International Council on Clean Transportation(ICCT) on 8-9 March 2010 in Mexico City.

The event, sponsored by UNEP, was a discussion on the need to establish such standards in Mexico and throughout the region, explore best practices in the world and discuss the technical, economic and environmental implications on the subject.

The workshop brought experts from eight Latin American countries to the discussions to share their experiences.  Presentations from pilot projects in Costa Rica and Chile for example, revealed that new car fuel economy standards are under development in Chile and both countries regulate the import of second hand cars, keeping the most polluting vehicles out of the market. The GFEI is now working with the Centre for Sustainable Transport Mexico (CSTM) on options for Mexico to manage the second hand car market without discriminating between domestic and imported vehicles.

The proceedings of the seminar showed that there is broad support for reducing the CO2 emissions from cars in Mexico, with the automobile manufacturing industry underlining its own commitment to the environment at the conference. Environmental protection one of the five priorities for the Government’s National Development Plan launched last December. The process of setting standards for new cars now enters a critical phase as the details are worked out in terms of timeframe and stringency, and possibly linking standards to the size of cars.

Discussions ranged across a series of key issues which need to be considered when setting such a standard.
Two approaches to standards are currently under consideration: setting a minimum fuel efficiency form for all vehicles or setting an average target for the new car fleet. Europe, the USA and Canada use the latter approach and China is now moving from minimum standards to a corporate fleet average approach more suited to pushing performance of the whole fleet. In principle both kinds of standards could be used in conjunction, although the point was made that for simplicity a single regulation is to be preferred and an average fleet standard is probably appropriate.

It was also suggested that fuel efficiency and CO2 emissions policies need to be compatible with policies to improve air quality. Dieselisation has played a major role in improving the fuel economy of Europe’s car fleet. However, Europe has stringent standards for NOx and particulate emissions and ultra-low levels of sulphur in diesel, which combined, minimise pollution from diesel cars. Concerns were raised that Mexico should avoid policies that push a switch to diesel cars (currently only 3% of the fleet) until NOx and particulate emissions are adequately regulated. A regulation formulated in terms of CO2 emissions (grams per km) might therefore be preferable to one based on fuel economy (km per litre) to minimise the incentive to dieselise. More importantly, it was suggested that fuel taxes need to continue to tax gasoline and diesel at similar rates.

The seminar highlighted the importance of fuels in any discussion about fuel economy Auto fuels are currently priced below market levels in Mexico, as a result of price controls that had the effect of turning fuel excise taxes into subsidies as oil prices rose. The Government is phasing out this subsidy. Low sulphur gasoline, essential for the performance of pollution control systems - especially on advanced fuel efficient engines, is available across Mexico, however, motorists tend to fill up with lower priced high-sulphur gasoline, wrecking emissions control. There may therefore be an opportunity to tax fuels according to sulphur content. Differentiation of taxation could eliminate the price advantage and drive high-sulphur fuel out of the market.

The way standards are structured determines their impact on the car market and the way manufacturers achieve improvements in efficiency. With fleet average standards, some kind of differentiation according to the weight or size of vehicles is usually employed. This aims to ensure that manufacturers producing different ranges of vehicles are affected more or less equally. Differentiating by vehicle size (or “footprint”) is preferable to weight as it avoids creating a disincentive to meet the standard through weight reduction. Linear differentiation is much better than steps between size categories, as steps create incentives to design vehicles that just qualify to cross the boundary to a more favourable “bin”, leaving further opportunities for improvement untapped.

Linear differentiation also avoids fragmenting car markets, as has happened as a result of the diversity of tax incentive and fuel economy labelling schemes in Europe, each country employing different break points in the way incentives are structured. The Mexican and US car markets are highly integrated, with Mexico exporting a large part of locally produced cars to the USA and importing a large share of the new car market from the USA. A linear differentiation of the Mexican standard would preserve this integration with respect to the incentive structure of US CAFÉ regulations, whilst the stringency and timeframe for the Mexican standard, and relative stringency towards smaller and larger cars, can be determined purely to suit local market conditions.

The auto industry constantly maintains that it needs a regulatory environment that provides as much certainty as possible if it is to make the capital investments necessary to maximise the fuel economy of new cars. The point was also made that standards can provide this certainty, and can be complemented by indicative targets for the longer term. The European Union’s standard of 120 g CO2 / km by 2012 for the new car fleet average is accompanied by a 95 g CO2 / km target for 2020. Several European governments have used this figure as a reference point for tax incentives for low carbon vehicles in anticipation of the target being adopted as a binding standard.

The Global Fuel Economy Initiative views 90 g CO2 / km as a realistic target for the new cars world-wide by 2030, translating roughly into fuel economy of 4 litres per 100km. That is equivalent to 60 mpg or 25 km per litre.



Auto Fuel Efficiency: a tool for national policies
Elisa Dumitrescu
UNEP DTIE, Transport Unit