New Analysis Shows That Fuel Economy Policies Work – But More Is Needed

An analysis released today by IEA and the Global Fuel Economy Initiative (GFEI) and launched at a side event at the annual Transportation Research Board meeting found that average light-duty vehicle (LDV) fuel economy improved in all regions between 2005 and 2015, but clear differences exist between countries and regions. More than 20 countries and four regions were featured in the report, representing 80% of the vehicle market.

The country that made the greatest progress (measured as percentage improvement over 2005 values) was Turkey, followed by the United Kingdom and Japan as shown in the figure below.

Annual Improvement Rates Slowing in OECD, But Accelerating in Non-OECD Countries

Annual improvement rates are slowing in OECD countries and accelerating in non-OECD countries. Both rates are below those needed to achieve the 2030 GFEI target, which is to halve fuel consumption to 4.4 kilometers per liter of gasoline-equivalent (Lge/100 km) from 8.8 Lge/100 km in 2005. The annual improvement in average fuel economy at the global level slowed during the course of the past decade, from 1.8% in 2005-08 to 1.2% in 2012-15 and 1.1% in 2014-15, shown in the table below.

According to IEA/GFEI, two main counteracting trends are apparent:

• OECD countries saw their annual improvement rate drop to only 1.0% between 2012 and 2015. Annual rates of improvement have particularly declined in the past few years (0.8% between 2013 and 2014, and 0.5% between 2014 and 2015).

• The rate improvement in fuel economy accelerated in non-OECD countries over the same period, reaching 1.4% per year, on average, between 2012 and 2015.

This has resulted in a major change in comparison with the first half of the last decade, say IEA/GFEI: since 2014, non-OECD countries have achieved faster fuel economy improvements than OECD economies. The slowdown in improvement of average fuel economy in OECD economies is primarily attributable to a trend reversal (away from fuel economy improvements) that occurred in Japan between 2014 and 2015, as well as a gradual increase in the overall share of sales in OECD economies that have higher fuel consumption averages compared with the regional average.

This trend is well illustrated by the growth in LDV registrations that took place in the U.S. (the OECD economy with one of the highest fuel consumption per km) between 2010 and 2015. It is well known at this point that, with persistently low gasoline prices, Americans are driving more and buying larger cars. A huge question mark is whether the 2022-2025 fuel economy standards that EPA is currently trying to finalize will be and what the Trump Administration will do. There has been speculation automakers are appeasing Trump on trade issues (for example, Ford’s recent decision to invest $700 million in one of its American plants instead of expanding in Mexico) in exchange for relief on the standards.

In any event, IEA/GFEI notes that these effects were partly mitigated by continued fuel economy improvements in Europe, according to IEA/GFEI. The acceleration of improvement observed in non-OECD countries is consistent with the growing importance of markets (such as China and Brazil) that have enacted or tightened fuel economy policies over the past few years, and with China’s increasing share of the non-OECD LDV market. These factors outweighed the stagnation of average fuel economy in other major non-OECD markets, such as the Russian Federation and India.

LDV sales between 2005-2015 with average new LDV fuel economy in the same time period are compared in the figure below.

Markets with a High Share of Large Vehicles Tend to Be Characterized By Higher Average Fuel Consumption Per Kilometer

The figure below shows markets with a high share of large vehicles tend to be characterized by higher average fuel consumption per kilometer as compared to markets where registration of small vehicles predominates. For example, the U.S. and Canada had the highest share of large LDVs and an average fuel consumption of 9.1 Lge/100 km, the highest all countries studied in this analysis.

In 2015, almost 70% of LDV sales in the United States belonged to the large segment. Australia, Canada, China, Korea, the Philippines and Thailand also have more than half of their new registrations in this segment. At the opposite end, India’s market shows the highest percentage for small vehicles. Other markets having more than half of newly registered cars in the small segment include Brazil, Italy, Japan and Malaysia.

Countries with High Diesel Shares Have Often Better Average Fuel Economy Than Countries with Low Diesel Shares

Countries with high diesel shares have often better average fuel economy than countries with low diesel shares, as the figure below shows.

According to IEA/GFEI, LDV powertrain technologies have proven to be a strong determinant of average fuel economy in different countries. Countries with higher shares of diesel or hybrid powertrains have better average fuel economy compared with countries with a higher proportion of gasoline or flex-fuel cars as the figure above shows. Six out of seven markets with the highest fuel consumption per km had diesel and hybrid powertrains commanding market shares below 5%.

Japan was the only country where hybrid powertrains commanded market share exceeding 10% in 2015. Flex-fuel powertrains were most common in the Americas. In Brazil, flex-fuel vehicles represented nearly the only powertrain available across all new LDVs. In Argentina, Canada and the United States, flex-fuel powertrains had more than 10% market share. In 2015, liquefied natural gas (LNG) and compressed natural gas (CNG) only attained a market share close to 10% in Ukraine, Italy and Korea.

Fuel-Saving Technology Deployment

OECD countries had more advanced technologies in their LDV markets compared with non-OECD countries, but major differences are also observed within both regions, as shown in the figure below.

It illustrates that OECD countries were ahead of non-OECD countries regarding most drivetrain technologies, both in 2005 and 2015. The market share of turbocharging has traditionally been high in Europe, as turbochargers are mostly applied to diesel ICEs. The proportion of vehicles with turbos has increased in the past decade to 2015 in all OECD countries scrutinized here, despite a stabilization of diesel penetration, suggesting that other powertrains are increasingly equipped with this technology, allowing engine downsizing and thus higher energy efficiency. (Recall that EPA has estimated turbocharging will be a key technology to meet the 2025 GHG/fuel economy standards.)

Hybridization showed no visible market share in 2005 in the analyzed countries. In 2015, France, Japan and the United States had the highest market share for hybrids. Few new hybrids entered the fleets of the non-OECD countries monitored here.

Insights from the Country Reports

Insights from the individual country reports concluded the following:

• The combined adoption of regulatory instruments, such as fuel economy standards, and fiscal incentives, such as vehicle taxes differentiated on the basis of the emissions of CO2 per km, have led to the highest energy savings from LDVs.

• Fuel economy standards have provided effective improvements in fuel economy, except in cases where standards were met well in advance of the target date. The case of Japan is illustrative in this respect: fuel economy stopped improving after the target was met.

• The presence of fuel economy targets has led to the prioritization of fuel economy improvements over other vehicle characteristics (such as weight and size) by original equipment manufacturers (OEMs) and consumers.

• Differentiated vehicle taxation has been effective at improving fuel economy, even when it was not coupled with fuel economy standards, especially in markets with lower purchasing power due to low average income levels.

Recommendations

IEA/GFEI say that achieving fuel economy improvements may come at a lower cost for consumers if efforts are focused on larger vehicle segments and power classes, even after accounting for the upward impact of fuel-saving technologies on vehicle prices.

“Policies should therefore include provisions requiring greater relative fuel economy improvements in these classes, especially in the non-OECD: this would generate opportunities to deploy fuel saving technologies in the most energy intensive portion of the vehicle market (larger segments tend to have engines with high power and displacement, and are, by definition, vehicles with greater weights and larger footprints, and therefore higher fuel use per km) and would also have positive consequences on the limitation of market shifts towards larger vehicles.”

Another recommendation made in the report that I want to point out is the following:

“Policy actions that are measurable solely against test results will not close the gap in fuel economy between test and real-world driving conditions. Achieving greater accuracy and representativeness of tested fuel economy as against real-world consumption will require the use of on-road tests, similar to the real driving emissions (RDE) test procedure for air pollutants, and the introduction of in-use conformity tests of randomly selected production vehicles.”

RDE testing is not just a Europe issue. I believe it will be something GFEI and other advocates push for strongly around the world and I expect to see more capacity-building activities in developing or the non-OECD countries in the coming years.