What drives the average CO 2 emissions of new passenger cars in Finland? Timo Kuosmanen & Xun Zhou* Aalto University School of Business

Transcription

1 What drives the average CO 2 emissions of new passenger cars in Finland? Timo Kuosmanen & Xun Zhou* Aalto University School of Business Singapore, 20 June 2017

2 Background The use of passenger cars is one of the major contributors to CO 2 emissions Contributing to around 12% of the total CO 2 emissions in the European Union New passenger cars sold on the European market are subject to mandatory emissions targets 2015 target: 130 g/km (average CO 2 emissions of new cars) 2021 target: 95 g/km The Finnish government has committed to reduce 39% of GHG emissions from transport compared to the level of

3 Background 200 Average CO 2 emissions level (g/km) of new cars in Finland All passenger cars Gasoline Diesel 3

4 Motivation What drives the observed decrease in average CO 2 emissions? Technical change - car industry manufactures cars that are more CO 2 efficient Efficiency change - consumers purchase cars that are more CO 2 efficient Rebound effects - consumers switch to cars that are more CO 2 efficient but also bigger and with more powerful engines Test manipulation - the measured CO 2 emissions may be subject to cheating (e.g., the Volkswagen scandal) 4

5 Motivation Why do we need to understand the driving forces? To forecast the future development of CO 2 emissions from passenger cars To explore the potential of mitigating CO 2 emissions from passenger cars To help make well informed climate policy to control CO 2 emissions 5

6 Related studies Decomposition of productivity indices Malmquist index (Färe et al., 1994) Malmquist-Luenberger index (Chung et al., 1997) Luenberger index (Chambers et al., 1996) Decomposition of aggregate emissions Production decomposition analysis (Zhou and Ang, 2008) Structural decomposition analysis (Rose and Casler, 1996) Index decomposition analysis (Ang and Zhang, 2000) 6

7 Current study Average CO 2 emissions of new passenger cars is of interest Key features of passenger cars are considered Passenger cars are tiny and numerous Tens or hundreds of thousands of new cars every year in Finland Large-sized and unbalanced panel data Stochastic noise is taken into account. Virtually empirical data are subject to more or less noise Convex nonparametric least squares (CNLS) is used to address noise A production-theoretical approach 7

8 Frontier estimation The total fleet of passenger cars can be decomposed into cohorts of cars taken in use each year (i.e., cohorts of 2015, 2014, 2013, ) Consider the model x g ( y ) e it t it it x is the CO 2 emissions, y is the vector of vehicle characteristics that influence emissions (weight, power), g is an increasing and convex emissions generating function, and e represents CO 2 efficiency of vehicle i in cohort t To empirically estimate g, we estimate xmt gt ( ymt ) emt separately for each cohort, treating e mt as a random variable with zero mean m = 1,, m t characterizes a subset of identical vehicles (car models) within the cohort 8

9 Decomposition We are interested in decomposing the change in the average emissions x t 1 x t The average CO 2 emissions in the cohort of year t is n t t x x n or x w x t it t t mt mt i 1 m 1 m where n t is the size of the cohort in year t, w m is the number of cars of model m in cohort t divided by the size of the cohort n t 9

10 Decomposition Technical change Shift in the emissions generating function g. Note that the rate of technical change may depend on factors y. gt 1( yt ) gt 1( yt 1) TC gt ( yt ) gt ( yt 1) 1/2 This component depends on the car industry, and it is not (at least not directly) influenced by the consumer choices or the government policy 10

11 Decomposition Efficiency change Changes in efficiency through the term e it. We define the average efficiency of cohort t as x / g ( y ) t t t EC x / g ( y ) x / g ( y ) t 1 t 1 t 1 t t t In empirical estimations e mt has zero mean by construction At the level of individual vehicles, the average e it need not have the zero mean: the efficiency of a cohort depends on popularity of CO 2 efficient models 11

12 Decomposition EC The component is not affected by the car industry, but captures changes in consumer behavior, whether due to changes in consumer preferences or incentives set by the government (e.g. changes in tax policy) 12

13 Decomposition Rebound effect Changes through the average vehicle characteristics, e.g., as cars become more CO 2 efficient, consumers may switch to bigger cars y t gt ( yt 1) gt 1( yt 1) RB gt ( yt ) gt 1( yt ) 1/2 Like efficiency change, the rebound effect depends solely on the consumer behavior and the government policy 13

14 Decomposition Efficiency change measures changes in the popularity of CO 2 efficient car models given the vehicle characteristics Rebound effect measures the change in vehicle characteristics 14

15 Decomposition The change in average emissions t 1 t is the product of technical change, efficiency change, and the rebound effect, formally, x x t 1 t x TC EC RB x Similar to the decomposition of the Malmquist productivity index in the context of production An important difference is that our decomposition does not include any scale efficiency component 15

16 Decomposition The car industry drives the technical change component The efficiency change and the rebound effect depend on the consumer behavior Influenced by both the government policy and possible changes in consumer preferences The total effect of consumer behavior could be therefore modeled as the product EC RB 16

17 Results 4% Change rates in average CO 2 emissions of gasoline cars in Finland % 0% 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14-2% -4% -2.41% -4.31% -2.73% -6% -8% -6.80% -5.34% Change in Average CO2 Efficiency Change Total Effect of Consumer Behavior Technical Change Rebound Effect 17

18 Results 6% 4% 2% Change rates in average CO 2 emissions of diesel cars in Finland % -2% 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/ % -4% -6% -8% -10% -5.34% -6.56% -8.69% -6.82% Change in Average CO2 Efficiency Change Total Effect of Consumer Behavior Technical Change Rebound Effect 18

19 Takeaways Decrease of the average CO 2 emissions of new passenger cars in Finland is -3% per year on average from 2002 to 2014 Technical change is the dominant driver, approximately -3% per year on average Consumer behavior (efficiency change and rebound effect) has on average contributed basically 0% to the observed decrease, but importantly it has great potential yet to be fully exploited What about the 4th source of change test manipulation? Gap between official and real-world CO 2 emissions increases by 1% per year (Dings 2013) We could adjust the technical change component downward by 1% i.e., from -3% to -2% 19

20 Thanks for your attention! Xun Zhou, PhD candidate Aalto University School of Business, Finland 20