Australian Automobile Association. Submission to: Light vehicle CO2 emission standards for Australia. Key Issues Discussion Paper

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1 Constituent Members: Australian Automobile Association Submission to: Light vehicle CO2 emission standards for Australia Key Issues Discussion Paper December 2011

2 The Australian Automobile Association (AAA) welcomes the opportunity to make a submission to the Light vehicle CO 2 emission standards for Australia - Key Issues - Discussion Paper. The Australian Automobile Association (AAA) advocates the interests of Australian motorists nationally and internationally. The AAA's members include all of Australia's state and territory motoring clubs: National Roads and Motorists' Association (NRMA) Motoring and Services Royal Automobile Club of Victoria (RACV) The Royal Automobile Club of Queensland (RACQ) Royal Automobile Association of South Australia (RAA) Royal Automobile Club of Western Australia (RACWA) Royal Automobile Club of Tasmania (RACT) Automobile Association of the Northern Territory (AANT) Royal Automobile Club of Australia (RACA) Through these organisations, the AAA represents the interests of almost 7 million motorists and, indirectly, all Australian motorists at the national and international levels. Page 2 of 10

3 Overview of Issue The Australian Government intends to introduce CO 2 emission standards for light vehicles sold in Australia from 2015 and the Australian Automobile Association (AAA) welcomes the opportunity to contribute to the development of the standard and to provide comment on the discussion paper on Light Vehicle CO 2 Emission Standards for Australia released by the Australian Government Department of Infrastructure and Transport. The AAA understands that an Implementation Regulation Impact Statement will be released for public comment in the first half of 2012, at which time further detailed information regarding the proposed standard, and the target value for CO 2 emissions will be available. At the present time, the AAA does not offer a view on a specific CO 2 target value, pending availability of these data. In considering a mandatory CO 2 emissions standard for new light vehicles, the AAA s primary objective is to ensure that any such standard will yield net benefits to Australian motorists. The AAA strongly supports measures to significantly reduce motor vehicle CO 2 emissions, so long as the benefits of reduced fuel consumption (and lower CO 2 emissions) will not be nullified by excessive increases in new vehicle prices, reduced choice of vehicle models, or reduced vehicle safety. The AAA does not support the introduction of CO 2 emission standards that would preclude specific vehicle models from the Australian market, but notes that all light vehicles, including Australian manufactured vehicles, must be expected to significantly reduce their CO 2 emissions. For vehicle manufacturers to meet their CO 2 target, a number of strategies are available. Manufacturers could continue to offer the current vehicle models, incur any associated fines and pass these costs along to consumers. Manufacturers may instead choose to sell vehicles with smaller engines, diesel fuelled engines, or other engine technologies intended to reduce fuel consumption (and CO 2 emissions). Alternatively, they may restrict the types of vehicles they sell. Importantly, it is not the vehicles offered for sale that determine a manufacturer s CO 2 figure, but the sales-weighted average of the CO 2 emissions of the vehicles sold, so consumers influence the average CO 2 emissions through their vehicle purchase choices. The AAA understands that setting an overly ambitious CO 2 target is likely to result in severe market distortion, with particular categories of vehicle potentially unable to be sold. The AAA is of the view that an integrated strategy would be more effective in reducing CO 2 emissions than a CO 2 standard in isolation. This could include initiatives targeting driving behaviours (e.g. eco-driving), vehicle purchasing decisions (e.g. feebates, differential registration charges, fleet purchasing policies), road infrastructure (e.g. traffic flows, congestion reduction) and alternative transport options. Page 3 of 10

4 Single or Staged Targets? Q1 Do you support the setting of staged short and medium term targets? Q2 If yes, do you consider 2020 is the logical date for a firm second stage target? Q3 Do you consider it is appropriate to set a target beyond 2020 at this stage? The AAA supports the setting of staged short and medium term targets. The AAA considers that 2020 would be a suitable timeframe for a firm second stage target, but that consideration should also be given to setting a target for 2025 to provide direction for the vehicle manufacturing industry for research and development and future product planning. The 2025 target could be subject to review / confirmation around , when information can be expected to be available regarding the likely nature of the CO 2 problem at that time and the feasibility of future options to address the problem will be better known. Appropriate Reference (Base) Year Q4 Do you consider 2010 is the appropriate base year for determining the targets? The choice of appropriate base year for reduction in CO 2 emissions will impact different vehicle manufacturers in different ways. For example, the use of the most recent year (2010) as a reference will potentially disadvantage vehicle manufacturers that have already deployed CO 2 emissions reduction technologies in their vehicles (i.e. penalise early adopters), as they will have less scope for further CO 2 emissions reduction compared with other manufacturers. The AAA understands that comprehensive sales weighted CO 2 emissions data for Australia do not exist for years earlier than On this basis, AAA could support the use of 2008, 2009 or 2010, or a combination of these, as a reference for CO 2 emissions reductions. The particular choice of reference year is likely to impact different vehicle manufacturers to a greater of lesser extent. Each vehicle manufacturer is best placed to articulate the effect of choice of reference year on the vehicles they supply to the market. CO 2 Emissions Target for Australia Q5 What rate of CO 2 emissions reduction do you consider is achievable by 2015 and 2020 in Australia? Q6 What do you think is a reasonable CO 2 target for the Australian new light vehicle fleet in 2015 and 2020? Q7 Are there any impediments to Australia achieving the more ambitious rates of reduction embodied in Scenarios 5 and 6 above? The AAA has conducted a comparison of variants of vehicle models available on the Australian and UK markets in 2011 (Table 1). The vehicles are the top selling models in key vehicle segments according to VFACTS for the year 2010 and comprise at least 60% of the sales volume of the vehicle segments to which they Page 4 of 10

5 belong. Thus they can be considered to be representative of the potential reduction in CO 2 emissions that could be achieved if the UK variants were sold in Australia. The comparison shows that for the same vehicle model, there is often a difference in the variants offered in the Australian and UK markets, with the Australian variants emitting greater amounts of CO 2 per kilometre. Hence, there are vehicle technologies that could be deployed in the Australian market in a relatively short period of time to reduce average CO 2 emissions from new vehicles. The AAA is of the view that the deployment of these technologies would allow Australia to achieve greater CO 2 emissions reductions than under the continuation of a business as usual approach, without the need to change the segmentation of the new vehicle market, or the vehicle models offered to the market. According to the Society of Motor Manufacturers and Traders (SMMT) Motor Industry Facts 2011, the sales-weighted average CO 2 emissions for new passenger cars in the United Kingdom in 2010 was g/km. This is a result of a number of factors that influence market segmentation, model specification (engine size, transmission, etc.) and fuel type (petrol, diesel, electric, etc.). By comparison, Australia s average CO 2 emissions for passenger cars (excluding SUVs) in 2010 was g/km. In the absence of other complementary policies to influence the purchasing decisions of Australian motorists, a CO 2 standard is likely to have limited capacity to deliver a substantial reduction in average CO 2 emissions without a material impact on new vehicle prices, or a reduction in the choice of models available to consumers. If the lowest CO 2 emitting variants from the UK (as shown in Table 1) were substituted for all of the Australian sales of their respective vehicle models in 2010, the average CO 2 emissions for passenger cars in Australia would be reduced from g/km to g/km. However, this assumes that only the lowest emitting variant of each model would be sold, which is not currently the case in either Australia or the UK, but illustrates that deep cuts to Australia s passenger car CO 2 emissions are possible. A similar analysis could be undertaken for Sport Utility Vehicles (SUVs), but would not be as relevant for light commercial vehicles due to the differences in the light commercial vehicle fleets in Australia (dominated by utility vehicles) and the UK (predominantly vans). Although passenger car technologies to reduce CO 2 emissions could be adapted to utility vehicles, utility vehicles have a much smaller global sales volume over which to amortise this cost. The AAA understands that the Commonwealth plans to commission a consultancy to investigate appropriate CO 2 targets for Australia and the AAA believes it would be prudent to await the availability of this report before advocating a CO 2 target. Page 5 of 10

6 Table 1. CO 2 Emissions from vehicle models in Australia and United Kingdom Vehicle Model (top-selling models from VFACTS 2010) Lowest CO 2 Emitting Australian variant (g CO 2 /km) Lowest CO 2 Emitting UK variant (g CO 2 /km) Holden Barina 162 No equivalent model Hyundai Getz 145 No equivalent model Mazda Suzuki Swift Toyota Yaris Holden Cruze Hyundai i Mazda Mitsubishi Lancer Toyota Corolla Ford Mondeo Honda Accord Euro Mazda Subaru Liberty Toyota Camry (4cyl) 142 No equivalent model Audi A BMW 3 Series Lexus IS Mercedes-Benz C-Class Ford Falcon 203 No equivalent model Holden Commodore 210 No equivalent model Toyota Aurion 233 No equivalent model Audi A BMW 5 Series Mercedes-Benz E-Class Chrysler 300C 203 No equivalent model Holden Caprice 236 No equivalent model Dodge Journey 176 No equivalent model Honda Odyssey 212 No equivalent model Hyundai imax Kia Carnival 255 No equivalent model Toyota Tarago 222 No equivalent model BMW 1 Series Coupe Kia Cerato Koup 179 No equivalent model Mercedes-Benz CLC-Class Nissan 370Z Volkswagen Eos Audi A BMW 3 Series Coupe/Conv Mercedes-Benz E-Class Cpe/Conv Data obtained from vehicle specifications available on vehicle brand websites from Australia (.com.au) and the UK (.co.uk), and during November Page 6 of 10

7 Q8 Do stakeholders have any information on costs and benefits of standards which would assist the Department of Infrastructure and Transport in the preparation of the cost benefit analysis for the implementation RIS? A key consideration for the AAA is to balance the intended benefits of a CO 2 standard on vehicle fuel economy and emissions against possible impacts on vehicle price and/or choice of vehicles offered to consumers. The AAA s primary objective is to ensure that any such standard will yield net benefits to Australian motorists. That is, the benefits of reduced fuel consumption (and lower CO 2 emissions) will not be offset by excessive increases in new vehicle prices, reduced choice of vehicle models, or reduced vehicle safety. Long term predictions for fuel prices are for increases in the price of fuel, so the benefits from reduced fuel consumption can be expected to increase over time. Split Targets Q9 Should Australia set a single set of CO 2 targets for all light vehicles, or is there merit in establishing separate targets for passenger vehicles (cars and SUVs) and for LCVs (utes and vans)? In global terms, Australia is a relatively small market for new motor vehicles and is generally a technology taker for improvements in vehicle technology. As noted previously, there are vehicle CO 2 emission reduction technologies available in other markets that could be deployed in Australia. However, whilst this technology transfer is relevant for passenger cars and SUVs, it is less applicable to the Australian light commercial fleet, which is dominated by utility vehicles, whereas the European light commercial fleet is comprised mostly of vans. CO 2 reduction technologies may be able to be incorporated into designs of utility vehicles, but the costs and feasibility of this approach are difficult to estimate, and utility vehicles have a much smaller global sales volume over which to amortise this cost. Consideration should be given to separate targets for passenger vehicles and light commercial vehicles, as the possible CO 2 reductions in these categories may be rather different, and better addressed through separate targets, rather than mixing these two objectives and impacting manufacturers of passenger vehicles and light commercial vehicles differently. A separated approach would also be consistent with the approach adopted in the European Union with separate passenger vehicle and light commercial targets. However, care will need to be taken to avoid the gaming of vehicle model options and classification between SUVs and utility vehicles, as consumers may see these vehicles as interchangeable, particularly dual cab utility vehicles and SUVs. Vehicle manufacturers may have an incentive to skew the market to avoid meeting the most stringent CO 2 standards by offering vehicles in a different category. The passenger vehicle target should take into account the available technologies already deployed in vehicles in the EU, as leveraging vehicles from Europe would Page 7 of 10

8 allow a more rapid reduction in Australian passenger car CO 2 emissions. The light commercial target will require separate consideration, as the European Union light commercial vehicle fleet is rather different from the Australian one. Calculation of Targets Q10 Do you support the idea of bonus credits for new technology vehicles (such as EVs), flex fuel vehicles and other technologies, or should the CO 2 standard be purely performance based, treating all vehicles on the same basis (using the CO 2 emissions result on the standard ADR test)? Q11 If you support credits, what vehicle types do you consider qualify for a credit and why? The introduction of bonus credits for low emission vehicles provides a low- or no-cost mechanism to assist the take-up of alternative-fuelled or new technology vehicles. However, this would introduce a second policy objective into the CO 2 standard and may compromise policy outcomes by providing incentives for particular technologies, without the need for these technologies to demonstrate a net CO 2 emissions reduction. For example, electric vehicles may be eligible for bonus credits (zero tailpipe CO 2 emissions), but may not have lower whole-of-life CO 2 emissions than a vehicle powered by an internal combustion engine. Any provision for bonus credits would affect the target CO 2 emissions value that can be achieved, as calculations involving bonus credits would allow a lower CO 2 emissions target value to be achieved than would be the case without bonus credits. However, a lower average CO 2 emission value calculated in this manner would not necessarily reflect an environmental benefit. Bonus credits would also create additional administrative burden, and hence result in additional cost. The AAA remains open on the issue of bonus credits and will consider this issue further when the Implementation RIS is released. Regulatory Models Q12 Do you support an attribute based standard? Q13 If so, do you have a preference for mass or footprint? Q14 If you do not favour an attribute based standard, what is your preferred approach and why? The AAA is open to the introduction of a CO 2 emission standard based on vehicle attributes such as mass or footprint. Whilst the development of an attribute-based standard will be more complex and time-consuming, the AAA considers that it would provide more appropriate fleet-wide incentives for vehicle manufacturers to deploy strategies to reduce carbon emissions than a standard based on simple percentage reductions. A standard with a fixed fleetwide target to be met by all vehicles places larger, heavier vehicles at a disadvantage compared with smaller lighter vehicles, as the laws of physics dictate that heavier vehicles require more energy (and hence fuel Page 8 of 10

9 consumption and CO 2 emissions) for their motion. Targets based on simple percentage reductions in emissions across the fleet or segments of the fleet would disadvantage manufacturers who have already implemented CO 2 reduction measures in current vehicles as they have a reduced scope for emissions reduction compared with competitors who have not implemented such technology. Hence, an attribute-based standard would be desirable, and a standard based on footprint is preferable, as a mass-based attribute provides a perverse incentive to increase the mass of vehicles. The AAA believes that reduction of vehicle mass should be encouraged, but emphasises that care will need to be taken to ensure that vehicle safety is not compromised by removal of safety features or reducing the crashworthiness of vehicle structures by reducing their mass. The use of footprint as the attribute for a CO 2 standard may provide some perverse incentive for vehicle manufacturers to increase the footprint of vehicles. This incentive will be somewhat diminished by the additional vehicle mass that would be required to increase the footprint, making this option less attractive to manufacturers. Limit values (fixed values of CO 2 emissions that must not be exceeded regardless of increasing of vehicle attribute) should be introduced to cap the permissible emissions for the vehicles with the largest vehicle attributes (mass, footprint etc). Q15 Do you consider there are any other data elements which might also be required for the standards to be effective and enforceable? Q16 Do you agree that the current VFACTS database (supplemented and audited as necessary) is suitable as the primary data source for assessing and reporting compliance with the standards? Q17 Do you also agree that data collected for the purposes of the standard should be made publicly available on an annual basis? The data to be reported and collected regarding individual make, model and variant as suggested in the discussion paper seem appropriate and the AAA does not propose additional data that should be collected. The AAA does not consider VFACTS to be an appropriate source of primary data. Vehicle manufacturers are not compelled to be members of the Federal Chamber of Automotive Industries (FCAI), and thus have no compulsion to report accurately to VFACTS. This presents problems for legal sanctions to be applied on the basis of the VFACTS data. Instead, it would be more appropriate for the legislation underpinning a CO 2 standard to require the responsible legal entity to report the relevant data to the government enforcement agency. This would place a legal obligation on the vehicle manufacturer (or responsible legal entity) to provide accurate data that would be subject to audit and scrutiny and for which the legal entity would be responsible. Page 9 of 10

10 In the interests of transparency and public information, it would be desirable to publish annually the CO 2 emissions data reported by the responsible legal entities. Q18 Do you agree that the Motor Vehicle Standards Act is the most appropriate primary legislation under which to write appropriate CO 2 regulations? Q19 If not, what alternative legal framework would you propose? Q20 Do manufacturers, particularly importers, have any views regarding the identification of responsible entities under the standards? Q21 Do you consider there is merit in allowing manufacturers to pool, or is it an approach that manufactures are unlikely to pursue? Q22 Do you think there is sufficient merit to warrant the inclusion of banking and trading systems as a feature of Australia!s CO 2 standards? Q23 Do you agree such systems are only possible where annual targets are set? The AAA does not have a strong view on the most appropriate form of legislation for a CO 2 standard, but would support implementation through the Motor Vehicle Standards Act 1989, as the requirements would be logically contained within a single Act dealing with requirements for new motor vehicles. The legal entity responsible for compliance with a CO 2 standard should be the same legal entity responsible for compliance under the Motor Vehicle Standards Act 1989, and with whom there is an existing legal relationship. These legal entities are generally motor vehicle manufacturers or importers and are holders of Identification Plate Approvals, having met the requirements of the Act and demonstrated compliance with applicable Australian Design Rules (ADRs). The AAA understands that a CO 2 standard would not be implemented as an ADR, but it would be logical to have the requirements contained within the same Act. The AAA is open to consider proposals for pooling, banking and trading, but notes that a decision to allow these needs to be taken before deciding on a CO 2 target. The AAA supports the setting of annual CO 2 emissions targets to reduce the opportunities for gaming if targets were only applicable in particular years. For example, if a target was to apply only in the years 2015 and 2020, manufacturers may deliver large stock volumes of higher-emitting vehicles to motor vehicle dealers during 2019, and report fewer sales in 2020, thereby influencing the sales-weighted average CO 2 emissions for Consideration will need to be given to setting appropriate stepped annual targets for each year. Q24 Do you agree that financial penalties are the most effective way to address noncompliance? Q25 If not, what alternative would you suggest? The AAA considers that financial penalties are an appropriate means to address non-compliance with the proposed CO 2 standard and would have an effective impact on the market for those vehicle manufacturers exceeding their target. The AAA notes that the costs of the financial penalties may be passed on to consumers, but the effects would be appropriately targeted at models marketed by non-compliant manufacturers. Page 10 of 10