The magic metric that changed the car industry
What has happened to the car industry using g CO2/km as a metric is a very good example of the depth of transformation that product transparency can deliver. This fascinating metric has enabled European regulators to mandate top-down targets for car companies, enabled customers to have a comparable reference for the car footprint and provide national and local legislators the means to tax what is higher impact and support what is lower.
This transparent metric has also created competition in the car sector with the focus being upon their biggest environmental impact, ‘in life use’, which in turn has created a huge level of innovation in the car industry and supply chain. A decade ago the car industry had no incentive to design cars that would consume any less petrol. It really wasn’t at the core of car manufacturers’ strategy.
The industry used to design cars that were affordable to build but not necessarily always affordable to run. Yet according to European Union (EU) research, passenger cars make up 12% of total EU CO2 emissions. And yet, according to the European Environmental Agency, around 77% of the impact of a passenger car is in the ‘use’ phase with a further 13% directly linked to the production of the fuel consumed in the ‘use’ phase.
For this transformational change to take place an overall regulatory framework at EU, national and local level was needed. Furthermore, and crucially, a common industry metric was required that could be used in the car industry. That magic metric was to be tail-pipe (exhaust) emissions measured as grams of CO2 per kilometre driven (g CO2/km). Although incomplete, because it didn’t take into account whole-life CO2 emissions and environmental impacts, this partial transparency at least focused on the biggest issue and has transformed the industry. g CO2/ km has given a purpose to policy-making, often bureaucratic, expensive, ineffective and siloed. Below is an overview of some of the key regulatory interventions this common standardised metric has enabled.
First, the bottom-up approach.
The EU Car Labelling directive was enacted to ensure that a label on fuel economy and CO2 emissions is attached to a car or displayed in a clearly visible manner near each new passenger car model at the point of sale. This bottom-up approach was based on driving transparent competition, which in turn enabled the customer to make an informed decision taking into account the biggest environmental impact of the product. Most customers might still choose a car mainly by the design or the brand but at least they have the right to know the impact of their decisions. What has been the main result of this transparency? It has cut off all the ‘greenwash’. No manufacturer today is doing green marketing on the little things they are doing in their factories or their recyclable seats. Why? Because this wonderful metric is allowing customers to say, ‘please cut the fluff and just tell me the g CO2/km for this car’.
Sustainability commoditized as it should be, like money: terrible news for marketing agencies, great news for the world. The beauty of such a metric goes beyond ‘point of sale’ to ‘all promotional materials’. Thanks to the same directive, today all car advertising must include the g CO2/km for that specific car being advertised. That has created consistency and transparency whilst simultaneously empowering the customer to not only become accustomed to the metric but make critical buying decisions based on this metric. My mother today knows that 160g CO2/km is too much and 100 g CO2/km is acceptable. Many Londoners know cars under 100 g CO2/km don’t pay the congestion charge. Consistent transparency creates customer literacy and awareness which leads to change.
Second, the old-school, top-down approach.
This key metric allowed an EU-wide regulation that came into law in 2009, requiring each manufacturer to decrease their average portfolio of emissions to 130 g CO2/km by 2015 and 95 g CO2/km by 2020. In 2008, the average g CO2/km for car emissions in the UK was 158.0 g CO2/km. In 2009 that figure was 149.5 g CO2/km so the change because of legislation is huge. Look at how effective those ugly technocrats from Brussels have been! How ironic that the UK Climate Change Committee highlights cars as one of the few successes of carbon reductions in the UK. This legislation came about because the EU ran out of patience with industry voluntary agreements.
Yes, those voluntary agreements so loved by politicians because they don’t have to impose any difficult decisions. In 1998, the European Automobile Manufacturers’ Association (ACEA), JAMA, and KAMA agreed to reduce average CO2 emissions from new cars sold to 140 g/km by 2008. That was a 25% reduction, quite considerable. But predictably when there is no stick or carrot on the table, the car manufacturers’ commitment achieved a mere 2.2% reduction between 1998 and 2006. What would you expect? So the EU set up a mandatory target and crucially gave a sensible period of time (2020) to allow companies to invest, innovate and so make the necessary widespread changes required to meet the targets of this regulatory framework.
It also came with sticks in the form of financial penalties.
Surprise, surprise, it’s working! CO2 emissions from new passenger cars have started decreasing substantially: 1.6% in 2007, 3.2% in 2008 and 5.4% in 2009. That’s the beauty of the market: tell it what you want to achieve and it will find a way to do it. The problem is that on many occasions we don’t tell the market, our supplier, what we want, or worse, we don’t have the metrics. These two combined policies, of setting agreed, clearly measurable targets and making this information clearly visible to the end customer are completely changing the playing field of competition within the car industry. And this competition through innovation will compel manufactures to meet the EU-wide target of 95 g CO2/km by 2020. Car manufacturers are doing what they are best at – designing cars – as opposed to inventing labels, patronising customers with green marketing, ‘engaging’ employees, sustainability reporting and other semi-useless stuff. But our beloved metric goes much further. It can transform national and local policy-making aimed at changing behaviours and purchasing decisions. One example at national level is the French Bonus/Malus scheme. Simply put, customers choosing to buy a heavy polluting car will pay extra tax on the price of the car, whereas customers choosing to buy a more fuel efficient car will receive a reduction in the price of the car. The tax penalty ranges from €200–2600 per car.
The incentive reductions range from €200 to €5000 and higher for even cleaner cars.
Around 31% of new vehicles will be eligible for the bonus, 25% for the malus. There are around 44% of new vehicles currently emitting between 130 and 160 g CO2/km that are not affected by the new measure. Furthermore, the bonus will be deducted from the price paid to the dealer and must be identified and visible on the bill. These facts will also provide incentives to dealers to sell cleaner cars. Another example is UK company cars.
In the UK you pay more tax for your company car if your car produces more CO2. For example, for a car of less than 75 g CO2/km the tax rate for petrol cars is 5%. For a car of 150 g it is 19% and for a car of 235 g it is 35%. This is a good example of variable tax on a clean or dirty product. The more you pollute the more tax you pay. But our magic metric is also very useful at the local level.
In London, cars which emit 100 g/km or less of CO2 and meet the Euro 5 standard for air quality qualify for zero congestion charge. A 100% exemption from congestion charge also applies to electric vehicles. In many towns in the UK such as York, Salford or Milton Keynes and Richmond, one can have discounted residents’ parking if you have a low carbon vehicle and free parking if you have an electric car.
Guess what? Customers are paying attention to the environment! Such a crazy bunch of tree-huggers…