Appendix d progress towards Australia’s emissions reduction goals

Figure D.20: Comparison of passenger vehicle CO₂ emission rate projections, 2000–2025

 

Source: Adapted from ICCT 2013 and NTC 2013

Australia has previously considered adopting fleet-average CO₂ emissions standards, and has regulations that require manufacturers and importers to display the fuel consumption and CO₂ emissions of new vehicles for sale (DIT 2011). As discussed in Chapter 11, the Authority recommends that the Commonwealth Government investigates implementing fleet-average CO₂ emissions standards for Australia.

Although most light vehicles sold in Australia are imported from countries with fuel efficiency standards, there is a risk that Australia will not receive the full benefit of those standards. The most fuel-efficient vehicles and model variants are typically allocated to markets with mandatory standards (DIT 2011, p. 8). If Australia pursued a similar rate of improvement in its fleet-average emissions as that required by the EU 2020 target, new light passenger vehicles sold in Australia in 2020 would be about 20 per cent more efficient than those sold today. Adopting a target comparable to the EU’s (95 g CO₂/km by 2020) could reduce the emissions intensity of new light passenger vehicles, on average, to about half of today’s level.

Box D.5: How do fleet-average emissions standards work?

A single fleet-wide target, based on vehicle CO₂ emissions intensity, is applied across all new light vehicle sales for a given year. Targets are tightened over time and are designed to drive greater vehicle efficiency improvements than would have occurred under BAU.

The target for individual suppliers is determined according to a mathematical relationship between CO₂ emissions and a particular vehicle attribute (usually mass or size). Suppliers can market models above or below the fleet target value applicable to a particular vehicle, as long as the average emissions intensity of all their models sold in a given year meets their target as determined by the mathematical relationship. This approach provides flexibility for suppliers and enables them to choose the most cost-effective technologies to achieve their targets.

A flat target that imposes the same limit on all suppliers is simpler in design but likely to lead to inequities given the different sectors of the market that the various suppliers occupy. Attribute-based standards provide a more equitable distribution of responsibility while still achieving the desired emissions reductions from the fleet overall. Attribute-based targets mean that fleet-average emissions standards do not drive the phase-out of large vehicles if there is a market demand for such vehicles; rather, it places pressure on suppliers to improve the efficiency of their vehicles. Attribute-based targets are applied in other vehicle markets; in the US, standards are set according to average vehicle size (footprint), while in the EU standards are based on average vehicle mass.

The Authority commissioned the CSIRO to model the emissions reduction potential of Australia adopting fleet-average CO₂ emissions standards that drive a rate of efficiency improvement comparable to other markets. Improvement over the last decade has been about 2.3 per cent per year on average (NTC 2013, p. 5). The CSIRO modelled lenient, medium and stringent standards, reflected by annual improvement rates of 3.5, 5 and 6.5 per cent respectively.

The CSIRO modelling showed that, by 2030, up to 14 Mt CO₂-e per annum (13 per cent of total transport emissions in that year) could be avoided using fleet-average CO₂ emission standards introduced in 2018. For the entire modelled period (from now until 2050), introducing relatively lenient standards in 2018 was projected to achieve greater emissions reductions than introducing stringent standards in 2025, emphasising the importance and value of early action in transitioning Australia’s light vehicle fleet to lower emissions vehicles. Figure D.21 shows the cumulative emissions reductions available.

Figure D.21: Cumulative light vehicle emissions reductions with CO₂ emissions standards, compared to BAU projections, 2030–2050

 

Source: Climate Change Authority calculations using results from Treasury and DIICCSRTE 2013 and Reedman and Graham 2013b

CO₂ emissions standards could offer net benefits to vehicle owners, as well as public benefits in reducing emissions. Mandatory CO₂ emissions standards are considered one of the most cost-effective strategies to reduce transport emissions (DIT 2011, p. 3).

The impact of emissions standards on vehicle costs in Australia will generally be determined by global vehicle markets (Reedman and Graham 2013b, p. 5). As a result, international evidence provides some useful insights for Australia. The Authority considers, based on analysis done in other markets, the overall private cost of vehicle emissions standards for Australia at levels comparable to international action may be negative (that is, delivering net savings)—even after higher vehicle purchase costs are taken into account.

In Europe, for example, under a 2020 target of 95g CO₂/km by 2020, the real purchase price of the average car is projected to be €1,100 more. Real fuel costs for the average car, however, will be about €400 less per year (Cambridge Econometrics and Ricardo-AEA 2013, p. 3). In the US, the National Highway Traffic Safety Administration (NHTSA) projects the latest Corporate Average Fuel Economy (CAFE) standards will deliver average net benefits of about US$3,400 (for cars) and US$4,700 (for light trucks) for vehicles manufactured in 2025 (NHTSA 2012, p. 978). These estimates do not take into account the social benefits arising from the reduction in emissions.

Fuel and operating savings, however, are specific to each market. According to CSIRO modelling of standards for Australia, a saving of 4 cents per kilometre is projected by the time the majority of the fleet has been subjected to CO₂ standards (after 2035). At about 15,000 km per year travel—typical for Australia—the annual savings are close to $600. This suggests CO₂ standards in Australia could give consumers a private return on investment comparable to that in the US or EU.

ClimateWorks (2010, p. 78) suggests that, in Australia to 2020, a standard of 140 g CO₂/km could deliver societal savings of up to $74 per tonne of CO₂ avoided, and achieve annual emissions reductions of 5.5 Mt CO₂, with benefits to the economy of about $400 million. The potential savings increase to $85 per tonne of CO₂ for a standard of 120 g CO₂/km, which could deliver emissions reductions of 6.3 Mt CO₂ and economic benefits of about $535 million.

Standards could have substantial complementary benefits:

• 
  Reduced fuel consumption will lower costs and increase transport productivity. CSIRO modelling projects that under a lenient standard starting in 2018, about 161 PJ less transport energy, of all types, will be required in 2030 and about 275 PJ less in 2050. Petroleum consumption alone will be reduced by about 170 PJ per annum by 2050, which decreases Australia’s projected petroleum needs in 2050 by about 5 per cent (BREE 2012, p. 46).
  
• 
  Standards are projected to bring alternative drivetrains, such as plug-in electric vehicles, to Australian roads more quickly, with associated health and amenity benefits from reduced noise and air pollution. CSIRO modelling projects that under a medium standard starting in 2018, over one-quarter of all light vehicle travel will be undertaken by alternative drivetrain vehicles by the early 2040s, compared to about 7 per cent without standards.
  

Implementing CO₂ standards in Australia may be done at relatively low administrative cost. It may require new legislation but is not expected to introduce additional vehicle testing relative to current requirements.

D4.3.2 Reduced emissions intensity of fuels

Oil is the main energy source for transport (IEA 2013b, p. 572). Alternative transport fuels with potentially lower emissions intensity are both available and in development, including liquid biofuels and gaseous fuels. Synthetic fuel alternatives are also in development or are available overseas, including coal-to-liquid, gas-to-liquid and shale oil-to-liquid, most of which could have higher emissions intensity than conventional fuels.

The growth of a low-emission fuels market depends on the cost and availability of these fuels as alternatives. Some modelled scenarios project a significant increase in biofuel use; however, there is a risk that future oil prices and biofuel supply constraints could prompt Australia to exploit fuels that have higher lifecycle emissions, in order to meet its transport fuel needs. Improving vehicle efficiency and electrification of transport mitigates this risk.

Natural gas may increase its share of the transport fuels mix; however, it is likely to depend on the relative pricing of natural gas to alternatives. Liquefied petroleum gas is not projected to gain significant future additional market share for road vehicles or locomotives; however, future prices of alternatives may change this outlook.

Biofuels

Biofuels are considered zero-carbon under international accounting standards but, depending on the feedstock, the upstream emissions associated with producing biofuels can be higher than for fossil fuels (PC 2011, p. 7). In Australia, however, even after lifecycle process emissions are taken into account, biofuels are lower in emissions intensity than fossil-derived fuels (Figure D.22).