Energy and Environment issues in road transport Prof. Stef Proost KULeuven (B)
Long term trends?
2050 World Share OECD
Road use cars
x 2.5 From 50% now
to 20% in 2050
Road use trucks x 5 From 50% now
to 20% in 2050
Air transport x 5
GHG emissions
transport
x 2 or x 3 From 60% now
to 35% in 2050
What is the right policy answer?
• EU roadmap 2050 is one of the answers
• I think we can do “better”
– By doing less
– By doing things differently
EU white paper for transport
(March 2011) – Key goals 2050 – No more conventionally fuelled cars in cities (and
50% less in 2030)
– 40 % use of sustainable low carbon fuels in aviation
– 50% shift of medium distance intercity passenger and freight journeys from road to rail and waterborne transport (30% shift by 2030)
– Triple length of HSR network by 2030
– Near zero road casualties (and 50% less by 2020)
– Move towards full application of user pays and polluter pays principles…
Outline
• Distinguish 3 issues: • Conventional air
• Energy supply issues
• Climate issues
• Issue + Policy response
• What transport policies make sense? • Land use decisions
• Modal choice
• Type of vehicle
• Intensity of vehicle use
polluting activity
Cost/unit
Price
P°
Q°
Demand function for the polluting acivity
P°+d°
PEff +d*
Q*
Remaining env damage
Increased prod cost
PEff
Q°*
Environmental policy: best mix of technology and behaviour
Conventional air pollution 1
• Problem is health damage
• Solved mainly by better technologies
(Auto-Oil) • catalytic converter
• Cleaner fuels (less sulfur)
• Overall pollution from cars since 1995: -70 to -90%
despite growth in volume of car use
• Remaining problems • Local (hot spots)
• New health concerns
Conventional air pollution 2
• Remaining problems
– New evidence that very small particulates are
more harmful for health than expected
– Local hot spots of pollution require local policy – Low emission zones: Germany experimented in +50
cities, only vehicle emission standards worked well.
– One major mistake that can easily be
corrected: – Diesel cars are more polluting and pay less taxes per
vehicle-mile than gasoline cars, they have a very small
(5%) advantage in CO2 emissions but this does not
justify their current taxation advantage
Share of diesel in new passenger car
registrations (%)(2000 and 2009)
0
10
20
30
40
50
60
70
80
Be
lgiu
m
Luxe
mb
ou
rg
Nor
way
Fran
ce
Spai
n
Port
ugal
Ire
lan
d
Fin
lan
d
EU-1
5
EU-1
5 +
EFT
A
Au
stri
a
De
nm
ark
Ital
y
Uin
ite
d K
ingd
om
Swe
de
n
EFTA
Ice
lan
d
Ge
rman
y
Swit
zerl
and
Ne
the
rlan
ds
Gre
ece
2000
2009
Outline
• Distinguish 3 issues: • Conventional air : more or less “SOLVED”
• Energy supply issues
• Climate issues
• Issue/Policy ?
• What transport policies makes sense? • Land use decisions
• Modal choice
• Type of vehicle
• Intensity of vehicle use
Energy supply 1
• Car Transport is 90% dependent on oil
• Fuels in Cars are taxed much more than
other oil use and so transport has highest
WTP for oil
• What is problem?
– Running out of oil for the world?
– Sudden interruptions in oil supply?
Energy supply 2
- Running out of oil for the world?-
• Hotellings intertemporal arbitrage
condition for a fixed stock of oil reserves • Resource owners will arbitrage selling now or later
• They can not sell at more than choke price (or
price of backstop technology – solar, coal liquids..)
• Result: (price – extraction cost) increases over
time with rate of interest and there is already a
scarcity premium now
• Prices incorporate latest information on present
and future demand and cost information
1
TIME
PRICE
Of
Fossil
energy
Choke price or cost backstop P*
Extraction
cost
N
PRICE PROFILE 1 OVER TIME
Energy supply 3
• What is problem?
– Running out of oil for the world?
– Sudden interruptions in oil supply?
• Price fluctuations due to short term changes in
supply and demand
• Kilian (2008) shows that unanticipated supply
changes have been overemphasized – demand
fluctuations have been important too
• Main suppliers will benefit from reliability status of
their deliveries – unreliable suppliers need to give
discounts
Outline
• Distinguish 3 issues: • Conventional air : more or less “SOLVED”
• Energy supply issues
• Climate issues
• Issue/Policy ?
• What transport policies makes sense? • Land use decisions
• Modal choice
• Type of vehicle
• Intensity of vehicle use
Climate issue
• Essentials of climate issue
• Economics of international agreements
• Effects of EU climate & transport policy on
energy markets
Climate = international + stock
problem+uncertain – Economic growth requires more energy
– Energy can be more or less carbon intensive (coal = 2 gas)
– Sum of world emissions builds up a stock of greenhouse gasses
– Climate effect
– Damage
• All relations (physical + economical) are uncertain and we can only learn very slowly
Simplest model for Economics of
international agreements
• Barrett (1994)
• N identical countries, constant Marginal Benefit of emission reduction
• Endogenous determination of – Number of signatories n out of max N
– Terms of agreement for signatories
• One shot game – An equilibrium “Self Enforcing International
Agreement” requires (cfr. cartel theory) • Each country signing is as well off as a non signing country
• A signing country maximizes the total welfare of the members of the group joining the agreement
– Result: only very few countries (max 3) will sign an agreement
10 MB
Marg Benefit
3MB
Marg Abatement Cost
abatement
$/ton
1 3 10
nash
Int agreement
Total abatement effort
Nash equilibrium: 1x10 = 10
Intern Agreem 3x3 + 7= 16
Full cooperation (FB)= 10x10=100 (FB is better for everyone but you can not enforce the contract)
1
Economists are pessimistic on
international climate agreements
• Pure public bad problem for which no
international binding contracts are possible
– Repeated game (tit for tat) offers slightly better
perspectives but national leaders change (can we
blame Obama for attitude of Bush?)
– Catastrophic damages do not necessary lead to an
agreement when precise treshold for catastrophe
isuncertain
• Climate agreements exist, have been signed
– But are not observed
– Can be useful to exchange ideas
EU as climate policy forerunner
• EU policy justification?
– Feels responsible for world damages of its
emissions
– Cooperative attitude: i make efforts if the
others follow
– Show the rest of the world it is not costly to
realize deep cuts?
• But what can the EU really do and is it
cost-effective?
Reactions of energy markets to
unilateral EU climate policy
• Distinguish between – fossil fuels without rents (coal, non conventional oil and
gas)
– fossil fuels (oil, gas) with large rent element in price
• If EU reduces coal use, world price of coal may decrease somewhat but there is a decrease in total world emissions
• If EU reduces conventional oil use, it will ONLY DELAY EMISSIONS NOT REDUCE emissions (“green paradox”)
• If EU invests successfully in R&D for cheaper carbon free substitute (car running on water), it will INCREASE CURRENT EMISSIONS
Effect of breakthrough in vehicle technology
or biofuels : price over time from profile 1 to
profile 3
Smarter climate policies?
• Achieving absolutely a reduction of
emissions in Europe is NOT cost-effective
– Buy emission reductions in rest of world via
Clean Development Mechanism
– Favour technology options over behaviour
• Traditional thinking: right mix of technand
behaviour via emission taxation, a technology
standard has not right mix
• But technology advances spread over the whole
world and this has much larger effect (Europe is <
25% of world car market)
polluting activity
Cost/unit
Price
P°
Q°
Demand function for the polluting acivity
P°+d°
PEff +d*
Q*
Remaining env damage
Increased prod cost
PEff
Q°*
EU white paper for transport
(March 2011) – Key goals 2050
• TECHNOLOGY – No more conventionally fuelled cars in cities (and
50% less in 2030)
– 40 % use of sustainable low carbon fuels in aviation
• MODAL SHIFT – 50% shift of medium distance intercity passenger and
freight journeys from road to rail and waterborne transport (30% shift by 2030)
– Triple length of HSR network by 2030
– Near zero road casualties (and 50% less by 2020)
– Move towards full application of user pays and polluter pays principles…
What transport policies make
sense 1 • No quantity targets for CO2 emissions in transport sector (even if it
is growing) as there are cheaper options in other sectors
– gasoline pays a 200 Eur/ton CO2 taks, but it is called “gasoline tax”
• Technology policies:
– Push technologies that could be adopted by rest of world (they have not
the same CO2 incentives – so you can not be world leader for
something for which there is no market)
– So prefer simple and cheap (gasoline engine) over performant and
expensive (hybrid and electric)
• Favour gasoline over diesel because of tax and health reasons
• Put same excises per mile on electric cars, hydrogen cars etc. as on
gasoline cars (implicit subsidies for electric cars of 1000 Euro/ ton of
CO2
What transport policies make
sense 2
• Modal shares:
– No quantitative ojectives (EU plans for HSR,
trains and maritime result from carbon
objectives)
– Modal shift could result from better transport
policies addressing congestion, local health
etc.
• Rethink TEN-T prioirity projects
– Half of them are not justified
Energy & Environment policies
in Road Transport – Conclude? • 3 issues:
• Conventional air : more or less “SOLVED” –except
diesel/gasoline choice
• Energy supply issues: not a major issue
• Climate issues: is a problem but EU can not do
much
• Transport policy should be guided by other
issues we can address • peak load pricing in private and public transport