Policy Tools Influencing Car Purchase Behavior: Design Rules, Addressing Higher-income Consumers, and Forecasting Market Reaction and Policy Efficiency



Policy Tools Influencing Car Purchase Behavior: Design Rules, Addressing Higher-income Consumers, and Forecasting Market Reaction and Policy Efficiency

Authors

P de Haan, A Peters, M G Mueller, ETH Zurich, CH

Description

How can feebate schemes for energy-efficient cars address higher-income consumers? Should rebate eligibility be based on CO2 emission or on energy-efficiency? Results from multi-agent market simulations & resulting policy efficiencies are presented.

Abstract

In most European countries, CO2 emissions from motorized individual transport continue to increase rather than decrease. Therefore policy tools to influence consumer behavior move into the focus of both policy makers and academic research. Reducing average CO2 emissions of new car registrations is essential to lowering energy consumption for passenger transport in general. Influencing new car purchases is very effective, as each car is sold on the second-hand market several times, and will be on the roads for 11 or more years and perform over 160?000 km.
The EU strategy to lower CO2 emissions from passenger cars consists of three pillars, the first being voluntary agreements between car manufacturers (ACEA, JAMA, KAMA) and the EU commission with the goal to bring average emissions down to 140 g CO2/km in 2008/2009. The second pillar is consumer information, consisting of an energy label for each new car on display at the point of sale (on voluntary basis, many European countries have added energy classes ?A? to ?G? to the label). Since these two elements have shown not to be sufficient in bringing CO2 emissions down, in the years to come the third pillar will gain momentum: fiscal measures based on the energy label in order to influence car purchase behavior.
As suitable fiscal measure, feebate schemes (a composition of fee and rebate; another term being carrot-and-stick) systems are currently being discussed as method-of-choice to influence car purchase behavior. For example, cars having ?A? or ?B? ratings are eligible for a car tax rebate, whereas those labeled as ?E?, ?F? or ?G? pay higher taxes, such that the scheme as a whole is revenue-neutral. Feebate systems are currently in effect in the Netherlands, Belgium and the United Kingdom. They are under investigation in several other countries. Two different schools can be distinguished: We denote energy-efficiency as "absolute" if relating directly to the amount of energy or CO2 needed per distance, as "relative" if this amount is divided by any such thing as car length, floor space, number of seats, or curb weight.
Basing tax rebate eligibility on absolute energy-efficiency seems logic at first sight, as energy and/or CO2 reduction is the final policy target. However, consumers traditionally purchasing larger cars might feel as not being addressed by such a policy. Compared to small car buyers, purchasers of large cars would have to change their behavior more to become eligible for a rebate. Using relative energy-efficiency as policy base (while still pursuing the underlying policy target of CO2 reductions) would overcome this problem, but could open the door to another: Could such tax rebates motivate people to shift to cars that are larger in size (having higher relative efficiency but lower absolute efficiency)?
We present results from a population-representative Swiss mail-back survey. People where asked about their car choice behavior and likely reaction to hypothetical rebates. Our results confirm that indeed part of the population is likely to change to cars with higher relative but lower absolute efficiency, driven by rebate eligibility. In addition, some people state that a tax rebate would in fact increase their total car purchase budget, which is likely to affect fuel consumption as well. We conclude that such counteracting side-effects cannot be avoided completely. In order to limit and contain its impact on the efficiency of feebate policies, it is important to carefully design the definition of energy-efficiency.
We also present results from a multi-agent simulation car market model, where 40 different agent types are distinguished and separate sales statistics for over 3000 different car models are generated. The model includes many elements of so-called bounded rationality: limited (but variable) choice set size, fuel type, gearbox and brand retention rates. Also built-in are elements of psychological effects (mental accounting, marginal utility, reference point effects, etc.) We show which feebate design results in higher efficiency.
While the effect of policy schemes to influence vehicle purchase behavior generally seems to be low (often between 1% and 3% of the average CO2 emission level of a cohort of new vehicles), such schemes are very cost-efficient all the same: each car will run for 10 to 13 years and run for over 160?000 kilometers, without any continuing efforts by the government being necessary to maintain this level of saving. This often puts such policy schemes, regarding avoidance costs per ton of CO2, at the same level as insulating residential dwellings, heating system retrofits, etc.

Publisher

Association for European Transport