The introduction of mandatory CO2 standards for passenger cars in the European Union led to a significant decrease in the level of CO2 emissions for new vehicles, and increased deployment of vehicle efficiency technologies. A general consensus exists that this system of vehicle emission standards has proven effective and should be continued and expanded.
However, recently proposals have been floated to replace or supplement mandatory standards with a cap-and-trade system, specifically the EU Emissions Trading System (ETS). This debate reached a new level with a decision of the European Council at its October 2014 meeting, stating that “a Member State can opt to include the transport sector within the framework of the ETS.”
This paper assesses the effect on technology innovation and deployment if mandatory CO2 standards in the EU were replaced by including road transport in the EU Emissions Trading System (ETS). It concludes that to reach a similar level of technology innovation as is expected for the EU’s 2020/21 CO2 target of 95 grams per kilometer, a price of about €370 per ton of CO2 would be required. The current price is €5.
The authors argue that a more realistic and comprehensive EU policy framework would complement the technology push created by CO2 performance standards with a technology pull created by customers asking for and purchasing these new technologies for their vehicles. Such customer demand can be stimulated by an adequate vehicle taxation system—for example, in the form of a revenue-neutral feebate system, in which vehicles with low CO2 emissions pay no vehicle tax or even receive a rebate while vehicles with high emissions pay a fee.