Internal Combustion Engine Cars: Will national sales bans become reality?
By Amy Myers Jaffe
Internal combustion engine (ICE) car bans are in the news, raising questions about their effectiveness as a policy tool. For automotive original equipment manufacturers (OEMs), ICE bans are a strong policy signal that car companies must take action. While policies that promote alternative fuels like biofuels, electricity, and hydrogen can create a competitive market for low carbon fuels, ICE bans are technology-forcing, which theoretically can provide a more decisive market signal.
Generally speaking, bans signal to automobile manufacturers that they will be required to change their production manufacturing platforms. This is significant because car companies typically make such decisions on a decadal basis based on the ten-year time frame it takes to recoup capital investment on manufacturing platforms, equipment, and tooling. In other words, car companies’ capital expenditures for the 2030s takes place in the 2020s, given the 10-year planning cycle for manufacturing equipment and tooling and its payback time. Given this reality, bans policy can push forward action to commit to alternative fuels. Additionally, a ban announcement, followed by the related auto company manufacturing retooling response then signals others to invest in alternative fuel infrastructure. In this way, ICE bans can potentially reduce the path dependency that currently favors incumbent gasoline station assets and businesses. By contrast, decision making by car manufacturers that would be solely based on potential future availability of alternative fuels would be a more complex and face more uncertainty about consumer preferences to embrace new fuels and technologies.
It is this corporate planning element that makes the European Union’s governing body vote last week to move forward with a Europe-wide ICE ban policy so significant. The EU parliament voiced its support for a European wide ban on the sales of gasoline or diesel-fueled cars beginning in 2035. The ban must now be affirmed by individual European governments. The proposed policy initially faced headwinds from German car associations who say the policy could put thousands of jobs at risk. But the new German government stands behind “all elements” the EU proposal. About 18% of all new car sales in the EU last year were electric and plug-in hybrid vehicles. The potential ban mirrors similar plans that have been announced in the UK, China, and the state of California and comes at a time when governments, like the US and UK, are financially backing the buildout of electric charging stations.
While a wide number of policy tools exist to influence greenhouse gas emissions in the automotive sector, including use of advanced biofuels and efficiency standards, scholars have assessed national level car bans to be a highly effective approach to change the direction of future car stocks. A successful example includes diesel car bans in some European cities, which were designed to improve urban air quality. These urban bans have been met with declining production and falling sales of diesel cars in Europe. By the same token, car manufacturers will likely anticipate legal restrictions on internal combustion engines and adjust their manufacturing and sales strategies years in advance. Ban policies encourage consumers to shift to electric vehicles. As ban deadlines approach, fear of rapid depreciation of ICE vehicles and possible dwindling of access to repair services, spare parts, and fueling stations are likely to be influential factors on consumer choice. One recent modeling study found that ICE restrictions can be effective in shifting consumer behavior towards greater purchases of electric vehicles. Another study focused on Germany found that the risk of ICE bans in German cities influenced German car buyers to purchase EVs. The study concluded that ICE bans were more effective than purchase-based incentives.
European action could motivate wider adoption of ICE bans which is relevant to national determined contribution planning. Academic research suggests that ICE vehicles need to be banned completely by 2035 or 2040 to “align with deep GHG-reduction goals.” Since new passenger vehicles tend to be used for fifteen years or longer (oftentimes across multiple owners and countries), ICE car bans need to be implemented suitably early and convincingly to ensure companies develop sufficient alternative fuel vehicle model lines, supply chains, and manufacturing expertise, the study recommends. That gradual retirement of existing cars means that the ICE bans policy is a slower than it sounds in terms of lowering oil demand. Noting that problem, some studies suggest that sales of ICE cars must fall to close to zero by 2050 to remain consistent with a 2 degrees C warming scenario.
Details on how ICE bans are being implemented vary. Many countries, such as China, are studying a phased approach. China represents the largest car market in the world, with total sales of over 23.6 million light duty cars in 2018 so its plans to phase out gasoline cars will be highly influential. Already, China’s Hainan province has said it will ban ICE vehicle sales for 2030. And, both China and California are moving ahead on regulating vehicles used for ride sharing and municipal fleets as a first stage. British Columbia has instituted an electric vehicle mandate as an interim step to its new law to end new sales of ICE engines by 2040. Oslo, Norway is the first city to implement an ICE ban in its center city. Other cities including London, Barcelona, Copenhagen, and Seattle have citywide bans planned for 2030.
In the United States with its car centric transport system, a rapid shift to EVs would have a material impact on oil use. Calculations by my research co-authors at UC Davis estimate that EV adoption could reduce U.S. gasoline consumption from 103.7 billion gallons of gasoline equivalent (billion GGE) in 2025 to 56 billion GGE by 2040 or the equivalent of a reduction of one million barrels a day of oil equivalent. Diesel use could drop from 50.6 billion GGE to 29 billion GGE by 2040, or the equivalent of 460,000 barrels a day of oil equivalent.
Source: Energy Futures Program, UC Davis
However, not all academic studies of US fuel markets support ICE bans. A working paper published by the National Bureau of Economic Research (NBER) on the economics of vehicle substitutability in the United States concludes that bans, depending on implementation strategy, can raise the costs to the whole economy of electric vehicle adoption. A later modeling study by the same researchers concludes that such a bans policy would have a large “deadweight loss” (market inefficiency cost to society as a whole) because substitutability of alternative fuel cars is suboptimal. However, the researchers structure their calculations on the assumption that bans lead to a spike in gasoline vehicle production in anticipation of the ban. This assumption contradicts the recent experience of diesel engine vehicle bans in Europe, which saw a rapid drop in diesel vehicle purchases and lowering of production of diesel vehicles ahead of announced bans, rather than a spike in production ahead of the ban.
In response to substantive bans on diesel engines in several European cities, several car manufacturers pledged to cease production of all diesel powertrains within the next decade, notably amidst rapid consumer response. German sales of diesel vehicles fell by 20 percent in 2017 and have continued to decline. Sale prices of used diesel vehicles have also plummeted, driving a self-fulfilling cycle. U.K. diesel vehicles sales have also fallen precipitously. This is consistent with findings from a study on the Volkswagen “dieselgate” scandal. That research concluded that policies that discourage diesel sales and/or promote electric vehicles can be effective in encouraging rapid shifts from diesel engine to electric vehicle technology.
There is mounting anecdotal evidence that car companies are shifting manufacturing strategies and thus the competitive pressures to offer alternative fuel vehicles would gain even more momentum, were the imposition of bans spread to more markets. Already, in 2019, Volvo shifted all of its production to cars that use some form of electric motor (hybrids, plug-in hybrids and/or full battery electric vehicles). Volkswagon is aiming for annual EV sales of 2 to 3 million vehicles by 2025, and General Motors announced new investment of close to $7 billion in EV production capacity to build over 1 million cars annually by 2025. But carbon policies must go beyond car-centric regulations. Cities, for example, must look at a wider array of policies than bans on ICE engines in urban centers in their efforts to reduce carbon emissions including land use changes that encourage use of public transit, walking, and bicycling. In addition, to be most effective, bans on sales of ICE light duty vehicles must be coupled with deep decarbonization of the electric grid, research shows. So while major ICE bans are looming closer to reality, they are just one step in a larger, more comprehensive decarbonization pathway. ∎
Amy is Managing Director of the Climate Policy Lab at The Fletcher School, Tufts University.