Factors affecting land travel

Transport Policy 1993 1 (1) 6 20

Fuel prices and economy Factors affecting land travel

Lee Schipper, Ruth Steiner, Maria Josefina Figueroa and Kari Dolan International Energy Studies Group, Energy Analysis Program, Energy and Environment Division, Lawrence Berkeley Laboratory, University of California, Berkeley, CA 94720, USA

The paper discusses some preliminary findings on how fuel prices and other factors are linked with automobile fuel use, travel and fuel economy. It is shown that there is a clear crosssectional relationship between fuel prices and both on-road (actual) fleet fuel intensity and new-car test fuel intensity. There, is also a clear relationship between the fuel prices and both fuel use per car and fuel use per capita. Although the paper focuses on price effects, it discusses other determinants of fuel use. An important new element in the study is the quantification of the components of the differences in automobile fuel use. In particular, the authors have been able to develop comparable time series of numbers of vehicles, driving distances, and fuel intensity by fuel type. The discussion is focused on what the international data imply for fuel use in the USA, with particular emphasis on the comparison with Europe. Despite the U S focus in the paper, however, most of the findings are relevant to the other countries studied. The paper concludes with a discussion of what policy measures might restrain future automobile fuel use. Keywords: Automobiles,efficiency and travel

As part of a three-year effort to examine the links between lifestyles and mobility, travel and vehicle use, and fuel use and emissions, the structure of energy use for travel and freight since 1970 in m a j o r E u r o p e a n countries, J a p a n and the U S A has been examined. The study examines how economic forces and other policy instruments, such as car and fuel taxation, incomes, c o m p a n y car privileges, transit policies, parking policies and land-use patterns, have shaped m o d a l and vehicle use and the resulting fuel use and emissions. The goal of the study is to gauge which combinations of policy measures and technologies might restrain fuel use and emissions in the future in the light of increasing concern over environmental and climate problems (Holdren, 1992). This paper discusses some preliminary findings on how fuel prices and other factors are linked with fuel 6

use, travel, and fuel e c o n o m y } Although the paper focuses on price effects, it is believed that there are other determinants of fuel use, and some of these are reviewed here. By focusing on prices, the authors do not wish to imply that these other factors are unimportant. W h a t is new in this study is the quantification of the c o m p o n e n t s of the differences in automobile fuel

1In this paper, "fuel economy' is the ratio of distance travelled to fuel consumed (in kilometres per litre or miles per gallon)'. 'Fuel intensity' is the inverse of fuel economy, and it is measured in litres per 100 km, as is common practice in most countries in Europe, or in gallons per mile. In converting energy units to volumetric units, the energy contents of petrol and diesel fuel are used respectively. 'Fuel efficiency' is reserved for specific applications, as a small car with low fuel intensity (or high fuel economy) is not necessarily represented as fuel-efficient.

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Fuel prices and economy: L. Schipper et al

use. A subsequent paper (Eriksson et al., in preparation) will contain a compendium of information on certain measures affecting the taxation of new cars, car ownership and car use. The discussion is focused on what the international data imply for fuel use in the USA, with particular emphasis on the comparison with Europe. The USA has the most cars per capita, the highest travel per capita, and the greatest automobile fuel intensity of any industrialized country. Not surprisingly, energy use per capita for travel in the USA is far higher than it is in virtually any other OECD country (Schipper et al., 1992), as Figure 1 shows. The automobile is the reason; it dominates travel in industrialized countries, except in Japan, and its energy usage is by far the greatest component of all the travel-related energy usage in all high-usage OECD countries. Despite the US focus in this paper, then, many of the findings are relevant to the other countries studied. The debate over what might influence automobile fuel use and fuel economy in the future is important, because of concerns about local emissions (such as NOx or CO) and globally significant CO2 emissions. Reducing the output of these pollutants can be accomplished through a combination of fuel switching, exhaust-emissions controls, reduced vehicle fuel intensity, and restrained vehicle use per capita, which are four components of pollution production per capita. This paper considers factors that influence the last two of these options only; it leaves important discussion of changes in fuels or (local) emissions controls to other studies. There is considerable support in the USA for the implementation of a set of policies to restrain automobile fuel use (Gordon, 1991), but there is no unity in relation to what measures are most effective or most economically efficient (Greene, 1990; Environment Protection Agency, 1991; Plotkin, 1991). The discussion in the USA is always sharpened by comparisons of the crosscountry relationship between fuel economy

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and fuel prices. This is because the differences in fuel prices and per capita automobile fuel consumption are temptingly large. What is shown in this paper is that there is a clear crosssectional relationship between fuel prices and onroad (actual) fleet fuel intensity and new-car test fuel intensity. There is also a clear relationship between fuel prices and fuel use per car and fuel use per capita. This does not imply that prices alone explain differences in fuel use or cause changes in fuel use. However, it appears that the Europeans and Japanese have developed automobile-use patterns that diminish the effect of the high cost of fuel in their countries by driving less (or using transit) and by driving more fuelefficient cars. This finding has two implications. First, public policies developed to restrain automobile fuel use must be aimed at automobile fuel intensity and overall automobile use. Second, fuel-price increases must be an integral part of such policies. Were drivers in the USA (or elsewhere) to face higher fuel prices, driving behaviour and vehicle characteristics (ie size/performance and fuel-use technologies) would change over time. Certainly, differences in land use, transit availability, incomes and lifestyles contribute to differences in automobile fuel use. The exact roles of each factor in determining automobile usage and fuel consumption cannot be 'quantified', but it is found that fuel prices do play a significant role. However, wherever there are low fuel prices (or groups who can pay low net prices because of tax policies), there are larger cars, more driving, and less use of transit. This again suggests that, whatever the role is of these other factors in shaping automobile fuel use, little significant, longterm change will occur unless fuel prices change as well.

International trends in automobile fuel intensity Trends in fuel intensity in nine countries (Denmark, France, West Germany, Italy, Japan, Norway, Sweden, the United Kingdom and the United States) since the early 1970s can be compared using data about existing (on-road) car fleets, new-car test results, and real petrol prices. 2 Figure 2 shows the trends in on-road fuel intensity (ie fuel per kilometre) for

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2These fuel-economy data are derived from national sources (Schipper et al., 1992; Schipper et al., in preparation) based on consistent figures (by fuel) for total numbers of cars/light trucks, distance driven/car, fuel use/distance driven, and total fuel use. They are not synthesized from test estimates or the simple classification of petrol consumption (for all vehicle types) by total automobiles and average driving distance, as is common practice in most international comparisons of fuel use. This would count significant quantities of petrol not used for automobiles, but exclude significant, although different, quantities of diesel fuel used for automobiles.

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cars and personal light trucks? Figure 2 shows that on-road fuel intensity has declined markedly in the USA. What is striking, however, is the lack of change in fuel intensities in Japan and the large countries in Europe. Below, it is argued briefly that income growth (which led to observable increases in car size and power), bolstered in several countries by company-car taxation policies, permitted Europeans and Japanese to enjoy 'more car' steadily, even during periods of rising fuel prices. Figure 3 shows fuel intensities using new-car test data weighted by actual sales, including all light trucks for the USA and diesels in Europe where noted. Figure 3 shows that great changes occurred in the USA, and that changes also occurred in many European countries. 4 However, the flatness of the fleet fuel intensities in European countries in Figure 2 suggests that the test figures for the European countries may increasingly be less related to actual fuel intensity.

~Personal light trucks, ie light trucks used essentially as passenger vehicles, make up one-third of new-car purchases in the USA, and about 20% of the stock of personal vehicles there. They are also significant in D e n m a r k (so-called varebiler under 2 t make up about 4% of the stock), and hence they are included in the data for these two countries. They are growing in popularity in Sweden and Norway (as vans), although they are still under 2% of all 'cars', but they are less important elsewhere. Excluding light trucks from Figure 2 would seriously distort the picture of fuel use for personal vehicles in the USA. Diesel automobiles are significant in West Germany, Italy and France, and they are included in the figures for these countries, as they are for the USA, Denmark, Norway, Sweden and the UK, where their significance is far less.

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Figure 4 Realautomobile fuel prices (weighted by automobile petrol and diesel use) Figure 4 shows the real fuel prices in these countries between 1970 and 1988 or 1989, converted to real, 1985 local currency using the consumer price index in each country, and then converted to real 1980 US dollars using purchasing power parities (PPP) for that 4While the relationship between test mileage and actual mileage is complicated, the data in Figure 3 certainly give a fair picture of the relative changes in fuel economy in each country. If the degradation from test to real fuel economy were approximately equal across the countries (it is not), then Figure 3 would also give a fair picture of the differences in new-fuel economy between countries. Instead, the best that can be said is that the relative trends in new-car fuel economy are comparable, but even this comparison introduces uncertainties. See (Schipper et al., 1993) for comparisons of test and real figures.

Transpor! Policy 1993 Volume l Number 1

Fuel prices and economy: L. Schipper et al

year. 5 The price is calculated as the price of petrol and the price of diesel, weighted by the actual consumption of these two fuels in automobiles and personal light trucks in each year. The wide gap between the USA and the other countries is striking, but the gaps between the European countries and Japan are not always small, either. Equally surprising is the fact that, by 1988, real prices in most countries were close to their 1970-73 levels; exceptions were Denmark and Italy (more than 2 5 ~ higher) and the USA (almost 20~o lower). Given the increasing proportion of private diesel cars in the stock in France, Italy and Germany, the higher fuel economy of these cars relative to that of petrol cars, and the lower price of diesel fuel, it can be said that in comparison with 1973, drivers in almost every country in the study paid about the same or lower real fuel costs per kilometre in 1988. Figure 4 shows that most consumers faced higher fuel prices for about a decade (1974-85), with a slight and temporary respite in 1976-78. It takes well over a decade for automobile manufacturers and buyers together to make long-term adjustments, through changes in vehicles, to significant changes in fuel prices. Consequently, the lack of great change in on-road fleet fuel economy in most of the European countries shown (and Japan) may not be surprising. Because prices in most countries in 1988 had returned to being close to their 1970-73 levels, examination of the behaviour of fuel use or fuel intensity over time in any one country may not offer much information about the long-term response to significantly higher fuel prices. A crosssectional comparison of these countries, however, offers a glimpse of how fuel prices affect fuel use in the very long run.

since almost all cars on the road then were bought after the first oil crisis, and the majority were bought before the fall in prices in 1986. Similarly, the relative ordering of fuel prices from low to high in 1988 is close to its order in 1973 and most of the intervening years. Thus, comparison of the fuel intensities of the fleets in 1988 with those in 1973 summarizes the interaction between fuel intensity and fuel prices in crosssection. Fleet fuel intensity When on-road fleet fuel intensities are plotted against real fuel prices for 1973 and 1988 (see Figure 5), the points tend to cluster around a line. 6 That is, the fleet fuel intensity is a function of the inverse of the fuel price. However, the slope of the trend line (which excludes the USA in 1973) is far less than - 1. That is, a given difference in fuel prices across countries had not led to an offsetting decrease in fleet fuel intensity. The slopes of lines for Europe and Japan only do not vary significantly between 1973 and 1988. Including the USA in 1973, however, does have an impact. This suggests that the point for the USA in 1973, when cars had fuel intensity that was almost double that of any country in Europe, is a true outlier. (Below, it is suggested that the Corporate Average Fuel Efficiency standards enacted in the USA played an important role in moving the US fleet into line with those of other countries.) However, by 1988, the USA lay close to the regression trend line through all the countries. This suggests, but does not prove, that the fuel inten-

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Comparisons of fuel use or intensity and fuel prices In the following sections, the paper examines across countries the fuel intensities of fleets and new cars in comparison with fuel prices. The fuel intensity of new cars indicates what new-car purchasers demanded in a given year, given their incomes, fuel prices and other factors. However, the test values of new-car fuel intensity are prone to error, as will be seen. Fleet-wide figures are far more accurate in this respect. It could be argued, however, that the fuel intensities of the fleets in any given year represent automobile-purchase decisions made during a period of over a decade. In this case, however, the data for 1988 should summarize in large part the effect of these decisions on fuel intensity, 5This is a widely favoured method of comparing prices and costs in a way that removes some of the distortions of exchange rates. The u s e of P P P compresses the differences between prices in the USA and those in Europe, because P P P take into account the fact that many other goods and services, and not just fuel, are more expensive in Europe than in the USA. These values, in 1985 local currency per 1985 US dollar, are as follows: Japan: 217 ¥ , Denmark: 9.05 kr, France: 6.48 fr, Germany: 2.15 DM, Italy: 1196 L, Norway: 9.4 kr, Sweden: 7.8 kr, UK: £0.54.

Transport Policy 1993 Volume 1 Number 1

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countries in 1973 and 1988) Notes: Price: weightedaverage of diesel and petrol prices. Includes personal light trucks for US and Denmark 6Figure 5 includes diesel use in cars, and the effect of lower diesel prices weighted into the fuel costs. The use of diesel in 1988 was significant (over 10~ of automobiles) in West Germany, France and Italy, and noticeable in Denmark (4~ of vehicles). In 1973, the impact of diesel was very small.

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Fuel prices and economy: L. Schipper et al

sity of the 1988 US fleet of automobiles and personal light trucks had a value that was consistent with the values for Europe and Japan, given only differences in real fuel prices. Information from two countries for which data are not given in Figures 1 4, Canada and Australia, provides additional insights. Understanding automobile use and fuel consumption in these countries is important for several reasons, The Canadian automobile fleet resembles the US fleet in many ways, and Canadian and Australian cities are spread out much as US ones are. Canadian fuel prices were lower than those in the USA until 1981, when tax reforms boosted these prices to a level that was between those in the USA and those in Europe, where they have since remained. Australian fuel prices also lie between these two levels. Unfortunately, severe data problems prevent the analysis of the full complement of data that describe automobile ownership, use and fuel consumption (as discussed in (Schipper et al., 1993)) over the entire time period of interest. Nevertheless, data from the Canadian fuel-consumption survey for 1988 and a similar Australian vehicle-use survey for 1988 put each country's use per car (excluding light trucks) squarely on the line drawn in Figure 5. This suggests further that the USA in 1988 was not an 'outlier' in the relationship between fleet fuel intensity and real fuel prices. The closing of the gap between the position of the USA in 1973 and that in 1988 is curious, since the real fuel price in 1988 was lower than it was in 1973. This behaviour suggests that something forced automobile manufacturers and buyers in the USA to change their ways. This forcing factor might be mandatory US fuelefficiency standards, the Corporate Average Fleet Economy (CAFE) standards, which took effect in the late 1970s. This is examined further below. Looking beyond fuel intensity to the total fuel use per car (see Figure 6), one sees a larger difference between the USA and other countries. The fuel use per car and per year is determined by the fuel intensity and the driving distance (Schipper et al., 1993). By this measure of fuel use, the USA appears to be more isolated from the countries in which fuel prices are higher, as shown in Figure 6, than it does when only fuel intensity is considered (see Figure 5). 7 The difference between the figures suggests that fuel intensity and the distance driven are important components of the response of drivers to higher fuel prices. Indeed, the distance driven (per vehicle or per capita), when it is compared across countries, falls weakly with rising petrol prices. When per capita fuel use is compared

;The European point that appears like an outlier is that for the UK. The high consumption per vehicle could well be explained by the large number of private individuals who have company cars which have higher-than-average fuel intensity, and are driven more than are truly private cars (Fergusson, 1990; NEDC, 1991). There are far more company cars in the UK than in any of the countries studied. 10

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lransport Policy 1993 I'o/ume / Nmn&,r 1

Fuel prices and economy." L. Schipper et al

the USA should be associated with those for Europe and Japan. Nevertheless, Figures 6 and 7 together suggest that fuel use is more sensitive to price than fuel intensity alone (ignoring income effects, which are not insignificant). Fuel intensity o f new cars: three M s

It could be argued that the fuel intensity of the fleet in any given year depends on the economic factors that predominated purchase decisions when each car was bought, a timeframe that covers more than the previous decade. Hence, comparing the fuel intensity of new cars with fuel prices may provide a more realistic picture of the current situation, which, in turn, affects future automobile characteristics and fuel use. Unfortunately, the tests are probably only indicative of the relative intensities over time or for the different countries. Westbrook and Patterson (Westbrook and Patterson, 1989) suggest that actual fuel economy in the USA was 20~ worse than the test fuel economy in the late 1980s. While there are other estimates of this degradation (Schipper et al., 1993), it is clearly an important factor. To take this degradation into account, the new-car fuel intensity was plotted against the price in Figure 8 using a 20~ degradation (ie increase) of new-car fuel intensity. This scaling does not affect the overall slope of the curve, s It is found that the actual automobile-fleet fuel economy and the adjusted new-car fuel intensity fall with rising >.

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real petrol prices. Italians (represented by the point farthest to the right in Figure 8) pay more than three times the price that Americans pay for fuel, but they use about 409/0 less fuel per kilometre. While prices appear to have a substantial effect on total consumption (as shown in Figure 6), Figure 8 shows that they have only a weak effect on the fuel economy of new cars. Consider whether the effect of prices on fuel economy is really weak. Consumers' preferences for fuel economy are subject to personal budget constraints on new cars and on fuel, as well as to personal preferences for the characteristics of cars that offset fuel economy (size, weight, power), relative to preferences for other goods and services (Carlrn, 1991). In short, consumers will pay a certain amount for their 'motorization' and mobility, which are defined as the ownership of a given car and its use, respectively. They will also pay a certain amount for the features of the car, which are called the 'and mechanics' or the 'macho'. Together, these characteristics make up the three Ms of owning and driving cars. The main contribution to the short-term marginal cost of driving comes from fuel costs; the fuel intensity (in fuel per kilometre) times the fuel price gives the marginal cost of driving a unit distance with a new car. This cost is plotted in Figure 9, which uses the data from Figure 8 and the real prices of petrol in 1988 in each country from Figure 4. Europeans pay much more than Americans (represented by the first point on the left) to drive a marginal kilometre. Of course, fuel costs are only a small part of the total cost of owning and using a car. Not surprisingly, then, fuel economy is only one of the parameters that Europeans (and Americans) consider when choosing their combination of the three Ms. Drivers do not only pay to drive a given distance. Germans, for example, face no speed limits on open motorways. Not surprisingly, they are willing to pay a great deal to have

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Transport Policy 1993 Volume 1 Number 1

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8 aThe authors have investigated estimates of this discrepancy in a variety of countries (Schipper et al., 1993). The degradation factor may be much worse in Europe and Japan. The evidence is that, in West Germany, Britain, France, and Japan, the improvements reported for new cars imply a drop in intensity of up to 30%, but no such improvements are evident from on-road fuel economy. An important exception is Sweden, where the procedure used to weight urban and nonurban driving overestimates the component of urban driving. The result is a figure for new-ear economy that typically lies within 5% of the 'actual' figure (National Swedish Board for Consumer Policies, 1991).

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Fuel prices and economy. L. Schipper et al

cars that move more rapidly than, say, 180 km/h; 33.3~o of the cars sold in 1989 could do so (Deutsches Institut fiir Wirtschaftforschung, 1991), but only at a significant cost in fuel economy at 'ordinary' speeds (Schallab6ck, 1990). This explains in part why Germans do not offset more of the increased cost of fuel through greater fuel economy. In most other European countries, the majority of cars can be driven 50Vo faster (or more) than the speed limit. Americans are willing to pay extra for automatic transmission and air conditioning, two features that are almost universal in the USA. Both of these features reduce fuel economy. Americans also buy larger and heavier cars than Europeans do. Not surprisingly, then, Europeans and Americans alike are willing to pay for various attributes apart from fuel economy. While both cultures buy performance, Americans buy comfort, size and weight, and Europeans buy speed. All of these attributes degrade fuel economy severely, and distort the relationship between fuel economy and fuel price. How do Europeans deal with significantly higher marginal driving costs? First, Europeans with cars only drive their cars 60-80~o as much as Americans do. As Figure 10 shows, this means that the cost of using petrol, per car and per year, rises less rapidly with petrol prices across countries than the cost per kilometre alone would imply. That is, the high marginal cost of a kilometre appears to act to reduce the distance travelled. The relationship is almost linear. Europeans also only have about two-thirds the number of cars, per capita (or per household), as Americans do. (The Danes and the British have the fewest, and Germans have the most, of the Europeans. The Japanese have fewer cars per capita than the citizens of any of the European countries discussed.) When the lower number of cars and lower driving distances are combined to measure driving, it is found that Europeans only drive about 40~o as much as

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Americans do, per capita. (Load factors are similar: 1.5-1.7.) Of course, this gap is narrowing. Europeans will purchase less fuel-intensive vehicles, or drive them less, or pay a higher share of their incomes for fuel than they do today (presuming that yearly petrol costs keep pace with real incomes), or all of the above! This means that the cost to a family of driving in Europe is roughly equal to the cost in the USA. In other words, Europeans, who pay roughly three times more than Americans for fuel, still keep fuel costs within a budget constraint that is similar to that of the Americans. High fuel prices have an important effect on fuel intensity, which affects fuel use, but that effect on fuel use is no greater than the effects of differences in car ownership on fuel use. Additionally, high fuel prices force Europeans to drive less. Europeans buy 'macho', but at a cost of less mobility and motorization! The fact that car ownership and car use is lower in Japan than in Europe, but that fuel intensity in Japan is higher than in most European countries, supports this point. Of the two countries with the lowest per capita fuel consumption, Japan has the lowest level of driving, but relatively high fuel intensity, while Italy has a moderately high level of driving, but the lowest fuel intensity of the countries studied.

Historical comparisons The crosssectional comparisons are not inconsistent with historical experience which suggests that fuel prices are one important determination of fuel use. When Americans (or Europeans) experienced periods of sharply higher fuel prices, they cut back on mobility slightly (and temporarily). This relationship is weak, reflecting the low short-term elasticity of fuel use with respect to fuel prices. Consumers also bought somewhat less fuel-intensive (ie more efficient, smaller, or less powerful) vehicles. As fuel prices receded, driving gradually increased back towards its previous levels, and fuel-intensive attributes of new cars increased in popularity again. The analytical problem is hard to escape: fuel prices have not remained high in most countries, relative to 1973 levels, for an entire turnover of the automobile fleet, ie 10--15 years. In the USA, however, the change in new characteristics was affected significantly by the CAFE standards in the USA, which have had a longer-term effect. The standards were no longer being tightened in the 1990s. For cars alone (ie excluding light trucks), the sales-weighted efficiencies of cars sold in the 1991-model year, which essentially occurred after the invasion of Kuwait, show no change from 1990 (Davis and Morris, 1992; Davis, 1993), in spite of increases in fuel prices in 1990 and 1991. This lack of increase suggests that the standards have played an important role in shaping US automobile and light-truck fuel economy. The impact of the CAFE standards in the USA has been hotly debated. The authors believe that Greene (Greene, 1990; Greene and Duleep, 1991) correctly attributes about two-thirds of the response of manuo lransport Policr 1993 Volume 1 Numher I

Fuel prices and economy." L. Schipper et al

facturers in terms of producing and selling less fuelintensive cars to the effects of the CAFE standards. This is particularly evident when the fact is considered that the periods of higher fuel prices were short relative to the lifetimes of cars and the productplanning cycles of automobile companies. The change that occurred in the USA is also far greater than the slope in Figure 5 suggests would occur in response to higher fuel prices alone. Indeed, between 1986 and 1989, Americans have paid less for the fuel needed to drive a kilometre than at virtually any time in history. The fuel intensity of new cars is still somewhat below that of the fleet. Fuel use per kilometre, per car, and per capita in the fleet has fallen by 30%, 27~, and about 20~, respectively, between 1973 and 1988. Fuel use per kilometre and per car in the fleet continued to drop in 1989 and 1990. As Greene and Duleep (Greene and Duleep. 1991) point out, this reduced fuel use has social benefits as well as private ones. Whatever the ultimate role of future CAFE standards, then, their past role cannot be denied. However, low fuel prices since 1986 have led to a turnaround in the weighted average fuel economy of new cars and light trucks, which worsened every year after 1987. This change suggests that, with the present low fuel prices, the strengthened CAFE standards that some advocate for the future will confront a decided trend towards more weight and power. Improved technology could restrain the impact of these changes on fuel intensity, but might not reduce it as much as might be expected. In Europe, the changes in actual fuel economy have been far less dramatic than those in the USA. Indeed, the lack of correlation between changes in fuel prices and changes in new-car fuel economy (or fleet fuel economy) is stark. The existence of high taxes on fuel in 1973 blunted the relative impact of higher crude-oil prices somewhat, but this does not in itself mean that prices are unimportant. Fuel taxes increased in all countries, but the increases were sharpest in Denmark and Italy, where real fuel prices in 1988 were higher than they were in 1973. Not surprisingly, Italy and Denmark experienced the greatest improvements in fleet fuel economy. In West Germany, Japan, France, Sweden and the UK, where fuel prices after the oilprice crash of 1986 were below their 1973 levels, little improvement in the average fuel economy of the fleets has taken place. Although the Swedish government's target of 8.5 l/km sales weighted test value by the late 1980s was achieved, this only led to a small fleet-wide fuel economy improvement. The continued importance of company cars to the new-car market is a likely reason why the new-car figures in Sweden did not fall more. Given the rather small improvements in fleet fuel economy in countries with small (or no) price increases, the comparison suggests that fuel prices, too, have an important impact on the fuel economy of new cars. Recent changes in fuel pricing and taxation may lead to effects that will be observed in a few years. Sweden raised taxes by $1.40/gallon in 1990 and 1991 Transport Policy 1993 Volume 1 Number 1

to incorporate value-added tax for the first time, and to tax emissions, including COz (Magnussen and Brandel, 1991). Norway introduced COz taxes in 1991 that amounted to about $0.60/gallon. Prices were boosted in 1992, and rose again in Sweden in 1993 as well! It is too soon to measure the effects of these tax boosts, but authorities in both countries claim that they had also measured a slight drop in traffic and fuel sales by mid-1991.

Summary: international comparison of automobile fuel economy It has been seen that both per capita automobile fuel use and fuel prices vary significantly between Europe (or Japan) and the USA. While these are not the only differences, they raise the question of how Europeans 'survive' an environment of high fuel prices relative to those in the USA. Figure 11 shows the key components of the large difference between US per capita fuel consumption for private vehicles and that for six European countries. The first bar shows the per capita fuel use of Americans for all cars and personal light trucks. If the American fleet achieved the European fuel intensity of about 9 1/100 km, instead of 12 1/100 km, the US per capita fuel use would be about 25~o lower than it was in 1988, as shown by the second bar. If Americans only drove as much as Europeans, on a per-car basis, the US fuel use would fall by a further 30~o. This effect is shown separately in the third bar, and in combination with the fuel-intensity effect in the fourth bar. Finally, if Americans had only the same average number of cars as Europeans, Americans would achieve the European level of fuel use per capita. As can be seen by visual inspection, differences in the three Ms share, in roughly equal amounts, in a geometric sense, in reducing fuel use in Europe relative

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13

Fuel prices and economy: L. Schipper et al •

capita use of rail and bus (as well as walking and

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automobile access and speed or reserve some areas for pedestrians can reduce travel in cars. Finally, tolls or other forms of road pricing appear to have some effect on travel as well, as experience from Norway suggests (Lind and Lindkvist, 1989; TIDI, 1991). Raising the cost of using cars is an important element in increasing the use of mass transit. It would be foolish, however, to suggest that differences in fuel prices alone explain the wide gap between transit and automobile use in Europe and the USA. Consider, for example, the indirect impact of mass transit in Europe on travel, particularly in cities. Certainly, the dense city cores in Europe represent land-use patterns that are conducive to mass-transit use and walking. This also reduces total travel, because destinations are, in principle, closer together, and because transit, walking, and cycling are usually slower than car use, at least in less congested areas. Since kilometres of travel per se are not an end in themselves, the lower level of travel in Europe compared with the USA does not mean that Europeans are worse off because they travel less. In the long run, however, significant economic, political and cultural forces influence the evolution of cities, and not just fuel or transportation prices. Certainly, there may be ways of harnessing these forces to reduce automobile use somewhat. To what extent, then, would providing a greater amount of transit (or lowering its marginal cost to individuals), or encouraging the more dense land-use patterns associated with transit, lead to transit displacing the automobile at the margin, or at least restraining the growth of its future? Since higher per Transport Policy 1993 Volume 1 Number 1

cycling) in Europe is associated with a far lower level of automobile travel, compared with the USA, it is tempting to conclude that increasing transit usage in the USA by 1 km will reduce auto use by far more than 1 km. (This conclusion is also supported by comparison of individual cities in the USA or in any other country.) Unfortunately, this question can only be answered properly by detailed surveys that compare travel patterns of individuals before and after new forms of transit are made available, or that compare patterns of individuals from similar socioeconomic circumstances for whom access to transit or settlement density differ. The reason is that land use associated with high transit use implies enormous differences in land and housing costs, and this, together with differences in travel patterns, implies significant contrasts in lifestyles. One must study the people who travel, and not just the bare numbers of people who travel. In particular, one must ask how much time people spend making different kinds of trips. A significant substitution of transit for automobile travel could imply important changes in many aspects of lifestyle, just as the automobilization of the USA and then Europe brought with it enormous changes in lifestyles. For better or worse, the share of mass transit in total travel has fallen slowly in almost every European country (see Figure 12). 1° The absolute level has increased slowly, and the per capita level has held steady, as transit prices have generally risen faster than fuel prices. At the same time, growth in travel in Europe has occurred outside the older city centres, in newer suburbs. As Webster (Webster et al., 1986a; Webster et al., 1986b) noted, this is largely a consequence of increased motorization. Once households acquire cars, they reduce their use of transit and increase their total travel markedly. Suburbs become more accessible. Riders leave transit for their cars, forcing authorities gradually to shut down underutilized lines or cut back services. Could these trends be reversed? If total travel in the USA or any other country is to be restrained or reduced significantly in the long run, or if the share of transit is to be boosted, many of the forces encouraging these trends must be confronted. If the marginal cost of using cars increased significantly, automobile use and perhaps even ownership would be discouraged. This would reverse the long-term trend of rising transit prices relative to automobile-use prices. This situation could lead, in turn, to long-term changes in where people live, work and play, and how often they move about. Such changes could be reinforced by

'°There was a temporary boost in the early 1980s in the wake of high fuel prices, as suggested above. Indeed, part of the decline in the share of mass transit in travel since 1982 appears to be related to the decline in real fuel prices that began at that time, but a longer-term component is clear from inspection of data gathered since 1960.

15

Fuel prices and economy: L. Schipper et al

land-use planning. Since such changes would involve lifestyles, and not simply a switch of modes of travel, one must be cautious about the outcome. This thesis will be explored in further work. Our data show a slow convergence between Europe and the USA, driven by increased automobile ownership in Europe. Still, total travel (in passenger kilometres per capita) in the European countries in 1988, when there were about 400 cars per 1000 people, was considerably lower than it was in the USA in 1970, a year with comparable automobile ownership. Figure 12 also gives the impression that the shares of rail and bus travel in many of the countries shown will stabilize at levels far higher than the level in the USA. Thus there should remain a significant difference between the level of travel in the USA and Europe that will be manifest as the difference in the distance that people travel by car in a year, as well as in their choice of modes. This difference must be related in part to the higher marginal cost of moving about in Europe than in the USA, and the greater accessibility of destinations in Europe afforded by higher densities, in cities and elsewhere, that is, constraints (higher travel costs related to higher fuel prices and the greater cost of moving in congested cities) and better access both cause/permit less travel in Europe than in the USA. Driving patterns Driving patterns are an important influence on total fuel use. Trips in congested areas tend to require more fuel per kilometre than those on the open highway (except at high speeds), and short trips undertaken from a cold start are far more fuel-intensive than trips undertaken with a warm engine. If people were induced through higher fuel prices and other measures (tolls or road pricing, higher parking costs etc.) to reduce automobile travel predominantly on shorter trips by using transit systems, walking, cycling, or making fewer trips, the reduction in fuel use and emissions would be considerably greater than the reduction in total automobile travel. Instead, there is increasingly more congestion, trip lengths are falling in most countries, and driving patterns are slowly changing in ways that increase fuel intensity. A comparison of US and European driving patterns suggests many common elements. In Europe, as in the USA, local traffic accounts for an overwhelming share of total travel. ~ The average distance that a car is driven for a trip varies between 10 and 16 km.

Americans do not necessarily have farther to go or go farther, as the comparison of total travel per capita would suggest. Indeed, the average car trip in the USA in 1983 was only 12.7 km, and it was about 14.6 km in 1990. The 1983 or 1990 values are lower than those in the U K in 1985, but they are higher than the 10.5 km in Denmark in 1986. However, Americans with cars go much farther in a year than Europeans with cars do. This implies that Americans go out in cars more often, where as Europeans either stay at home or use other modes. A far higher percentage of trips and total travel in Europe takes place on foot or on bicycles than is the case in the USA, although the share of total travel using these modes is small in any case. Urban structure is certainly one reason for this difference. More Europeans have access to work, services and leisure by walking, cycling or riding on a transit system for the short trips that Americans drive on, which supports the contentions in the previous section. Here lies part of the mechanism by which higher fuel prices may affect total travel. This difference, which reflects differences in lifestyle, is certainly influenced by trip costs, but historical patterns and habits may be important as well.

Income effects At this stage, income effects have not been included in the analysis. In 1988, incomes varied by a factor of almost 1.7 in the countries studied. Incomes grew in all the countries studied during the study timeframe. Between 1970 and 1989, the horsepower, weight, and/ or motor displacement of new cars in virtually every country in Europe rose steadily, as Figure 13 shows. This is an important income effect.

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age) Transport Policy 1993 Volume I Numher l

Fuel prices and economy." L. Schipper et al

Unfortunately, a formal test of the impact on newcar fuel economy (and fuel use) is complicated by three facts commonly overlooked in international analyses. First, new cars are taxed in different ways in different countries. In Denmark and Norway, purchase taxes nearly double the price of the car in relation to what it would cost with only value-added tax, a tax levied on almost all other goods and other services, as Figure 14 shows (Eriksson et al., 1993). Second, up to 60~o of new cars in the UK, 30~ in Sweden and West Germany, and significant numbers in the Netherlands are 'company cars' purchased for employees by employers (Wall, 1990). The employees typically pay a flat fee in their income tax in exchange for this income benefit. Most employees pay nothing for their petrol, and they are not taxed according to how much they use. Numerous studies have shown that these policies have seriously distorted the new-car market towards larger, more powerful cars, and have also encouraged more driving. Finally, some countries tax diesel fuel very lightly, but tax diesel cars heavily, or they require private car owners to pay a tax for every kilometre that they actually drive. Thus, representing automobile ownership costs in relation to incomes for a group of European countries is a complicated undertaking.

Conclusions Several conclusions are evident from this brief review of international experience in the 1970s and 1980s, despite the limitations of the analysis. First, fuel prices have a demonstrable effect on per capita automobile fuel use, on fuel use per vehicle, and on fuel use per kilometre. This conclusion is reinforced by countless formal econometric studies of petrol use (see (Sterner, 1990) for a review); the authors' crosssectional comparison is simply one of the first to break down the observed differences in fuel use into their components. This finding does not discount the importance of land-use patterns and lifestyles, but these two variables are difficult to quantify and equally as hard to place in the causality chain. Do Americans

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have farther to go and therefore drive more, thus threatening political chaos if fuel prices were raised, or do they go more often (but only slightly farther when they go) because the marginal cost of moving is so much lower than those in Europe and Japan? It was also found that income and income-related factors, such as the level of automobile taxation, influence car ownership and car characteristics, particularly size and power. Each of these factors has a profound impact on the relationship between the cost of owning and driving a given car and the owner's disposable income. Car ownership and car size or performance are affected as well. In current work, the impact of these effects is being studied. 'Feebates', proposed in California, USA, to stimulate the purchase of less fuel-intensive cars by fuel-intensive cars being taxed, and the proceeds being offered to subsidize the purchase of less fuel-intensive cars, have elements in common with the tough taxation of cars in Denmark and Norway. Drivers in most of the countries studied saw lower real fuel prices in 1988 than in 1973; the era of expensive motor fuel was short-lived. It is therefore hard to test the long-term effects of permanent fuelprice increases in any one country on overall transportation fuel use. Fuel economy improved far more in the USA than in any other country between 1973 and 1988, although Americans saw the largest decline in the cost of driving a kilometre during the latter part of this period. Actual fuel use per car in the USA also declined by about 30~. Fuel use in the USA is clearly far below what it would have been had not fuel intensity fallen so much. With this in mind, it is hard not to credit the US CAFE standards with, in the past, affecting on-theroad fuel economy and overall fuel use; in contrast, there was little change in Europe, where no binding standards were imposed. The jump in the fuel intensity of the fleet in the USA between 1973 and 1988, as shown in Figure 5, suggests that the CAFE standards contributed to narrowing the mile/gallon gap between the USA and Europe; present differences arise from differences in the cars chosen, not fundamental differences in vehicle technology. Not surprisingly, growth in the ownership of automobiles and their subsequent use in Europe, in part at the expense of transit, was only interrupted temporarily by brief periods of high fuel prices. While there appears to be a permanent gap between per capita automobile fuel use in the USA and that in Europe or Japan, the actual difference has declined significantly, because of the increase in automobile ownership and automobile size or power in Europe or Japan. Higher incomes in Europe, boosted by company-car privileges in some countries, fuelled the acquisition of more powerful and larger cars.

Figure 14 Cost of Opel Kadett in 1990 (1.4 1 LS 3-door) Note: Crosshatched area: price without fees,dotted area: fees and

taxes Source: Vejtransporten i Tal Og Tekst (Danish Auto Importers Association), 1991 Transport Policy 1993 Volume 1 Number 1

Strategies for the future What about the future? Increasing concern over automobile emissions, air pollution, and C O 2 emissions 17

Fuel prices and economy : L. Schipper et al

has heightened interest in restraining the contribution of the automobile to these problems. In terms of the components of emissions studied in this paper (fuel intensity and vehicle use), this translates into the necessity to find ways to restrain fuel use and the growth in travel. Low fuel prices have hampered efforts in this direction in the USA, while company-car privileges and low fuel prices (relative to their 1973 levels) offset some of the success in Europe. The analysis in this paper might have rather grim consequences in relation to these concerns. After all, fuel economy in Europe improved relatively little during the 1970s and 1980s, in spite of some upward pressure on fuel prices and some political pressure from governments. The new-car improvements in the USA have also ceased. Clearly, if automobile weight and power continue to increase in the USA, Europe and Japan, and real fuel prices stay low, there is little prospect of improved fuel economy or restrained fuel use unless these changes are somehow forced by other means, such as air-quality regulations. The fact is that the fuel intensities of European, Japanese and US fleets appear to define a relationship between fuel economy and fuel price (see Figure 5 and Figure 8). Given that most US cars have automatic transmissions, and the majority have air conditioning, and that cars in the USA are heavier than those in Europe, one could argue that the differences in the fuel intensities of new cars are not necessarily differences in fuel efficiency, but instead differences in the makeup of the new-car population (or the fleet). That is, the fleets in the countries of Europe with the lowest fuel intensities do not use significantly more fuel-saving options than those sold in countries with more average fuel intensities, or in the U S A . 12 Cars in Italy or Denmark are mainly smaller and less powerful than cars in Sweden or Germany, which are, in turn, somewhat smaller than cars in the USA. This difference, combined with lower driving distances, appears to have permitted Europeans to forgo more investments in greater fuel economy than have occurred thus far. This might mean that there are few technological options for saving fuel that make economic sense at today's prices, even in Europe. If this is true, then, unless there are significant changes in the size or power of cars bought in the future, fuel economy will not be improved. The authors' interpretation is different. For reasons stated above, neither consumers nor producers in Europe were forced to exploit the remaining fuelefficiency options, even at the high prices that Italians pay for petrol. The review found there are many technologies that could save fuel in cars at today's

12Indeed, this argument is sometimes used by environmentalists and consumer advocates against using fuel prices as part of a strategy lo provoke fuel-economy improvements, and by automobile executives as evidence that few cost-effective options for increased fuel economy are available, at least in the USA.

[8

prices (Schipper et al., 1992). Just how much, and over what period of time the authors cannot, of course, say. The authors believe that there is an alternative outlook. If significant pressures, including higher prices, affect the marketplace in the leading carmanufacturing countries, namely the USA, Japan and Germany, fuel economy should improve markedly everywhere, moving all the points in Figures 5 and 8 downwards (from technology) in response to movements to the right (with higher real prices). Higher fuel prices could make the greatest impact in the USA, simply because prices there are the lowest. 13 Further gains in the size and power of cars sold in Europe (and Japan), and increased car ownership, combined with modest increases in fuel prices, will force manufacturers to improve technology significantly for cars sold there. Otherwise, the share of the family budget for fuel would rise significantly. Such was the situation when a combination of higher electricity prices and government pressure provoked the German appliance industry to promise to reduce the energy intensity of all its products between 1978 and 1985 (Wilson et al., 1989). Germany had very high residential electricity prices. The energy intensity of German-made appliances plummeted. This situation forced appliance producers elsewhere to improve their products, to compete in Germany against German manufacturers, and to compete with German products elsewhere. The same situation occurred when California, in the late 1970s, imposed tough standards on new appliances sold there, as manufacturers found it impractical to make two lines, one for California and one for other US states. This does not mean that the authors are arguing only for standards or any other particular instrument, but only that the world market for appliances, and, by analogy, automobiles, is so integrated that changes in a few of the largest markets provoke changes in all markets. Clearly, prices are not the only explanation for the great differences between Japan and Europe and the USA in automobile use and the resulting fuel consumption. A strategy that relied solely on higher prices to create important changes in fuel use and transportation demand would obviously have to be both substantial and long-lasting; this is something that is not likely for a long time in present world energy markets. Reliance on that single mechanism, however much this is in favour with economists, might be unwise. However, trying to encourage fundamental changes in automobile fuel use without a significant change in fuel prices would be equally misguided. Fuel prices do have an important role in the consumer choice of fuel economy, and how (or how often) consumers use cars, as the study suggests. The argu-

13The carbon tax proposed but so far rejected by the EC would only raise road fuel prices in Europe by about 10%; the same amount would raise prices in the USA by as much as 35'!., for example.

I)an,v~ort Policy 1993 Volume 1 Number I

Fuel prices and economy: L. Schipper et al

ments presented here suggest that only a balanced strategy that provokes changes in all the factors that influence fuel use and travel can have a significant impact on travel-related energy use in the USA and Europe. A modest CAFE-Iike efficiency standard would send a signal to automobile producers to reduce the fuel intensity of their products, admittedly at some increase in first cost. However, it makes no sense to 'force Detroit' (or Wolfsburg) to make cars without 'forcing Mr Jones' (or Herr Stupp) to buy the same cars. Otherwise, these buyers will be likely to continue to opt for more power, speed and features, all at the (low) cost of higher fuel intensity. Higher fuel taxes will discourage these options. Ideally, these two initiatives would be linked; fuel taxes would increase enough to offset the effects on improved fuel economy in relation to the fuel cost of driving a kilometre. Changes in new-car taxation could further boost interest in cars with low fuel intensity, setting in motion efforts to 'tunnel through the cost barrier' towards very efficient, low-emissions vehicles, as Lovins (1991) puts it. Also, changes in new-car taxation to penalize cars using 'dirty fuels' or cars with lax emission controls can address the complementary problem of fuels and emissions. However, these strategies only address part of the problem, affecting cars but not people. If Americans (or Europeans) are serious about reducing automobile fuel use and subsequent emissions through restraint in fuel use, they must accept strategies that truly raise the marginal cost of a kilometre, such as stiff petrol taxes, thereby increasing the incentive for land-use patterns and lifestyles to adjust to more costly mobility. 14 An effort needs to be undertaken to measure carefully the real social cost of mobility (MacKenzie et al., 1992). City tolls, which have been introduced in Norway's major cities, and road pricing, as is contemplated, using electronic counters in cars that debit fees for driving under congested or polluting conditions, without actually revealing to any authority who is actually driving where, are two suggested strategies.15 Such strategies are more likely to be based on concerns about congestion, noise pollution, and accidents in cities, and not energy or CO2 alone. Such strategies will undoubtedly boost the sagging share of transit systems, and also restrain total travel. In the USA, however, it is unpopular to propose anything that does not give something for nothing (eg large subsidies to underutilized transit systems, cheap fuel, cheap land, tax deductions on interest on

14part of this cost boost could come about through the introduction of clean fuels (although, perversely, most of these are subsidized!). 15See (Widlert, 1989). Schemes discussed in Scandinavia are analogous to the fare cards in use in subways in Washington DC and San Francisco, USA. Transport Policy 1993 Volume 1 Number 1

owning homes), and it is dangerous to demand 'pay now, enjoy later'. The experience in Europe (and Japan), however, suggests the reverse. Market-based and administrative strategies that force everyone to pay the full social costs of mobility and fuel use may be the most effective tools in reducing fuel use and the resulting emissions. The authors hope that future work on their study, with formal statistical analysis, will help to clarify the observations in this progress report, and contribute more to the discussion on transportation and energy policies.

Acknowledgements The authors gratefully acknowledge detailed comments from David Goldstein, Karl Hellman, Dwight French, Charles Lave, Phil Patterson, Steinar Strum, and Tom Walton and George Eads, but they accept full responsibility for the views expressed. The study described in this paper, on 'the future of the automobile in an environmentally constrained world', is led by Lee Schipper, Elizabeth Deakin and Professor Daniel Sperling, University of California at Davis, USA. Funding for the paper has been provided by donations to the Lawrence Berkeley Laboratory, the University of California at Berkeley, and the University of California at Davis from Volvo AB (Sweden), Nissan North America, General Motors Corporation, Shell Oil Company, and Exxon USA. The opinions in this paper are strictly those of the authors, and they are not those of the sponsoring organizations or the Lawrence Berkeley Laboratory. The authors acknowledge the helpful editing of Lynn Price.

References Carlrn, B. ( 1991) Skattereglernas effekter p2t bilgtkandet, Stockholm: Stockholms Universitet Dahl, C. and Sterner, T. (1991) 'Analyzing gasoline demand elasticities: a survey', Energy Economics, 13(3), pp. 203-210 Davis, S.C. and Morris, M.D. (1992) Transportation energy data book (12th Ed.) Davis, S.C. (1993) Private communication (data from 14th edition of (Davis and Morris, 1992) provided in advance of publication) Department of Transport (1989) Trnasport statistics: Great Britain 1978-1988, London: Government Statistical Service and Transport Department Deutsches Institut fiir Wirtschaftsforschung (1991) Verkehr in Zahlen, Bonn: Bundesminister ftir Verkehr Environmental Protection Agency (1991) An analysis of public policy measures to reduce carbon dioxide emissions from the U.S. transportation sector, Report, McGraw-Hill (prepared for Energy Policy Branch, Office of Policy, Planning, and Evaluation, US Environmental Protection Agency, USA) Eriksson, G., Schipper, L., Dolan, K., Andersson B.E., Andersson, B.G., Nishimaki, H., Schipper, L., Steiner, R. and and Tax, W. Fiscal polieies affecting automobiles in W. Europe, Japan, and the United States, Berkeley: Lawrence Berkeley Laboratory Fergusson, M (1990) Subsidizes pollution." company cars and the greenhouse effect, London: Earth Resources Research Gordon, D. (1991) Steering a new course: transportation, energy, and the environment, Cambridge: Union of Concerned Scientists Greene, D., (1990) 'CAFE or price: an analysis of federal fuel

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Fuel prices and economy . L. Schipper et al

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l'raH.V~rt t'olicv 1993 l'olt#m' 1 .\:umt,cr