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Driving It Home

The high cost of fuel economy rules Add to ...

Hybrid, yes. Diesel, no. And small cars? Might work in Canada, but forget about seeing a wholesale change in Americans. They love their big rides and the coming fleet-wide fuel economy rules won't change that very much at all.

At least that's the view at Global Insight, a well respected market research and forecasting group.

Global Insight's John Wolkonowicz, senior market analyst at North American Automotive Group, says fuel economy rules that call for all vehicles sold by any one manufacturer to achieve an average of 6.67 litres/100 km (35.5 miles per gallon) by 2016 will spark technological change, not a wholesale downsizing of the fleet.

"The winning technology in all this will be hybrids in all shapes and forms. It won't be the diesel because of concerns about carcinogenic potential of soot, and the price of diesel is likely to remain volatile into the future," he says.

Wolkonowicz says that by 2016 at least half the vehicles sold in the U.S. will be some sort of a hybrid. The bulk of sales will be mild hybrids along the lines of the current Honda Insight.

Manufacturers will also introduce stop-start systems designed to shut down the engine when the vehicles is not moving. For instance, BMW's Mini brand is moving aggressively in that direction, with others joining the bandwagon.

Wolkonowicz says consumers should also look for a flood of mild hybrids coupled with smaller direct injection gasoline engines and perhaps turbocharging to produce adequate power. He says Global Insight's calculations suggest this combination will allow auto makers to meet the new fuel economy standards.

Ford's EcoBoost system combines turbocharging with direction injection and is being introduced this year on the 2010 MKT crossover. Within a few years Ford plans to sell up to 500,000 vehicles a year with EcoBoost.

Tracy Harder, another Global Insight analyst, says as much as half the new car fleet will be comprised of hybrids by 2016.

That said, he adds that Ford and General Motors are still betting on smaller cars.

Ford's entries will start coming next year in the form of the new Fiesta subcompact and Focus compact. GM is planning to launch the Chevrolet Spark subcompact and Chevy Cruze, which is a replacement for the current Cobalt.

"It looks like diesel is the loser in all this," says Harder. "We have brought our forecast for diesels in 2016 down to about 10 per cent from 15 per cent. It doesn't look like the American consumer can get out of their minds the old diesels from the past and the recent cost differential wasn't enough to support higher initial cost of diesel engines."

One thing not on the table in the U.S., and in Canada, is an increase in fuel taxes.

"American politicians will never agree to new taxes," she says. "A coherent energy policy with a floor on fuel price would make way too much sense to reduce gas consumption for our esteemed leaders."

When I travel in Europe I am repeatedly asked why Americans - and to a lesser extent Canadians - refuse to adopt its tax system rather than fool around with complicated CFE (Corporate Average Fuel Economy) rules. Higher pump prices have forced the price of gasoline and diesel up in Europe, and that has led directly to a high level of fuel efficiency for the European fleet - which already meets the 2016 standards.

How pricey is gas in Europe? A recent study by the PWC Automotive Institute found the average tax on a gallon of gasoline is $5.16 in Germany, $5.02 in Britain, and $4.83 in France (all figures in U.S. dollars). It is 40 cents in the U.S. The PWC study did not look at Canada, but in 2008, taxes in Canada represented on average 35 per cent of the pump price versus 20 per cent in the U.S.

Instead of following the European lead, we're jumping in with a CAFÉ model intended to harmonize our approach with the Americans. At the risk of a mountain of hate mail, I would argue that higher fuel taxes make more sense and will be less cumbersome and costly as a way to improve fuel economy and reduce emissions.

In a nutshell, CAFÉ is the dream of bureaucrats, lobbyists and lawyers and it provides cover for politicians who are too cowardly to speak the truth and do the sensible thing.

Here is the problem: CAFE forces manufacturers to meet targets for their entire fleet or pay fines. More expensive fuel directly influences which cars are bought, as well as how the existing ones are used.

In fact, one reported study by Stanford University calculates that direct taxes can achieve an equivalent reduction to CAFE at one-sixth the cost.

Of course, Harder and Wolkonowicz say there is no chance of ever seeing an increase in fuel taxes designed a) to change the makeup and use of vehicles fleet-wide; and b) create a predictable fuel price floor so that manufacturers can develop new models and technologies with a degree of certainly that does not exist today.

That would be political suicide, they say. The public resistance to higher fuel taxes is that strong.

CAFÉ rules are notoriously full of wriggle room and taxpayers and drivers can expect the lawyers and lobbyists to relish exploiting all that room. Meanwhile, we will also see a dramatic increase in the size of the Canadian bureaucracy charged with enforcing the new mandatory, incredibly complicated fleet-wide rules.

One example: CAFE rules define an automobile's "footprint" in determining how much of an improvement in fuel consumption it must have. For instance, a small and thirsty Porsche 911 Carrera will be penalized more heavily than a larger car with greater wheelbase. The bigger the car, then, the less stringent the demands to improve fuel economy.

All this bureaucracy, this fudging and fiddling, is coming to Canada because American consumers simply must have big vehicles and their politicians are too cowardly to do the smart and sensible thing on fuel taxes.

Follow on Twitter: @catocarguy

 

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