Are We Tired of Saving The Planet?

Sales of fuel efficient cars in the Netherlands went drastically up for a short period between 2008 and 2013. A-labelled cars, or the most efficient ones, jumped from 5% to above 60% in the period of 7 years. With increasing fuel efficiency and every new generation of cars being cleaner, new standards were needed. The Dutch relative system of energy labelling ensures that fuel efficiency of a car is compared to that of all cars with the same size. From 2014, more fuel non-efficient cars are being registered every year. As fuel efficiency is increasing and the average CO2, emission is falling, it is becoming more difficult for all new registered cars to fall under the A or B label. This piece is going to look at the forces at work of fuel economy labelling from 2005 until today.

Fuel inefficient cars have become quite popular in The Netherlands during the past four years. Did we just give up on our fight for the environment? Do we care more about the size of our cars? Have taxes on fuel efficiency not helped at all?

Let’s go back in time: In 1999, in an effort to push the environmental agenda further, the EU expanded the labelling of energy-consuming products to passenger cars. Two years later, the fuel energy labelling of cars was introduced in the Netherlands.

How does the labelling work? The new taxonomy grouped the relationship between distance travelled and the amount of fuel consumed by a vehicle in seven categories (A to G). A-labelled cars were the most fuel efficient as they emit the least amount of CO2 per kilometre travelled, while G-type of cars were the last.

However, every member state has autonomy in its exact labelling. The Dutch system of energy labels is one relative system: the label indicates whether a car within its segment is economical or not and it also indicates how economical a car is compared to other cars that are about the same size.

Initially, the range of cars with an A-label was initially small: only 1% or 2% of the car models had an A-label. The share of B-labels varied between 5 and 10%. Since 2008, the range of car models with an A or B label grew rapidly until 2013 and this happened for mainly two reasons.

Firstly, due to the strong influence from the EU with respect to standards for CO2 emissions, car manufacturers supplied more and more fuel-efficient cars in the market.

Secondly, the calculation rules used to determine the energy labels in the Netherlands were relaxed between 2008 and 2013, making car models A and B more available and attractive for buyers.

With the expansion in the shares of A and B labelled cars, a more balanced spreading of energy labels was created. The market share of cars with relatively inefficient labels of D through G fell drastically between 2008 and 2013. The market for environmentally cars was booming, but only for a short while.

What happened?

Technology is helping. Every new generation of cars is more economical and cleaner. By 2013, more than 60% of the cars registered were of type A.

The energy label, however, indicates the economy of a car, compared to the average economy in the whole class. As the cars with the latest technologies are emitting less and less, the average fuel efficiency has improved every year. If there are better performing cars in the basket of the best performing ones, they should be classified differently.

The boost in fuel efficiency required new thresholds for the classification. Until 2013, a car had to be more than 20% more efficient than average to qualify for an A-label, but at the beginning of 2013 that limit has been reduced to 15%.

For the 2014 and 2015 labels, the calculation was done using the average emission applied from sales in the years 2011 and 2012.

Because in the period 2008-2013 the average CO2 emissions per vehicle kilometre of newly sold passenger cars decreased by an average of 7% annually (Dutch Government, 2017), the updating of the reference period is the CO2 reference standard tightened considerably.

This led to the supply of cars with an A or B-label falling in 2014. In 2015, this supply went up again at the level of 2011 and 2012. For the labels of 2016 and 2017, the average emission of the sales in the years 2013 and 2014 was applied. As a result, the CO2 reference standard has been tightened up again and the supply of cars with an A or B label fell.

Not surprisingly, average CO2/km emissions decreased in all countries in 2016, except in the Netherlands, where emissions increased by almost 5% to 106 g CO2/km. (European Environment Agency, 2017)

Data and Insights

Since 2005 until last month, there are on average 465 thousand new cars registered each year in the Netherlands, or around 40 thousand new cars each month.

More new cars are being registered today than there were in the past. In 2017 there were around 575 thousand cars registered, 60 thousand more than in 2016. The impact of the financial crisis is visible in 2009 when sales dropped by 17%.

Figure 1: Cars registered in Holland every year since 2005

Cars Figure 1.jpgNow, the market is growing. Even though we are a bit more than half way through 2018, car sales this year are higher than the post-crisis year of 2009.

Figure 1 shows the exact number of cars being registered by fuel energy label each year. Even in nominal terms, the sharp rise of A-labelled and B-labelled cars during 2008-2013 is obvious. So is the downturn of these numbers in 2014, when the market was shared much more evenly. A higher supply accompanied by higher tax benefits for these type of cars are the main drivers behind this increase.

Figure 2 below shows the percentage of labels A to G from 2005 until 2018. The most fuel efficient new cars (labels A and B) covered around 24% of all cars in 2005 and in 2013 these two labels had the biggest piece of the cake, at around 82%.

Figure 2: Percentage of cars registered in Holland every year since 2005 by fuel energy ratiCars Figure 2.jpg

The basket of inefficient cars also changed in size as the percentage for these labels has increased. For example, for the G-label, up to 2013 a car should have been at least 30% less efficient than average. Since then, it has changed to at least 35%.

Let’s take it further: Let’s make the assumption that D-labelled cars are the cut-off point of fuel efficiency. What happened to the number of cars labelled D to G and most importantly did it grow in relative size?

Figure 3: Number of cars with energy label D-G registered in Holland every year since 2005

Cars Figure 3

Figure 3 shows that, by 2017, the Dutch were buying four times more fuel inefficient cars than they were buying in 2013. However, this does not necessarily mean that there are in total more inefficient cars today than there were in 2013. It means that the average level of fuel efficiency is increasing and label calculations are becoming stricter for the most efficient categories.

In a publication back in the 2014, TNO suggested that in the Netherlands a large number of people drive company cars and it is considered as a job benefit with a limited income tax burden. That means that companies, which are the owners of these cars have little tax incentive to buy fuel efficient cars. Their employees can enjoy their ride to work with comfortable and relatively more polluting cars as the tax burden is so small. It could be one of the drivers why the environmental ogres are increasing.

Figure 4: Percentage of cars with energy label D-G registered in Holland every year since 2005.

Cars Figure 4.jpg

There has also been a noticeable increase of the percentage of “environmental ogres” relative to the size of all cars registered. While, only 6% of cars registered in 2013 was labelled D through G, four years later this increased to 22%.

However, labelling is relative. The picture will definitely change in the coming years. As almost all manufacturers are producing environmental friendly cars, the average emission per car is being pushed down. In two years, labelling will depend on the sales now and the level of emissions now.

If there are again a lot of fuel inefficient cars, the government might relax the labelling calculations accordingly to push more people to buy fuel efficient cars.

Due to the environmental benefits of lower fuel consumption, the Dutch government has been encouraging the purchase of fuel-efficient cars through tax benefits. In turn, this pushed the sales of fuel efficient cars up, but only for a short while.

However, in the Netherlands the labelling of fuel energy is relative: a car could be A-labelled only if it is at least 20% more efficient. As the average level of CO2 emissions went down, the new threshold dropped to 15%. This explains why the share of non-efficient cars went up since 2013.

Lastly, we did not stop caring about the environment, especially after the attractive tax incentives that the government is imposing. It is just becoming more difficult to show that we care more than others.

Download the full report: Are We Tired of Saving The Planet?

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