Abstract
Keywords: Regulatory Impact Assessment, CO2-Legislation, System Dynamics, Simulation, Strategic Planning
Ever stricter emission regulations force automobile manufacturers to reduce their products' emissions of carbon dioxide. There are several technical options to solve the problem, all of them effective in one or another way. A manufacturer could decide for minimum cost and move on. However, the problem should also be considered from a long-term perspective. Changes in the products' characteristics or the whole product line may lead to unintended consequences. Changing market conditions should be taken into account, too. Furthermore, some legislation demands the introduction of advanced drivetrain technology such as hydrogen or batteries powered vehicles. This makes the adaption problem even worse, because the dynamics of market introduction of technological innovations are difficult to forecast. A simulation model is presented that aims to do this while incorporating the firm's production activities. It takes a broad view on the relevant parts of the market and allows structured long-term planning activities.
Due to environmental problems and man-made global warming, governments in OECD have set ambitious goals to reduce greenhouse gas (GHG) emissions.
Especially the automobile industry has been in the focus of these new regulations, since road traffic is made responsible for over 21% of all emitted CO2 in the EU (1) and 26% in the USA (2), expected still to rise in the future. Since market mechanisms have not lead to improving fuel economy so far and customers have reacted rather insensitive to rising fuel prices, legislative measures that limit fuel consumption are to be introduced. Empirical studies confirm the effectiveness of fuel economy (FE) standards compared to fuel taxes in reducing fuel consumption of new automobiles, especially when fuel taxes are already high (3).
From a legislator's point of view the overall goal of reducing total fuel consumption leading to less emissions is rather simple to calculate. Assuming equal average driven distances per year and vehicle, average fuel consumption of a fleet must be reduced, in order to cut total emissions. How to do this in detail is left to original equipment manufacturers' (OEM) decision. This way the OEM is confronted with a problem of strategic planning. How to react appropriately is far from obvious. In the past, the majority of customers did not purchase eco-friendly cars, but opted for large and comfortable ones like Sports Utility Vehicles despite their higher operating costs. It seems to be difficult to fulfill both customers' preferences and governmental regulations at the same time. Therefore, the question what consequences these new regulations may have for the business is of high interest for an OEM.
Regarding the given situation we find a highly complex and dynamic environment. Future market and technological developments are uncertain and difficult to forecast. Nevertheless, some forecast is needed in order to enable appropriate planning. For an OEM it is crucial to understand the interrelations between his decisions, the fulfillment of GHG regulation and market reactions, both on the short and long term. The important question is which dynamic effects a regulation itself will have on the market and futhermore what consequences one's own reactions will have. Therefore, the goal of this contribution is to develop a framework to assess what consequences new GHG regulations may have and what options manufacturers have to cope with the new situation in the long term.