Tag: emissions

The car industry has featured heavily in the news in recent weeks with the announcement of plans to ban the sale of new petrol and diesel cars in the UK from 2040. Around the same time, news broke that the European Commission had commenced an investigation into potential collusive behaviour between German car makers.

Since the investigation is ongoing, it is not yet clear exactly what the firms are accused of. However, allegations first published in German magazine Der Spiegel claim that since at least the mid 1990s Volkswagen (and subsidiaries Porsche and Audi), Daimler (owner of Mercedes-Benz) and BMW met several times a year. Furthermore, it is alleged the meetings aimed to give the firms an advantage over overseas rivals by:

co-ordinating the development of their vehicles, costs, suppliers and markets for many years, at least since the Nineties, to the present day.

In particular, Der Spiegel claims that the cartel limited the size of the tanks that manufacturers install in cars to hold chemicals that reduce diesel emissions. Smaller tanks then left more room for the car’s sound system.

Limiting the size of these tanks should be seen in the context of the 2015 emissions scandal where it became clear that Volkswagen had programmed its cars to limit the use of these chemicals and cheated in emissions tests. This meant that 11 million cars worldwide produced excess emissions. Whilst other manufacturers have suggested that the cars they produced may also produce excess emissions, Volkswagen has so far been the only firm to admit to breaking the rules so explicitly. However, if the allegations in Der Spiegel turn out to be true, there will be clear evidence that the harm caused was widespread and that illegal communication between firms played a key role in facilitating this. If found guilty, substantial fines will be imposed by the European Commission and several of the firms have already announced plans to put in place measures to reduce emissions.

It is not clear how the competition authorities discovered the cartel. However, it has been suggested that incriminating documents were uncovered during a raid of Volkswagen’s offices as part of an investigation into a separate steel cartel. It seems that Volkswagen and Daimler are now cooperating with the investigation, presumably hoping to reduce the penalties they could face. It has also been reported that Daimler’s role in the investigation will have serious implications for future cooperation with BMW, including a project to develop charging sites for electric cars. It will be extremely interesting to see what the investigation uncovers and what the future ramifications for the car industry are.

Articles

European officials probe claims of huge German car cartel CNN Money, Mark Thompson (23/7/17)
Automotive corruption: German manufacturer collusion could spell bankruptcy Shout out UK, Christopher Sharp (4/8/17)
Germany’s auto industry is built on collusion Bloomberg, Leonid Bershidsky (31/7/17)
BMW reassured top staff about cartel allegations: sources Reuters, Edward Taylor (4/8/17)

Questions

  1. What are the consequences of the coordination between German car makers likely to have been for consumers? What about for rival car manufacturers?
  2. Are there circumstances in which coordination between car makers might be beneficial for society?
  3. How do you think the German car industry will be affected by these allegations going forward?

One of the key Budget measures was a change in the car tax regime. The Chancellor, Alistair Darling, introduced a new banded system annual vehicle excise duty (VED) based on the level of emissions of the vehicle. The cars with the lowest levels of emissions will be exempt from VED, but at the other end of the spectrum, the highest polluting vehicles will face an annual VED of around £440. However, this will be substantially higher in the year of purchase of the vehicle and this so-called ‘showroom tax’ will raise the tax level to £950 in the first year of purchase.


Gas guzzlers hit with higher taxes
Guardian (12/03/08)
New taxes on gas-guzzlers will raise an extra £1.2bn Guardian (13/03/08)
Spared at the pumps – but hit in the showroom Guardian (16/03/08)
Q&A: Showroom tax BBC News Online (12/03/08)
Gas guzzlers set to face £950 tax BBC News Online (12/03/08)

Questions

1. Explain how the highest polluting vehicles affect the socially optimal equilibrium in the market for car travel.
2. Using supply and demand diagrams as appropriate, illustrate the likely impact of the new car tax regime in 2009-10 on the equilibrium in the market for car travel. What is the significance of the concepts of price elasticity of demand and consumer surplus in your analysis?
3. Discuss the likely effectiveness of the new banded car tax regime at reducing the average level of emissions from cars. Would raising the tax on petrol and diesel be a more efficient method of achieving the same goal?

You do perhaps need to check the date for this story, but once you have established that it wasn’t written on April 1st, you can start to take it a little more seriously. An alliance of an American oil company and food producer is to turn pig fat into diesel fuel. The fuel will apparently have the same chemical properties as diesel but a lower carbon dioxide content and zero sulphur, so should be beneficial for the environment the companies argue.

Pig fat to be turned into diesel BBC News Online (19/4/07)

Questions

1. Using diagrams as appropriate, compare and contrast the environmental impact of conventional diesel and the new pig fat bio-diesel.
2. Discuss the extent to which the new pig fat diesel will be better for the environment than conventional diesel.
3. Evaluate two policies that the government could implement to encourage the use of alternative fuels like the new pig fat bio-diesel.

In a surprise move, the Tories have announced plans to tax air travel as part of their environmental policy. It was no surprise to hear the airlines criticise this, but disquiet about this policy has been expressed in traditional Tory circles and it amounts to a significant departure from the past for the party. Are they just flying a kite, or is this a serious policy initiative?

Tories reveal plans for green tax hike on air travel Guardian (11/3/07)
Tory plan for sky-high flight taxes Scotsman (11/3/07)
Airlines shoot down Tory ‘tax on fun’ Telegraph (12/3/07)
Green tax won’t help the planet or the Tories Telegraph (11/3/07)
Tories plan green tax on flights BBC News Online (11/3/07)

Questions

1. Why might a free market in air travel not result in an optimal number of flights.
2. Discuss the likely effectiveness of the tax on flying for reducing the demand for air travel. (You should consider the likely value of the price elasticity of demand in your answer.)
3. With the use of appropriate diagrams, assess the likely impact of the tax on flying on the equilibrium level of price and output in the market for air travel.

Did you buy red roses for Valentine’s Day? If so – where did they come from? Africa or Europe? You may have taken a conscious environmental decision to buy from European sources as the flowers do not have to travel so far and therefore involve fewer air miles, but according to International Development Secretary, Hilary Benn, this may be mistaken and it may be ‘greener’ to buy red from Africa.

Buy African flowers – UK Minister BBC News Online (13/2/07)
Buy African flowers for Valentine’s Day, minister says Guardian (13/2/07)

Questions

1. Compare and contrast the social costs and social benefits (including both private and external costs) of buying red roses produced in Europe and those produced in Africa.
2. Assess which are the most environmentally beneficial presents to give on Valentine’s Day. Give reasons to justify your answer.
3. Evaluate two policy options available to the government to reduce the environmental impact of Valentine’s Day.