Modelling the effects of transport policy levers on fuel efficiency and national fuel consumption

Abstract

The paper provides an overview of the main features of a Vehicle Market Model (VMM) which estimates changes to vehicle stock/kilometrage, fuel consumed and CO2 emitted. It is disaggregated into four basic vehicle types. The model includes: the trends in fuel consumption of new cars, including the role of fuel price; a sub-model to estimate the fuel consumption of vehicles on roads characterised by user-defined driving cycle regimes; procedures that reflect distribution of traffic across different area/road types; and the ability to vary the speed (or driving cycle) from one year to another, or as a result of traffic growth. The most significant variable influencing fuel consumption of vehicles was consumption in the previous year, followed by dummy variables related to engine size, the time trend (a proxy for technological improvements), and then fuel price. Indeed the effect of fuel price on car fuel efficiency was observed to be insignificant (at the 95% level) in two of the three versions of the model, and the size of fuel price term was also the smallest. This suggests that the effectiveness of using fuel prices as a direct policy tool to reduce fuel consumption may be limited. Fuel prices may have significant indirect impacts (such as influencing people to purchase more fuel efficient cars and vehicle manufacturers to invest in developing fuel efficient technology) as may other factors such as the threat of legislation.