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Personal Cars and China (2003)

Chapter: 8 The Role of Government

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Suggested Citation:"8 The Role of Government." National Research Council and National Academy of Engineering. 2003. Personal Cars and China. Washington, DC: The National Academies Press. doi: 10.17226/10491.
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Suggested Citation:"8 The Role of Government." National Research Council and National Academy of Engineering. 2003. Personal Cars and China. Washington, DC: The National Academies Press. doi: 10.17226/10491.
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8 The Role of Government I n every country, transport is largely in the public sector. Even vehicle manufacturing and use, the part that is commonly dominated by the private sector, is highly dependent on government services and gov- ernment-provided infrastructure and is subject to government regulation and monitoring. In China, the relationship between the government and automotive industry is in transition. Increasing uncertainty about the future structure of the industry and the growing dependence on market forces may test the relationships between industry and government and among different levels of government. Who will have responsibility for the dealing with the consequences of rapid motorization has not been clearly established. Meanwhile, cities are decentralizing, land markets are changing, and the dynamical forces involved are not well understood. The institutions deal- ing with motorization have limited experience with land markets, acceler- ating migration, and other externalities. The government will have to deal with conflicts between personal desires and the public good, between ex- panded vehicle ownership and equitable land use management. STRATEGIC FRAMEWORK Governments play a significant role in shaping the development of their domestic industries, and in determining the standards governing individual products and the impact of those products on the environment. For the automotive industry, governments around the world have used the following tools, singly or in combination: 169

170 PERSONAL CARS AND CHINA • tariff and nontariff import barriers—used by many countries, in- cluding China, to protect their domestic industry during the early stages of development • vehicle and fuel taxes—used to support or discourage the purchase and use of vehicles and fuels and to favor one technology or fuel over another • prescriptive and performance standards—used by government to force certain vehicle attributes (e.g., low emissions, good fuel economy) or technologies (e.g., air bags) • direct and indirect investment—used to assist industry with capi- tal, tax relief, and support for research and development (e.g., the U.S. Partnership for a New Generation of Vehicles program in which govern- ment joined industry in funding research) or in building assembly plants. One area in which most governments have intervened is reducing air pollution. Generally, a motor vehicle pollution control program seeks to reduce vehicle emissions to the degree necessary to achieve healthy air quality as rapidly as possible within the practical limits of effective tech- nological, economic, and social constraints. A comprehensive strategy to achieve this goal usually includes four key components: increasingly strin- gent emissions standards for new vehicles, which require new technol- ogy; specifications for clean fuels; programs to ensure proper maintenance of in-use vehicles; and traffic and demand management (see Figure 8-1 and Box 8-1). Clean vehicle technology Appropriate Traffic and maintenance demand management Clean fuels FIGURE 8-1 Elements of a comprehensive vehicle pollution control strategy. SOURCE: Michael P. Walsh.

THE ROLE OF GOVERNMENT 171 Because vehicles are, by nature, mobile and therefore capable of being driven from one area to another, and because a proliferation of standards would be very costly to the manufacturer and to the purchaser of the product, new vehicle emissions standards are usually set by national gov- ernments to apply to a country as a whole (the state of California being a notable exception in the United States) or even to a group of countries. For similar reasons, clean fuels are mandated at the national level. The other two components, vehicle maintenance and traffic management, are usu- ally the responsibilities of local governments and are applied in ways to respond to local air pollution problems. These can include measures such as: • restrictions on the use of vehicles, including both cars and trucks • high-occupancy vehicle lanes to encourage ride sharing • inspection and maintenance programs, including protocols and training • mandatory or voluntary retrofits of pollution control technology, with appropriate training • recycling programs • parking restrictions and parking taxes. Details of the vehicle emissions control programs in the United States, Europe, and Japan are summarized in the next section. That summary is followed by a review of these countries’ programs to reduce fuel con- sumption and carbon dioxide (CO2) emissions. The chapter concludes with a brief look at inspection and maintenance programs, which is ex- panded in the appendix to this chapter, and, finally, a review of industry- government partnerships in the United States and Europe. SUMMARY OF WORLDWIDE GOVERNMENT EMISSIONS STANDARDS Because the United States, European Union (EU), and Japan each base their emissions regulations on different test procedures based on pre- sumed typical driving patterns, it is difficult to compare precisely the stringency of those regulations. Tables 8-1 through 8-3 summarize the passenger car and heavy truck requirements in each region for nitrogen oxides (NOx) and particulate matter (PM). Table 8-1 indicates that the NOx standards for passenger cars will be- come quite low in all three regions by 2005. However, the number of kilo- meters over which the European and Japanese governments require that vehicles in use meet emissions standards appear to be substantially lower

172 PERSONAL CARS AND CHINA BOX 8-1 Transportation Planning and Traffic Management Governments play an important role in effecting changes in land use that can reduce vehicle miles traveled (VMT). Over the long term, regula- tors should promote effective town and city land use planning that inte- grates mass transit options, promotes safe passage for pedestrians and cy- clists, and uses design features to minimize single-occupancy vehicle use. The challenge is to make modes of living and working that reduce daily travel needs attractive to the public. The many possible options for reducing VMT in urban areas include the following: • Internalizing costs. Internalizing the cost of driving means shifting the expense to the consumer. Such a shift can be achieved through conges- tion pricing at automated tolls and parking facilities, reduced free parking and increased parking rates in general. “Pay-as-you-drive” insurance sys- tems also are emerging as effective ways to distribute driving costs fairly. One example of these costs is parking. In the United States, roughly 90 percent of employee parking is either subsidized by the employer or free. Many areas have begun to increase the cost of parking to drivers, thereby internalizing the costs. Alternatively, some employers have implemented “cash out” policies, providing employees with the cash value of parking. Some other externalized costs of driving are the costs of policing and mo- torist protection; uninsured accidents; noise; vibration damage to struc- tures; pollution damage to human health, crops, and structures; and petro- leum industry subsidies. • Traffic management. Traffic management strategies that increase ve- hicle occupancy directly reduce VMT, congestion, vehicle operating time, and therefore emissions. The special travel lanes for high-occupancy ve- hicles established in many urban areas to encourage car pooling have re- duced the number of cars operating during peak travel periods. Advanced sensing systems at traffic lights facilitate the optimum utilization of urban street and intersection capacity, reducing congestion and the associated idling time. Many cities also have expanded the size of cyclist and pedes- trian rights of way, while reducing street width and intersection size. • Increasing public transit use. Public transportation provides an alter- nate means of mobility. The use of public transportation can be enhanced in three ways: by expanding public transit systems or making them more user-friendly; by increasing public awareness or acceptance of public tran- sit; and by subsidizing the cost of consumers’ use of public transit. Public awareness can be raised through traditional advertising campaigns, public- ity events, and “free-ride” days that familiarize the public with transit sys- tems. Subsidization of public transit commuting costs, either directly or through company programs, also has been effective in increasing transit

THE ROLE OF GOVERNMENT 173 use levels. Often, enhancements to transit systems are most effective when coupled with other mechanisms, such as reduced parking availability, higher parking costs, or higher tolls. Promotion of car and van pooling also increases vehicle occupancy and reduces VMT. Government agencies, private corporations, and other institutions have offered this strategy. • Altering land use patterns. Research clearly shows that gasoline use in- creases as decentralization increases, simply because people have farther to travel. A survey of 32 major cities around the world found that the resi- dents of American cities consume nearly twice as much gasoline per capita as Australians (Kenworthy and Laube, 1999), nearly four times as much as residents of the more compact European cities, and 10 times that of those living in very compact Asian cities. Moreover, average living area per per- son was closely correlated with average gasoline consumption per capita. Land use patterns can be changed in ways that significantly reduce VMT and improve quality of life by providing for nearby amenities, such as pe- destrian malls, and the preservation of undeveloped land. There are many ways to approach this task, including limiting development on urban fringes; offering location-specific mortgages that reward homeowners for buying in certain areas; creating more densely populated, mixed-use neigh- borhoods; changing vehicle rights of way to pedestrian malls; and reducing the number of parking spaces. Telecommuting also is a form of changing land use, in that it moves the office not just closer to the home, but into the home itself. than the actual number of kilometers accumulated during average vehicle lifetimes. A key element of the low emissions level requirements has been the shift to very low-sulfur gasoline. Japan has traditionally had very low levels, usually below 30 parts per million (ppm) sulfur, but the EU re- cently capped levels at 50 ppm by 2005 and the United States capped them at 80 ppm with a 30 ppm average. The EU also is in the late stages of a process that will likely cap sulfur levels for both gasoline and diesel fuel at 10 ppm. As for diesel-powered passenger cars, it is clear that the European Union and Japan, while substantially tightening their requirements over the next several years, will maintain substantially weaker NOx require- ments for diesel than for gasoline-fueled vehicles, unlike the United States (see Table 8-1 and Box 8-2). Similarly, the diesel car particulate require- ments in the European Union and Japan are more lenient than those in the United States (Table 8-1). It appears that in Europe only the heavier diesel cars will require PM filters. In Japan a new round of standards will be introduced in 2005 to address particulates.

174 TABLE 8-1 Passenger Car Emissions Standards, Nitrogen Oxides (Gasoline and Diesel) and Particulate Matter (Diesel), United States, European Union, and Japan Standard Year of NOx, NOx, PM, Vehicle Useful Life Introduction Gasoline (g/km) Diesel (g/km) Diesel (g/km) (thousand km) U.S.— national Tier 1 1994 0.373 0.777 0.062 160 NLEV 2001 0.186 0.777 0.050 160 Tier 2 2004 0.043 0.043 0.006 193 U.S.—California TLEV 1994 0.373 0.373 0.050 160 LEV 1994 0.186 0.186 0.050 160 ULEV 1994 0.186 0.186 0.025 160 LEV2 2004 0.043 0.043 0.006 193 ULEV2 2004 0.043 0.043 0.006 193 SULEV 2004 0.012 0.012 0.006 193 European Union Euro III 2000 0.150 0.500 0.050 80 Euro IV 2005 0.080 0.250 0.025 100 Japan Japan 2002 0.080 0.280 0.052 80 2005 0.050 0.140 0.013 80 NOTE: NOx = nitrogen oxides; PM = particulate matter; g/km = grams per kilometer; NLEV = national low-emission vehicle; TLEV = transitional low-emission vehicle; LEV = low-emission vehicle; ULEV = ultra-low-emission vehicle; SULEV = super ultra-low-emission vehicle. SOURCE: Daisho Yasuhiro, Waseda University.

THE ROLE OF GOVERNMENT 175 BOX 8-2 Diesel Cars The popularity of diesel cars varies widely worldwide, largely depend- ing on government policies. They are found most commonly in Europe, accounting for one-third of car sales (and over half in some countries). In Japan they account for about 10 percent of sales, and in United States for only about 2 percent of light-duty vehicle sales (almost all light trucks). A comparison of diesel cars and gasoline-powered cars reveals the ad- vantages and disadvantages of diesel. In the area of pollution, diesel en- gines have inherently lower carbon monoxide and hydrocarbon emissions, and inherently higher particulate matter (PM) and nitrogen oxide (NOx) emissions. In fact, Europe and Japan have adopted emissions standards that specifically allow diesel engines to emit higher levels of nitrogen oxides and particulate matter. Thanks to new technology, PM emissions from die- sel engines have begun to fall dramatically, so that in future years if par- ticulate filters are applied across the board, diesel emissions will be similar to those from gasoline engines,1 but NOx emissions from diesel engines are expected to remain higher than those from gasoline engines. Because die- sel engines are inherently more energy efficient, they have lower carbon dioxide emissions than gasoline engines. In other performance characteris- tics, diesel engines are now roughly comparable to gasoline engines, in- cluding noise of operation. Diesel engines are somewhat more costly to manufacture than gasoline engines, but the higher costs are countered by lower fuel costs. In regions where diesel fuel prices are significantly lower than gasoline prices (a re- sult of political and economic tax policies but not fundamental cost differ- ences), or where vehicles are used intensively, diesel cars will have strong cost advantages. In China, diesels are likely to proliferate if diesel fuel is priced lower than gasoline (which is the case in most countries but not the United States), if stringent fuel economy standards are adopted, and if more lenient NOx standards are adopted for diesel. Otherwise, diesel cars are likely to be scarce in China. 1 The currently adopted Euro IV standards, which go into effect for cars in 2005, are not stringent enough to require filters on all but the largest diesels. Great progress is being made in reducing heavy-duty vehicle diesel emissions (Tables 8-2 and 8-3). Clearly, the major countries of the world have concluded that fundamental advances in heavy truck pollution con- trols and post–combustion technology are both necessary and feasible. A critical precondition of emission reduction, however, will be the introduc- tion of very low or near-zero sulfur levels in fuel.

176 PERSONAL CARS AND CHINA TABLE 8-2 Heavy-duty Diesel Nitrogen Oxide (NOx) Standards, United States, European Union, Japan, 1990–2010 (grams per kilowatt-hour) Model Year United States European Uniona Japan 1990 8.1 15.8 n.a. 1991 6.7 15.8 n.a. 1992 6.7 15.8 n.a. 1993 6.7 9 n.a. 1994 6.7 9 6 1995 6.7 9 6 1996 6.7 7 6 1997 6.7 7 6 1998 5.4 7 4.5 1999 5.4 7 4.5 2000 5.4 5 4.5 2001 5.4 5 4.5 2002 5.4 5 4.5 2003 2.7 5 3.38 2004 2.7 5 3.38 2005 2.7 3.5 2.0 2006 2.7 3.5 2.0 2007 0.27 3.5 2.0 2008 0.27 2 2.0 2009 0.27 2 2.0 2010 0.27 2 2.0 a Euro IV from 2005 and Euro V from 2008. NOTE: n.a. = not applicable. SOURCE: Daisho Yasuhiro, Waseda University. United States As indicated in Table 8-1, a notable exception to the rule that stan- dards are normally set for an entire country is the provision in the U.S. Clean Air Act that allows the state of California to adopt its own vehicle emissions regulations. California is considered a unique case for several reasons. First, California has consistently had the most serious motor ve- hicle-related air pollution problems in the United States.1 Second, Califor- 1 Even today, despite the most aggressive car pollution control program in the world and despite significant progress, California’s air pollution problems remain serious, and Los Angeles is consistently ranked as one of the most polluted cities in the United States.

THE ROLE OF GOVERNMENT 177 TABLE 8-3 Heavy-duty Diesel Particulate Matter (PM) Standards, United States, European Union, Japan, 1993–2010 (grams per kilowatt- hour) Model Year U.S. Trucks U.S. Buses European Uniona Japan 1993 0.3 0.13 0.4 n.a. 1994 0.13 0.094 0.4 n.a. 1995 0.13 0.094 0.4 n.a. 1996 0.13 0.067 0.15 0.25 1997 0.13 0.067 0.15 0.25 1998 0.13 0.067 0.15 0.25 1999 0.13 0.067 0.15 0.25 2000 0.13 0.067 0.1 0.25 2001 0.13 0.067 0.1 0.25 2002 0.13 0.067 0.1 0.25 2003 0.13 0.067 0.1 0.18 2004 0.13 0.067 0.1 0.18 2005 0.13 0.067 0.02 0.027 2006 0.13 0.067 0.02 0.027 2007 0.013 0.013 0.02 0.027 2008 0.013 0.013 0.02 0.027 2009 0.013 0.013 0.02 0.027 2010 0.013 0.013 0.02 0.027 a Euro IV from 2005 and Euro V from 2008. NOTE: n.a. = not applicable. SOURCE: Daisho Yasuhiro, Waseda University. nia had already adopted its own motor vehicle pollution control program before the U.S. national program came into being, and the state has suffi- ciently large a market that an independent distribution system could pro- vide unique vehicles for the rest of the country. California adopted performance standards for vehicle exhaust emis- sions in 1968, the first place in the world to do so. Since then, the stan- dards have been gradually tightened. These performance standards have resulted in a gradual reduction in emissions from cars as newer cleaner vehicles have replaced older, more polluting ones. In fact, California has taken the lead in stimulating the development and mandating the com- mercial introduction of advanced zero emissions technologies, including electric and fuel cells, many of which also can improve fuel efficiency. Standards also have been established in the United States that require that specified emissions levels be maintained under special geographic conditions. For example, vehicles must be able to meet standards at both sea level and at an altitude of 1,609 meters (m).

178 PERSONAL CARS AND CHINA European Union As the pollution control program has matured in Europe, stringent vehicle emissions standards have been adopted for all 15 member states of the European Union, and Norway and Switzerland, non-EU member states, have decided to adopt identical standards. Furthermore, some of the central and Eastern European countries that have applied for EU ac- cession, such as Poland and the Czech Republic, have already moved to adopt the EU vehicle and fuel standards. The European Union also includes a unique provision in its directives by which member states are allowed to encourage the early introduction of vehicles that meet future emissions standards or fuel standards through the use of tax incentives. These incentives have been used successfully in both Germany and Denmark. Japan Japan was the first major industrialized country to eliminate the use of lead in gasoline; it introduced stringent car standards requiring catalytic converters in 1978. Since then, it has gradually tightened gasoline-fueled car standards and most recently began to move rapidly to reduce diesel- fueled vehicle standards. Before the end of 2004 sulfur levels in diesel fuel will be lowered to a maximum of 50 ppm, and it is expected that all new diesel vehicles sold in 2005 will be equipped with particulate filters. Like some European countries, Japan is encouraging tighter vehicle standards through the use of tax incentives. With the enforcement of new emissions standards in the major mem- ber countries of the Organisation for Economic Co-operation and Devel- opment (OECD), substantial reductions in emissions will be occurring for all on-road vehicle categories, both gasoline and diesel. In addition, fuel sulfur levels will be limited to a maximum of 50 ppm or less. Recent Developments around the World Most regions of the world have been significantly tightening their motor vehicle regulations. The major recent developments are described in this section. United States • In 1998 the U.S. Environmental Protection Agency (U.S. EPA), in conjunction with the California Air Resources Board (CARB), imposed the largest enforcement action in history on the heavy engine industry.

THE ROLE OF GOVERNMENT 179 • CARB formally decided in August 1998 that diesel particulate mat- ter is a toxic air contaminant, triggering an effort to further reduce PM emissions from urban vehicles, including retrofit where feasible. • During 1999 CARB took emissions standards to the next level, not only tightening carbon monoxide (CO), hydrocarbon (HC), NOx, and PM requirements but also establishing the principles of fuel neutrality (diesel vehicles must meet the same standards as gasoline-fueled vehicles) and usage neutrality (light trucks and sport-utility vehicles used primarily as passenger cars must meet the same standards as cars). • In December 1999 the U.S. EPA adopted light-duty vehicle stan- dards closely modeled after the California LEV 2 (low-emission vehicle, so-called Tier 2) standards and tighter sulfur requirements for gasoline. • In December 2000 the U.S. EPA tightened its heavy-duty engine emissions requirements, with a special focus on tighter PM and NOx stan- dards and on low-sulfur diesel fuel. European Union • During 1998 the EU adopted directives for light-duty vehicle emis- sions and fuel quality that tightened emissions standards significantly (2000 and 2005), broadened the scope of coverage (e.g., cold temperature), added several important features previously missing (onboard diagnos- tics, in-use durability), and imposed low sulfur requirements for diesel fuel and gasoline. • The EU and the auto industry reached agreement in 1998 on a vol- untary commitment to reduce by 2008 the CO2 emissions per kilometer driven by 25 percent. • In January 2000 the EU adopted the next phases of heavy-duty stan- dards—European Emission Standard III (Euro III), IV, and V—which will likely result in particulate and NOx aftertreatment. Asia and Eurasia • In 1999 Japan tightened its gasoline-fueled automobile standards for the first time in 20 years and introduced the next phase of diesel-fu- eled vehicle requirements. Also in 1999 Japan’s Ministry of International Trade and Industry (MITI) and Japanese industry reached agreement about lowering CO2 emissions from vehicles. • During 1999 China formally adopted the Euro I auto emissions standards and decided to phase out the use of leaded gasoline across the entire country by 2000. • Taipei adopted step four of its motorcycle control program in late 1999, effectively banning two-stroke motorcycles by the end of 2003.

180 PERSONAL CARS AND CHINA • The Supreme Court of India banned the sale of leaded gasoline in Delhi as of September 1999 and mandated that all new cars meet Euro I auto emissions standards. Similar requirements were then phased in across the entire country in 2000. Delhi adopted Euro II standards in April 2000. SUMMARY OF WORLDWIDE GOVERNMENT FUEL ECONOMY STANDARDS In the United States, Western Europe, and Japan—the three major markets for light-duty vehicles—the policies for improving the fuel effi- ciency of these vehicles have evolved in sharply different directions. In the United States from the mid-1970s to the mid-1980s, the major focus was on the Corporate Average Fuel Economy (CAFE) program, whereby annual fuel economy standards applied to each manufacturer on average across its entire fleet of light-duty vehicles, subdivided into passenger cars and light-duty trucks, with separate requirements for each of these cat- egories. During the same period, a “gas guzzler” tax was imposed on those cars with the poorest fuel economy. More recently, the government has emphasized shared research and development (the Partnership for a New Generation of Vehicles, to be followed in 2002 by the FreedomCAR pro- gram) and tax incentives for certain high-efficiency vehicles (proposed but not yet enacted). In Europe, the European Automobile Manufacturers Association (ACEA) has proposed, and the European Union has accepted, a voluntary agreement pledging to reduce per-vehicle CO2 emissions by 25 percent between 1995 and 2008. And in Japan the national government has established a series of weight-class fuel economy standards that re- quire about a 23 percent improvement in the fuel economy of gasoline- fueled light-duty vehicles by 2010. Each of these programs will be re- viewed in the rest of this section. United States: The CAFE Program The United States has had a mandatory fuel efficiency program since 1975. The Energy Policy and Conservation Act (1975), which came into effect in model year 1978, amended the Motor Vehicle Information and Cost Saving Act to require new passenger cars to achieve at least 27.5 miles per gallon (mpg) or 8.55 liters per 100 kilometers (km) by 1985, as measured by U.S. EPA test procedures. Separate, and more lenient, CAFE standards were first applied to light-duty trucks, including jeeps and minivans, in 1979. The current standard, set in 1996, is 20.7 mpg. In recent years, as fuel prices have dropped and CAFE standards have remained unchanged, vehicle manufacturers have sold a growing pro-

THE ROLE OF GOVERNMENT 181 Average MPG Percent Truck 35 100 30 80 Cars Both 25 60 Trucks 20 40 Percent Truck 15 20 10 0 1970 1975 1980 1985 1990 1995 2000 Model Year FIGURE 8-2 Miles per gallon (mpg) of trucks and cars by model year, United States. SOURCE: Hellman and Heavenrich (2001). portion of light trucks. As a result, the overall fuel economy of new light- duty vehicles has been diminishing since 1980 (Figure 8-2). Vehicle manufacturers are required to test a sample of all vehicles destined to be sold in the United States so that a fuel consumption rating can be assigned to each product line. The test involves both city and high- way driving cycles. From these figures, a sales-weighted average fuel con-

182 PERSONAL CARS AND CHINA sumption figure is calculated for all the passenger cars produced by each manufacturer. Fuel efficiency (in miles per gallon) calculated this way must exceed the CAFE standard specified for the appropriate model year. Failure to meet the CAFE requirements can result in substantial finan- cial penalties. For each vehicle produced, a manufacturer whose fleet-aver- age fuel consumption does not meet the CAFE standard is fined $5 per vehicle for every 0.1 miles per gallon by which the standard is not met. These fines may be offset by credits accrued in other model years, however. Since 1983 the federal government has collected $164 million in CAFE fines. Another policy instrument used by the U.S. government is the gas guzzler tax, paid by people who buy cars with fuel economy below a cer- tain threshold. The threshold rose from 5 mpg (12.1 liters per 100 km) in 1984 to 21.0 mpg (11.2 liters per 100 km) in 1985, and has been set at 22.5 mpg (10.1 liters per 100 km) since 1986. Besides the CAFE requirements and gas guzzler tax, the federal fuel efficiency program provides consumers with information about the rela- tive efficiency of new cars. The Gas Mileage Guide published by the U.S. EPA and the Department of Energy lists the city and highway fuel economy results of each vehicle model and is intended to provide infor- mation to new-car buyers. Also required on new cars are stickers indicat- ing the vehicle’s fuel economy as determined by the U.S. EPA, an estimate of the annual fuel cost based on 15,000 miles (24,000 km) of operation, and the range of fuel economy achieved by similar-size vehicles of other makes. U.S. EPA adjusts the measured fuel economy value downward before placing it on the sticker in an effort to give a somewhat more real- istic estimate of the on-the-road fuel consumption that the owner can ex- pect under average driving conditions. To allow a comparison of different vehicle models, U.S. EPA adjusts the mile per gallon estimates on all the new car stickers. European Union In the European Union, fuel economy is addressed by regulating CO2 emissions. Carbon dioxide produced by passenger cars accounts for about half of CO2 emissions from transport and about 12 percent of total CO2 emissions in the European Union.2 Under a ”business as usual” scenario, CO2 emissions from cars are expected to increase, from 1990 levels, by 2 Derived from ”A Community Strategy to Reduce CO Emissions from Passenger Cars 2 and Improve Fuel Economy,” COM (95) 689, a communication from the Commission to the Council and the European Parliament. This strategy was adopted by the commission on December 20, 1995.

THE ROLE OF GOVERNMENT 183 about 36 percent by the year 2010. The road transport sector has stood out in recent years as one of the few EU sectors experiencing growth in CO2 emissions. The European Union remains on track to achieve its long-standing commitment to stabilizing emissions of carbon dioxide—the main green- house gas responsible for manmade global climate change—at their 1990 level and then to reduce greenhouse gases by 2008. Total CO2 emissions from the 15 EU member states were 0.5 percent lower in 2000 than 10 years earlier, according to the latest emissions inventory from the Euro- pean Environment Agency (2002). Less positive, however, is the fact that EU emissions of carbon diox- ide and other greenhouse gases rose between 1999 and 2000, the most recent year for which EU-wide data are available. If transport were not included, there would have been a clear downward trend in carbon diox- ide, nitrous oxide, and methane emissions across the EU. However, over the decade nitrous oxide from transport about doubled and carbon diox- ide increased by about 20 percent. In the face of these concerns, the European Automobile Manufactur- ers Association has entered into a voluntary agreement with the Euro- pean Commission to reduce CO2 emissions from new light-duty passen- ger vehicles, with firm fleet-wide targets of 140 grams (g) of CO2 per kilometer (about 41 mpg for gasoline) by 2008, measured under the new European test cycle (Directive 93/116/EU). This represents about a 25 percent reduction from the 1995 average of 187 g/km (about 30 mpg) for this cycle. Because the European cycle is likely to produce lower fuel economy ratings than the U.S. combined city/highway cycle, the “U.S.- equivalent” miles per gallon ratings3 of the year 2008 European fleet will likely be higher than 41 mpg if the targets are met. Note that the goal of 140 g of carbon dioxide per kilometer is a collec- tive target, not a target for each company. The participants in the agree- ment—BMW, Fiat, Ford of Europe, GM Europe, DaimlerChrysler, Porsche, PSA Peugeot Citroën, Renault, Rolls Royce, Volkswagen, and Volvo—have not publicly defined individual objectives, but before sign- ing the agreement they discussed among themselves the likely trade-offs that would have to be made to achieve the goal. The agreement applies to light passenger vehicles classified as M1 in European Council Directive 93/116/EEC, which includes vehicles with no more than eight seats in 3 Without discounting. The miles per gallon values that appear on new car stickers reflect a 10 percent discount off the city test results and a 22 percent discount off the highway test results, or 15 percent off the combined 55-city/45-highway rating.

184 PERSONAL CARS AND CHINA addition to the driver. The agreement included a promise to introduce some models emitting 120 g/km (about 48 mpg) or less by 2000, and a nonbinding 2003 target range of 165–170 g/km (about 34–35 mpg). In ad- dition, the commitment will be reviewed in 2003, with the aim of moving toward a fleet goal of 120 g/km by 2012. Finally, ACEA agrees to monitor compliance with the agreement jointly with the commission. In exchange for its commitment to meeting the 2008 CO2 emissions goal, the industry asked that some conditions be met: • Clean fuels availability. Because the industry believes that direct-in- jection engines will play a key role in achieving the targets, the agreement asks for the “full market availability” of the clean fuels needed for this technology by 2005—gasoline with 30 ppm sulfur content and less than 30 percent aromatics, diesel fuel at 30 ppm sulfur and a Cetane number greater than or equal to 58.4 • Protection against unfair competition. Non-ACEA members must commit to similar goals, and the European Union will agree to try to per- suade other car manufacturing countries to embrace equivalent efforts. The latter effort is designed to protect ACEA members from suffering in world market competition for their European efforts. Both the Japanese Automobile Manufacturers Association (JAMA) and the Korean Automo- bile Manufacturers Association (KAMA) have agreed to a revised version of the ACEA targets, with achievement of the 2008 target levels in 2009. • Regulatory cease-fire. There will be no new regulatory measures to limit fuel consumption or CO2 emissions. • Unhampered diffusion of technologies. The companies assume that the commission will take no action that would hamper the diffusion of effi- ciency technologies, particularly direct-injection gasoline and diesel en- gines. Presumably, actions the commission might take could include tighter emissions standards on nitrogen oxides and particulates. Japan The Japanese government has established a set of fuel economy stan- dards for gasoline- and diesel-powered light-duty passenger and freight vehicles, with fuel economy targets based on vehicle weight classes. The 4 In mid-2000 the European Commission requested that all interested stakeholders comment on the benefits and penalties associated with the adoption of both gasoline and diesel fuel with a maximum of 30 ppm sulfur or near zero (< 10 ppm) sulfur compared with the currently mandated maximum of 50 ppm by 2005. As a result of this process, the commission has pro- posed the mandatory phase-in of fuels with a maximum of 10 ppm sulfur by 2005.

THE ROLE OF GOVERNMENT 185 targets for gasoline-powered vehicles are to be met in 2010; 2005 is the target year for diesel-powered vehicles. The targets are to be met by each automaker for each weight class—that is, automakers cannot average across weight classes by balancing a less-than-target vehicle in one class with a better-than-target vehicle in another. Compliance with these standards will produce by 2010 and 2005, re- spectively, a Japanese gasoline-fueled, light-duty passenger vehicle fleet capable of achieving 35.5 mpg and a light-duty diesel fleet able to achieve 27.3 mpg5 as measured using the Japanese 10–15 driving cycle. The Japa- nese 10–15 driving cycle is substantially slower than the combined U.S. city/highway cycle, and the U.S. equivalent miles per gallon for this fleet would be significantly higher. The regulations call for civil penalties if the targets are not met, but the penalties are very small. Realistically, enforcement will be accom- plished through pressure from the government and the auto companies’ desire to avoid public embarrassment, not through the financial penalties. The fuel economy targets were selected by identifying “best-in-class” fuel economies in each weight class and demanding that the average new vehicle meet that level in the target year. The Japanese call this the “top runner” method of selecting fuel economy targets. Theoretically, this method is not “technology forcing” in that the technology has already been identified. Practically speaking, however, the standards may prove to be technology forcing because the “top runners” in each weight class must fully match their competitors in other areas of performance and amenities. The fuel economy regulations have additional requirements over and above the actual fuel economy targets. These are: • For new vehicles, fuel economy and major efficiency technologies on board must be recorded in catalogs and displayed at exhibits. • Government is charged with providing education and other incen- tives for vehicle users and manufacturers, making sure that fuel economy regulation proceeds in harmony with other regulations (especially new emissions standards), reviewing manufacturers’ efforts to improve fuel economy, and trying to harmonize this regulation with similar efforts in Europe and the United States. • Manufacturers are expected to develop new efficiency technolo- gies, design vehicles of outstanding efficiency, and help educate the pub- 5In the Japanese fleet light-duty diesel vehicles are larger, on average, than light-duty gasoline vehicles.

186 PERSONAL CARS AND CHINA lic. It is assumed that the public will select efficient vehicles and use them in an efficient manner. INSPECTION AND MAINTENANCE (I/M) PROGRAMS Modern vehicles depend on properly functioning components to keep pollution levels low. Minor malfunctions in the air and fuel (A/F) or spark management systems can increase emissions significantly, while major malfunctions can cause emissions to skyrocket. A relatively small number of vehicles with serious malfunctions frequently cause the majority of the vehicle-related pollution problems. Unfortunately, it is rarely obvious which vehicles fall into this category, because the emissions themselves may not be noticeable and emissions control malfunctions do not neces- sarily affect vehicle drivability. Effective I/M programs, however, can identify these problem cars and assure their repair. The appendix to this chapter describes the elements of an inspection and maintenance program. INDUSTRY–GOVERNMENT PARTNERSHIPS The United States, Europe, and Japan have supported their domestic automotive industries in a variety of ways. This section focuses on gov- ernment-industry research and development (R&D) partnerships in the United States and Europe. Research covers a wide range of activities from basic research at uni- versities and government laboratories, to applied research activities that may involve multidisciplinary and multiorganizational collaboration, to development work by industry to create new and improved technologies for use in automobile design and production. Although there is a spec- trum of research activities ranging from very basic to very practical projects, the research process is not linear and often applied research will identify new opportunities for basic research and vice versa. Basic research is aimed at acquiring knowledge of general importance and typically has a time horizon of a decade or more for success. Only a few basic research ideas may ever reach the marketplace. However, fund- ing for basic research is frequently a small part of overall R&D budgets. Industrially supported efforts are often associated with institutions of higher learning. Funding sources include government, foundations, and collaborations with international groups. The kinds of research capabili- ties that will support a strong auto industry in China might include the following areas: • clean fuels • air quality monitoring and modeling techniques

THE ROLE OF GOVERNMENT 187 • advanced propulsion systems (including fuel cells) • catalysis and separations • improved materials • advanced electrical and electronic systems • sensors and controls • advanced manufacturing processes and systems. Applied research includes a wide range of activities, including further refinement of promising innovations identified in basic research, feasibil- ity and assessment studies, systems analysis and planning studies, and need-driven research investigations. Typically, applied research has a time horizon of 5–15 years and involves teams of researchers with different skills and backgrounds. The cost of such research is frequently greater than that of basic research by a factor of 10, but participation of govern- ment laboratories and industrial researchers expands the resource base. Examples of applied research projects are: • innovative technology feasibility studies • automotive system design and integration • manufacturing systems • infrastructure planning (roads, fuels, mobility services) • traffic coordination and safety • life cycle assessment of alternatives • economic assessments. Development and demonstration research activities are usually funded and conducted by industry for those technologies that appear to offer sig- nificant potential for near-term (3–5 years) commercial advantage. Sig- nificant segments of these activities are likely to be proprietary. Because large investments are needed, such projects are selected very carefully. Often they will involve collaborative work between a key component sup- plier and system designers. These activities also may present an opportu- nity among joint venture partners for personnel exchanges that will broaden the capabilities of both partners. Because of the investment re- quirements, some companies prefer to wait for others to make the break- through and then either purchase rights to the technology or adapt it to their needs. In areas in which large investment is needed to develop a new product that may not be a near-term market success (e.g., the U.S. PNGV program discussed later in this chapter), government-industry partnerships may fund the research, spreading the investment required over a number of sponsors. Here the final product may not be a commer- cial success, but the research will produce know-how and component technologies that may be well worth the investment.

188 PERSONAL CARS AND CHINA The cost of building a strong auto research capability in China will be large. Although China may wish to let others take the lead in the longer- term research activities, it will have to maintain the capability to stay abreast of what is being done worldwide and limit its investment to areas in which a particular concept seems to offer a special advantage to the Chinese industry or in which the educational benefits are worth the in- vestment. However, when commercial success is the end goal, it is usu- ally best to let the industry make the choices about technologies. Govern- ment and academic researchers may offer ideas and guidance, but only the industry has the important knowledge about how individual tech- nologies integrate into a successful car. United States Early Efforts One of the earliest efforts to undertake industrial cooperative research was organized through the Inter-Industry Emission Control Program in 1972. This program was a joint effort of members of the U.S. petroleum industry, members of the Japanese automotive industry, and the Ford Motor Company. Other members of the U.S. automotive industry were prevented from participating by antitrust laws. The program, which was funded by the various participants, continued for over a decade and pro- duced some significant technical developments. It was terminated when the emphasis of the industry turned more to fuel economy than to meet- ing selected emissions standards. In the late 1970s Secretary of Transportation Brock Adams initiated a government effort to “reinvent the automobile” as the technological an- swer to the influx of high-efficiency small cars from Japan. The result was a government-industry program designed to emphasize basic research that would enhance the efficiency of vehicles. Annual joint funding of the Cooperative Automotive Research Program was pegged at about $100 million. All parties had signed the agreement and were preparing to launch the program when it was cancelled by the newly elected Reagan administration in 1981. Background of the Partnership for a New Generation of Vehicles (PNGV) In the late 1980s Congress began to restrict the ability of the National Highway Traffic Safety Administration to adopt tighter CAFE require- ments, and fuel economy standards were effectively frozen. Seeking other routes toward fuel economy, the major U.S. automakers and the U.S. gov- ernment, through its national laboratories, began sharing technology in-

THE ROLE OF GOVERNMENT 189 formation and manufacturing know-how in 1993 in an effort to develop low fuel consumption technologies. On September 29, 1993, President Bill Clinton and the chief executive officers of the major domestic automakers (Chrysler, Ford, and General Motors) announced the formation of the Partnership for a New Genera- tion of Vehicles. The long-term goal of PNGV was to develop vehicles that would deliver up to three times the current fuel efficiency (defined as 80 mpg or energy equivalent) and would cost no more to own and oper- ate than the current comparable vehicles. At the same time, this new gen- eration of vehicles was to maintain the size, utility, and performance stan- dards of contemporary vehicles (i.e., the 1994 Chrysler Concorde, Ford Taurus, and Chevrolet Lumina) and meet all mandated safety and emis- sions requirements. The U.S. automobile manufacturing industry is an integral part of the U.S. economy, accounting for one out of seven U.S. jobs and 4.5 per- cent of the gross domestic product. The development of a new genera- tion of vehicles was to improve U.S. competitiveness by establishing the capability for technical leadership in the production of competitively priced, highly fuel efficient, low-emission automobiles. Improvements in advanced manufacturing techniques that shorten product develop- ment times and lower costs, as well as improve product quality and du- rability, are essential to transfer new technologies to the marketplace affordably. The PNGV represented a departure from the historical, pri- marily regulatory relationship between government and the U.S. auto- mobile industry. Because the current U.S. price of gasoline did not en- courage consumer demand for high-efficiency automobiles, government support of long-term research and development for fuel efficiency tech- nologies was considered necessary to spur activity and accelerate progress in the absence of market pull. The achievements of the PNGV were expected to produce significant energy, environmental, and economic benefits for the nation. In view of the country’s growing population and Americans’ fondness for travel, a significant improvement in vehicle fuel efficiency would be a major step toward lessening reliance on foreign oil supplies and reducing the associ- ated balance-of-trade deficits, which were greater than $40 billion in 1993. PNGV was structured to achieve three mutually supportive, interac- tive goals: 1. Significantly improve national competitiveness in manufacturing for future generations of vehicles. 2. Improve the productivity of the U.S. manufacturing base by sig- nificantly upgrading U.S. manufacturing technology, including adopting agile and flexible manufacturing processes and reducing cost and lead

190 PERSONAL CARS AND CHINA times, while also reducing negative environmental impacts and improv- ing product quality. 3. Implement commercially viable innovations from ongoing research in conventional vehicles. Pursue technology advances that can lead to im- provements in fuel efficiency and reductions in the emissions of standard vehicle designs, while pursuing advances to maintain safety performance. Research focused on technologies that reduce the demand for energy from the engine and drive train. Indeed, the auto industry pledged to apply those commercially viable technologies resulting from this research that could be expected to significantly increase vehicle fuel efficiency and improve emissions. As noted, the objective was to develop vehicles that could achieve up to three times the fuel efficiency of comparable 1994 family sedans—the Concorde, Taurus, and Lumina automobiles—with equivalent cost of ownership, and yield a revolutionary class of fuel-efficient, environmen- tally friendly, commercially viable vehicles that would meet or exceed safety and emission requirements. The PNGV’s target was to develop a concept vehicle by 2000 and a production prototype by 2004. This 10-year time frame for the PNGV represented a rapid development effort to pro- duce a revolutionary change in automotive transportation. In 1994 the auto industry identified the areas in which significant in- novations were needed to meet PNGV goals: reduced vehicle weight, more efficient power trains, and reduced parasitic losses. A critical ele- ment in meeting the technical challenges in these areas was believed to be the development of manufacturing processes capable of quickly deliver- ing high quality and volume at low cost. Participants in the PNGV Technical Program The Partnership for a New Generation of Vehicles was formed by the federal government and the U.S. Council for Automotive Research (USCAR), which represented the major American auto companies— Chrysler (which became DaimlerChrysler in 1998), Ford, and General Motors. The original government members of the partnership were the Departments of Commerce (designated as lead agency), Defense, Energy, Interior, and Transportation; Environmental Protection Agency; National Aeronautics and Space Administration; and National Science Foundation. Other participants in the PNGV R&D activities included industrial sup- pliers, universities, commercial R&D institutions, and entrepreneurs. The PNGV organization was overseen by a steering committee of se- nior representatives from the three automakers and the Department of Commerce, with a rotating director. One level below the steering commit-

THE ROLE OF GOVERNMENT 191 tee was a technical committee composed of representatives of the compa- nies and seven government agencies. Under the technical committee were some 10 technical working groups for the major technology subsystems, staffed by engineers and scientists from industry and national labs. Most of the groups were chaired by an industry representative. The PNGV was able to pursue an ambitious program schedule by le- veraging ongoing government and industry R&D programs. Before an- nouncement of the PNGV, the federal government and the automotive manufacturers and their suppliers had already launched cooperative re- search programs, and additional government-sponsored research was al- ready being conducted in government laboratories and universities. Tech- nology development was particularly successful in the areas of innovative power trains (hybrid vehicles, gas turbines, and fuel cells), lightweight ma- terials (structural aluminum and magnesium and various composites), and energy storage devices (such as ultracapacitors, flywheels, and batteries). Many of these ongoing R&D programs provided the “running start” con- sidered vital to achievement of the PNGV goals within the allotted time. As a result of the long lead time in federal budgeting automaker and federal laboratory managers shifted a variety of existing vehicle R&D projects to the PNGV program, including about $250 million in multiyear hybrid vehicle research already in place within Ford and General Motors. The U.S. General Accounting Office estimates that federal support for the partnership averaged about $250 million a year from 1995 through 1999, but this sum overstates support for the partnership itself because about 45 percent supported activities only indirectly relevant to the partnership goals or was not coordinated through the partnership (U.S. GAO, 2000). In addition to government-assisted research and development, auto- motive manufacturers maintain both proprietary and nonproprietary pro- grams in advanced technology research in order to assure their competitive positions. Proprietary research contributions increased as the PNGV pro- gram moved through the development of concept cars and production pro- totype vehicles. Indeed, it was reported that industry was matching gov- ernment funds with about $250 million a year, but in fact “a major portion” of the spending was in proprietary product programs (NRC, 2001:10). In the early years, of the some $293 million a year the government was spending on PNGV, about a third went directly to the federal labora- tories, about a third directly to automotive suppliers, and about a third to the three automakers. Of the third that went to the three automakers, about three-quarters was later subcontracted to suppliers (Chapman, 1996). The three automakers may have received a relatively modest amount of money, but they played a large role in determining how the money was spent and by whom. In 1994 the federal government asked the National Research Council

192 PERSONAL CARS AND CHINA to establish an independent standing committee to prepare an annual re- view of the PNGV program. Committee members, many of whom had automotive backgrounds, were experts on different aspects of the pro- gram. Seven reports were issued. Evaluation of the PNGV Program In 1997, as planned, the large set of candidate technologies that had been examined during the first years of the partnership was reduced to a few for further development. Each of the three companies selected diesel- electric hybrids as their preferred technology. In early 2000, again in line with program milestones, each of the three companies unveiled concept cars. Ford’s Prodigy, GM’s Precept, and DaimlerChrysler’s ESX3 all used lightweight materials and combined small advanced diesel engines with electric drive trains, with projected fuel economy of 60–80 mpg (NRC, 2001). As indicated in the seventh (and last) annual review of the PNGV program by the National Research Council, the automotive companies appeared to be meeting the program schedule for achieving the fuel economy goals, but they would not meet the cost goals (NRC, 2001). The efforts to meet the emissions goals are discussed later in this chapter. The National Research Council’s seventh review of the PNGV Pro- gram made the following observations about the achievement of program goals (NRC, 2001): At the end of 1997 PNGV made a technology selection based on assess- ments of system configurations for alternative vehicles. Several technol- ogy options—such as gas turbines, Stirling engines, ultracapacitors, and flywheels for energy storage—were eliminated as leading candidates. The 10-year span of the program dictated some of these choices. In its fourth review the committee agreed with PNGV’s technology selections (e.g., four stroke, internal combustion engines, fuel cells, batteries, power electronics, and structural materials). The four-stroke compression-igni- tion direct-injection (CIDI) engine was selected as the most likely power plant to enable the fuel economy goal to be met within the program time frame; the fuel cell power plant was retained in the program as a highly promising longer-range technology. *** The second major milestone, the development of concept vehicles, was met in early 2000. Using PNGV-developed technologies and their own in-house proprietary technologies, the . . . . companies each developed separate concept vehicles with fuel economies between 70 and 80 mpg. *** The power train with the highest probability of meeting the vehicle fuel-

THE ROLE OF GOVERNMENT 193 economy target of 80 mpg by 2004 is the hybrid-electric power train pow- ered by a CIDI engine. In 1999 approximately midway through the pro- gram, the Environmental Protection Agency promulgated Tier 2 emis- sion standards for particulate mater and oxides of nitrogen (NOx) substantially more stringent than those at the start of the program. . . . This action brought into question the possibility of meeting these emis- sion requirements with a CIDI engine in a production prototype by 2004. Consequently, a major portion of the program resources was reallocated to address this new development risk. Alternative power plants (e.g., homogeneous spark-ignition engines or gasoline-fueled direct-injection engines) with a higher probability of meeting the Tier 2 standards in the PNGV 2004 time frame would result in vehicles with reduced fuel economy compared with the CIDI engine. Perhaps equally important, the program gave rise to a “boomerang effect”—that is, the existence of this program encouraged competitors to go forward more aggressively (Sperling, 2001). Apprehensive European and Japanese automakers quickly accelerated their efforts through pro- grams such as the European Car of Tomorrow Task Force (1995) and the Japan Clean Air Program (1996), and through individual company efforts such as Toyota and then Honda’s commercialization of hybrid electric cars and Daimler-Benz’s enhanced fuel cell program. Many executives in European and Japanese companies readily concede that PNGV was clearly seen as a threat, and that it therefore served as the catalyst for increased investment in advanced propulsion technology in their companies. The competition intensified as U.S. automakers responded to the aggressive commercialization efforts by Toyota, Honda, and the Daimler side of DaimlerChrysler. As for gauging the success of the program, one might ask: Why did the PNGV effort not lead to the commercial advances envi- sioned in 1993, even in some cases when those advances were being ac- tively pursued by automakers and other technology companies elsewhere the world? As noted earlier, the National Research Council evaluation suggests that the shortcoming stemmed from the initial schedule and de- sign of the program (NRC, 2001). Indeed, it appears that PNGV formal- ized a very ambitious schedule with specified deliverables that led, ironi- cally, to a conservative approach. Fearing that the time horizon that was too short to allow much development of emerging technologies, industry and government managers focused on relatively mature technologies for which fuels were available—that is, diesel-electric hybrid cars. Even then, automakers were falling far short of meeting the goal of comparable cost. Another major issue for the PNGV program, and government-indus- try partnerships in general, was control of knowledge and rights to tech- nology. The automakers, adhering to common practice in competitive in- dustries, essentially created “firewalls” of varying permeability around

194 PERSONAL CARS AND CHINA their PNGV work. Companies engaging in collaborative work with com- petitors in their own or related industries routinely create these walls to protect themselves against antitrust lawsuits and, more important, to en- sure confidentiality. The concern is that the more government funding and competitors are involved, the more likely it is that companies will lose control of knowledge and technology.6 These firewalls work effec- tively with small innovations that affect a small part of the business, be- cause the protected knowledge may not be central to the business inter- ests of the company. But this situation was different. First, virtually all of the targeted technologies were close enough to commercialization that a company would want proprietary rights to any advances. Second, fuel cell and hybrid propulsion systems, if successfully developed, had the potential to be core technologies for these huge companies. In any case, the PNGV experience provided the following insights and lessons. First, if properly structured, a joint program between gov- ernment and industry can successfully develop new technologies of inter- est to the commercial sector. Second, unforeseen indirect effects (the “boo- merang effect” in this case) may prove to be very important. Third, program objectives must be reexamined in light of changing conditions and objectives changed accordingly. Fourth, targeted technologies should be far from commercialization (or have large social benefits). Fifth, progress is greatest with partners wholly committed to the technology development and commercialization goals of the partnership. Finally, it is important that the government limit its participation to the noncompeti- tive phase of research and development and leave the final development of a marketable product to industry. Overall, the partnership generated many successes. An important benefit has been the greater communication between industry and gov- ernment and therefore less adversarial tension. The high-profile collabo- ration between government and the automotive industry also spurred the development of new technologies, many of which are being used to im- prove the efficiency of vehicle subsystems and components. The program also focused government’s advanced technology R&D efforts and high- lighted, for the public and the automotive industry, the potential for ma- jor technology enhancements. 6 The financial and legal claims by government on publicly funded innovations vary greatly. The European Union, for example, rarely asserts a claim to technologies developed by automakers with public funds. The U.S. government, in contrast, has become quite ag- gressive at asserting a claim.

THE ROLE OF GOVERNMENT 195 The Next Phase of Cooperation In January 2002 the U.S. government announced a significant redirec- tion of the PNGV program and gave it a new name: the FreedomCAR (Cooperative Automotive Research). Rather than maintaining the heavy focus on demonstration vehicles, the program will concentrate more on technology and on developing the fuel cell for passenger vehicles and a hydrogen fuel infrastructure for those vehicles. The generation of hydro- gen fuel, its distribution and storage, and its storage or generation on board the vehicle, will be an important part of the program. A particular thrust of the program will be an effort to ensure more coordination among its various participants—industry suppliers, universities, and government laboratories. USCAR will continue to be the sole industry partner, and the Department of Energy will serve as the lead government agency. How- ever, an effort will be made to expand the membership to include energy suppliers, along with automakers, their suppliers, and research groups from around the country. A procedure for external review of the program will continue, but on a biannual basis. The European Experience In Europe, automakers and governments have engaged in several high-profile international R&D partnerships since the mid-1980s.7 The most recent incarnation, the European Council for Automotive R&D (EUCAR), was launched in 1994, partly in response to the PNGV pro- gram. EUCAR comprises 10 automotive companies located in five coun- tries and has its headquarters in a sixth, Belgium. From 1994 to 1999 EUCAR undertook 88 projects, of which 14 were self-funded (by EUCAR members) and 74 were cofunded with the European Union. The total bud- get for the 88 projects was EUR302 million, about half of which was pro- vided by the European Union (half of that going to the automakers and the other half to suppliers, universities, and independent centers). EUCAR has created an array of technical and policy committees not unlike those associated with the PNGV program, which are aided by a skeletal admin- istrative staff. Interviews with a variety of senior officials from the government and automotive partners indicate that two major benefits have arisen from the EUCAR partnership: (1) automakers have gained access to European re- search institutes (which are similar to the U.S. national energy laborato- 7 This section is based on Sperling (2001).

196 PERSONAL CARS AND CHINA ries); and (2) communication has increased across the industry and be- tween industry and the European Union. EU funding itself was rarely cited as an important benefit. The EU provides even less public R&D fund- ing to automakers than that provided through the PNGV program. EUCAR, then, is principally an organization designed to share infor- mation. With the challenge of managing the politics and interests of a wide variety of countries and a broader array of companies, the “cultural” commitments of some countries to their major car companies, and the various relationships among governments, universities, and companies, it is difficult to imagine EUCAR expanding into an integrated R&D part- nership. EUCAR also has played a pivotal role in maintaining communi- cation between the European Commission (the executive arm of the Euro- pean Union) and automakers about follow-up to their voluntary agreement to reduce CO2 emissions (per vehicle-kilometer) by 25 percent between 1998 and 2008. General Lessons of PNGV and EUCAR The PNGV and EUCAR programs can provide valuable insights and lessons for China. Partnerships can play an important role in identifying technologies that are in the public interest and also commercially viable. Moreover, they help inform the public debate about new vehicle tech- nologies, highlight opportunities, and provide a mechanism for directing government resources. Independent research centers play an important role in accelerating development, and such research centers will be most successful when closely partnered with industry members. Government funding of universities is critical, and a principal aim should be training of engineers and scientists. As any such partnership proceeds, the goals and programs need to be flexible and reviewed on a regular basis. The government must recognize that the companies will need to control any proprietary knowledge they develop. All companies will expect to be treated equally. In a free market economy, decisions about commercialization must remain with the industry. Although the commercialization of advanced technology is most likely to occur in response to specific performance stan- dards and goals or competitive market forces, R&D “partnerships” can provide important information during the pre-competitive phase of the development process. An important lesson from the PNGV experience for China is related to developing human capabilities. Even in the United States, with its massive university and national lab systems, the automo- tive companies concluded that “the lack of talented people is a greater handicap than the lack of adequate funding and [we] need ideas (break- throughs) more than dollars” (NRC, 2000:9)

THE ROLE OF GOVERNMENT 197 In the end, China will need to adjust any strategy it follows for gener- ating and sharing knowledge and working with industry to fit its special circumstances. Such a strategy will differ from the U.S. PNGV experience because China does not have large, existing automotive-related research capabilities in its industry, universities, or government research centers. One overarching lesson learned, however, is that the partnership process, in whatever form it takes, is difficult and requires a strong commitment on both sides. Also, because reducing energy consumption and emissions is a large-scale systems problem, it is important that all of the key players be involved in any partnership process. One weakness of the PNGV pro- gram was that the energy suppliers were not partners in the effort. The overriding lesson, though, is that in this globalizing and networking world, communicating and partnering are more essential than ever. Be- cause foreign original equipment manufacturers are highly involved in the Chinese automotive industry, the government must soon decide how much these foreign members will be allowed to participate in any govern- ment-industry program. CONCLUSION Governments have an important role to play in fostering improved re- search and development and an even more important role in determining the attributes of individual vehicles. The government’s role in research and development can vary from providing resources for basic research to stimu- lating the development of human resources. As for vehicle attributes, gov- ernment can stimulate advanced technologies by setting performance stan- dards or introducing strong incentives for rapid advances. It is important that those trying to leapfrog to more advanced technology pay careful at- tention to other important conditions that could limit their success such as assuring the availability of fuels of the appropriate quality. APPENDIX: INSPECTION AND MAINTENANCEPROGRAMS Effective inspection and maintenance programs can identify the cars with emission control malfunctions and assure their repair.8 Test proce- dures must keep pace, however, with the advances in vehicle technology. 8 Some of the material in this appendix has been derived from LAT, Aristotle University of Thessaloniki, Greece (1998). The project described in this report was funded by the Euro- pean Commission, Directorate Generals for Environment (DG XI), Transport (DG VII) and Energy (DG XVII).

198 PERSONAL CARS AND CHINA For the most advanced vehicles, the emissions, when properly maintained, will be so low that a more sophisticated test will be required. Vehicles equipped with electronic controls of air-fuel and spark management sys- tems and equipped with catalytic converters to reduce CO, HC, and NOx emissions are best tested using a transient test on a dynamometer that includes accelerations and decelerations typical of actual driving. In general, I/M programs are most effective when they take the form of centralized I/M systems in which the testing of vehicles is completely separated from those carrying out repairs. These programs also cost much less overall because they tend to be high throughput. The rest of this appendix summarizes the various test procedures that can be used in I/M programs and some of the more recent experiences with vehicle inspection and maintenance efforts. No-Load Short Tests The term no-load denotes all tests during which no external load is im- posed and the car operates with the transmission in the neutral position. Idle/Fast Idle Test This test measures CO, HC, and CO2 concentrations in the raw exhaust gas at idle speed and possibly a higher engine speed, 2,000–3000 revolu- tions per minute (rpm). The test could last from less than one minute for a one-speed idle test without preconditioning to about 10 minutes for a two- speed test that includes a “second chance” test with preconditioning (Tierney et al., 1991; Laurikko, 1994). A garage-type nondispersive infrared (NDIR) analyzer capable of measuring CO, HC, and CO2 concentrations is sufficient for detecting the level of the pollutants. Today, idle/fast idle tests are still widely used in I/M programs be- cause they are the fastest, cheapest, and easiest to perform with the least possible testing equipment. For carbureted cars, they can effectively iden- tify malfunctioning mixture preparation systems by checking the perfor- mance of the carburetor’s idle mixture orifice in the idle test and the main fuel metering orifice in the fast idle test. However, modern cars equipped with electronic fuel injection and ignition systems and three-way cata- lysts may have a defect—such as defective sensors and degraded catalyst efficiency (Pidgeon and Dobie, 1991)—that cannot be detected through their pollutant emissions at idle; even worse, the great bulk of emissions may be generated during transient engine operation. An additional very significant drawback is the negligible amount of NOx emissions at idle.

THE ROLE OF GOVERNMENT 199 Idle/Fast Idle Test with Lambda Test For catalyst-equipped cars, a lambda test may be coupled with an idle/fast idle test in order to check the performance of the mixture prepa- ration system. Three steps are usually performed: 1. The fuel/air ratio is indirectly determined by measuring the CO2, CO, O2, and HC concentrations in the raw exhaust at fast idle (2,000– 3,000 rpm). 2. The fuel/air ratio is artificially modified by adding oxygen, pro- pane, or recirculated exhaust gas to the intake air, and the response of the lambda control system is checked. Long response times imply that the oxygen sensor is degraded, and no response means that the lambda con- trol system is not operating. 3. One or more of the characteristics of the electronic lambda control circuit are measured and compared with the auto manufacturers’ specifi- cations. Since December 1993, Germany has used a test that involves both test types 1 and 2. Evaluations have shown that the test performs fairly well with excess emitters. A combined idle/fast idle–lambda test (involving lambda test types 1 and 2) also is being used in Austria, where it has demonstrated satisfactory effectiveness (Pucher and Lenz, 1990). Steady-State Loaded Tests Because NOx emissions at no-load conditions are negligible, a loaded test is required to measure NOx emission levels, which are a critical source of urban air pollution. The simplest loaded tests involve a dynamometer with steady-state power absorption. A simulation of the car’s inertia weight is not required, because there is no transient phase in the emission test: the car is driven at constant speed and load, and pollutant concentra- tions (CO, HC, NOx, and CO2) are measured during the load phase. In response to the introduction of three-way catalyst-equipped cars, the acceleration simulation mode (ASM) test was developed. For this test the car is driven on a chassis dynamometer at a constant speed and steady- state power absorption that is equal to the actual road load of the car during acceleration. Thus one can achieve a realistic simulation of the car’s load at a specific driving mode without the need of flywheels for inertia simulation. However, at high speed/high acceleration combinations the required power absorption is too high to be achieved without overheat- ing the engine (Austin and Sherwood, 1989). Pollutant concentrations (CO, HC, NOx) are in principle measured in the raw exhaust. Each steady-state

200 PERSONAL CARS AND CHINA test mode requires about 10 minutes for preparation, preconditioning, actual testing, and documentation. Austin and Sherwood (1989) compared several ASM speed/load com- binations with idle tests and already developed steady-state loaded tests as well as with a transient loaded test. The best results were obtained from the ASM 5015 test, which has a constant speed of 15 mph (24 kilome- ters per hours and a steady-state load equal to 50 percent of the load re- quired to accelerate at 1.47 meters per second squared (m/s2)—the maxi- mum acceleration rate on the Federal Test Procedure (FTP)—at a speed of 15 mph. In the late 1980s TÜV, a German company that undertakes a great deal of government-type work, including certification of new vehicles, I/ M testing, and government research projects such as emissions factor tests, investigated a similar loaded test. The car is driven at 50 kph and at 7- kilowatt dynamometer power absorption in third gear (position “D” for cars with automatic transmission) and then idles; pollutant concentrations (CO, HC, NOx) in the raw exhaust are measured at the end of both the loaded and the idling phases (Voss et al., 1987). Vehicle preparation, pre- conditioning, testing, and documentation take about 10 minutes. The study concluded that the test is much more appropriate than a simple idle/fast idle test for inspecting catalyst cars. Transient Loaded Tests In transient tests, cars are driven on the dynamometer according to a specific driving schedule; the main differences between these tests and those used for type approval or new vehicle certification are the duration of the driving cycle and the hot start. Because exhaust gas emissions are expressed in mass units, a constant volume sampler (CVS) system and laboratory-quality analyzers are required to detect low pollutant concen- trations in the diluted exhaust sample. A multiple-curve dynamometer with flywheels also is required to simulate the instantaneous road load and the power needed to accelerate the inertia masses of each car. The CDH 226 test developed by the Colorado Department of Health (CDH) sought to achieve a high correlation with the U.S. Federal Test Procedure, especially for three-way catalyst cars. Numerous studies have demonstrated correlation coefficients (R2) of 0.79–0.96 for all three pollut- ants (Ragazzi et al., 1985; Austin and Sherwood, 1989; Klausmeier, 1994). Excess emission identification rates were about 90 percent for all three pollutants at 5 percent errors of commission (Ragazzi et al., 1985). The U.S. Environmental Protection Agency, however, decided to de- velop a more transient alternative to the CDH 226 in order to better simu- late the FTP. The result was the IM240 (Pidgeon and Dobie, 1991). The

THE ROLE OF GOVERNMENT 201 IM240 procedure requires a constant volume sampler and laboratory- grade analyzers for carbon monoxide, hydrocarbons, nitrogen oxides, and carbon dioxide. Emissions in the diluted exhaust gas are normally de- rived on a mass basis with a CVS, and the test takes about 10 minutes to perform. The IM240 showed correlation coefficients of 0.89–0.97 for all three pollutants with the FTP hot start portion; another test sample showed coefficients of 0.54–0.82 with the full FTP, including cold starts (Klausmeier, 1994). This procedure evolved into the VMass test proce- dure, which has demonstrated very close correlation with the IM240 test but at much lower cost. REFERENCES Austin T. C., and L. Sherwood, 1989. Development of Improved Loaded-Mode Test Proce- dures for Inspection and Maintenance Programs. SAE Technical Paper No. 891120. So- ciety of Automotive Engineers. Chapman, R. 1996. Testimony, Hearing on Partnership for a New Generation of Vehicles (PNGV): Assessment of Program Goals, Activities and Priorities. Subcommittee on Energy and Environment of the Committee on Science, U.S. House of Representatives. 104th Cong., 2d sess. Washington, D.C.: Government Printing Office. European Environment Agency. 2002. Annual European community greenhouse gas inven- tory 1990–2000 and inventory report 2002. Technical report no. 75. Online. Available at reports.eea.eu.int/technical_report_2002_75/en. Accessed October 22, 2002. Hellman, K. H., and R. M. Heavenrich. 2001. Light-Duty Automotive Technology and Fuel Economy Trends. EPA 420-R-01-008. Advanced Technology Division, Office of Trans- portation and Air Quality, U.S. Environmental Protection Agency. September. Kenworthy, J. R., and F. B. Laube. 1999. An International Sourcebook of Automobile Depen- dence in Cities, 1960–1990. Boulder: University Press of Colorado. Klausmeier R. 1994. Analysis of I/M test alternatives. Paper presented at the International Conference on Ozone Control Strategies for the Next Decade (Century), San Francisco. LAT, Aristotle University of Thessaloniki, Greece; INRETS, France; TNO, The Netherlands; TÜV, Rheinland, Germany; and TRL, United Kingdom—in collaboration with MTC, Sweden; IVL, Sweden; VKM-Thd, Graz University of Technology, Austria. 1998. The Inspection of In-Use Cars in Order to Attain Minimum Emissions of Pollutants and Optimum Energy Efficiency. May. Laurikko J. 1994. In-Use Vehicle Emissions Control in Finland: Introduction and Practical Experience. SAE Technical Paper No. 940930. Society of Automotive Engineers. National Research Council (NRC). 2000. Review of the Research Program of the Partnership for a New Generation of Vehicles: Sixth Report. Washington, D.C.: National Academy Press. ———. 2001. Review of the Research Program of the Partnership for a New Generation of Vehicles: Seventh Report. Washington, D.C.: National Academy Press. Pidgeon W. M., and N. Dobie. 1991. The IM240 Transient I/M Dynamometer Driving Sched- ule and the Composite I/M Test Procedure. U.S. EPA Technical Report AA-TSS-91-1. U.S. Environmental Protection Agency, Washington, D.C. Pucher E., and H. P. Lenz. 1990. First results in testing in-use catalyst cars using air-fuel ratio measurement from the exhaust gas. ATA 905114. Paper presented at the Twenty-third FISITA Congress.

202 PERSONAL CARS AND CHINA Ragazzi, R. A., J. T. Stokes, and G. L. Gallagher. 1985. An Evaluation of a Colorado Short Vehicle Emission Test (CDH-226) in Predicting Federal Test Procedure (FTP) Failures. SAE Technical Paper No. 852111. Society of Automotive Engineers. Sperling, D. 2001. Public-private technology R&D partnerships: Lessons from U.S. Partner- ship for a New Generation of Vehicles. Transport Policy 8(4):254. Tierney E. J., E. W. Herzog, and L. M. Snapp. 1991. Recommended I/M Short Test Proce- dures for the 1990s: Six Alternatives. U.S. EPA Technical Report AA-TSS-I/M-90. U.S. Environmental Protection Agency, Washington, D.C. U.S. General Accounting Office (GAO). 2000. Results of the U.S.-Industry Partnership to Develop a New Generation of Vehicles. GAO/RCED-00-81. Available at www.gao.gov. Voss H.-J., D. Hassel, H.-P. Neppel, A. Richter, N. Heckötter, and A. Friedrich. 1987. Peri- odic Inspection of Exhaust Emissions from Low Pollutive Otto Engine Vehicles and Diesel Engine Vehicles. SAE Technical Paper No. 871084. Society of Automotive Engi- neers.

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This collaborative study between the NRC and the Chinese Academy of Engineering (CAE) addresses the problems facing China in the next twenty years as it attempts to provide personal transport desired by millions of Chinese, while preserving the environment and the livability of its cities. According to Song Jian, president of the CAE, the decision has already been taken to produce a moderate cost family car in China, which will greatly increase the number of vehicles on the roads. This study explores the issues confronting the country, including health issues, the challenge to urban areas, particularly the growing number of megacities, environmental protection, infrastructure requirements, and technological options for Chinese vehicles. It draws on the experience of the United States and other countries and review model approaches to urban transportation and land use planning. Recommendations and policy choices for China are described in detail.

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