Effects Of Co2 Emission Legislation Economics Essay

Effects Of Co2 Emission Legislation Economics EssayThe global mode conditions ar incessantly changing which has become a threat and wiz of the greatest challenges faced by the international community. Transport is amongst one of the main federal agent causing one fifth of nursery gas emissions and in addition a large sh be of air pollution and noise nuisance (Braithwaite and Drahos, 2000). Additionally it divides rude(a) areas into small patches that lead to severe consequences on the landscape which makes it detrimental to surroundingsal sustainability. The number of fomites worldwide is projected to augment from around 700 million at fork up to 1.1 billion by 2020, so if anything, the problems caused by autos will get worse not better, unless dramatic changes are made (Burns et al 2002). In response to the climbing concerns and substantial evidences over global warning, a suite of climate change legislation has been introduced. According to the Kyoto protocol the Europ ean Union must reduce greenhouse gas emission by 8%. International manufacturing is dominated by car diligence and the vehicle work is considered as the worlds largest manufacturing sector. With internationally integrated investment, production and sales the self-propelled pains has the supremacy to manage environmental damage. The authoritative opinioning of car industry spawns two contrasting viewpoints (i) the industrys products are a major(ip) source of global environmental damage (ii) industrys persistently determined to strike a balance between the imperatives of positiveness and environmental sustainability. Safety measures possess been introduced and legislations gravel been put forward by the traditional car producing countries for reducing the specific emission for vehicles and to increase fuel grapplency of cars. The study expounds on the various aspects that encompasses the acquire for CO2 emission legislation and its pertinent ambiguities. The study further i nvestigates the response of EU car industry by critically analysing its strategic progression to bear on against the challenges it faces due to proposed legislation and constantly evolving economic conditions.1.1 ENVIRONMENTAL DAMAGE BY AUTOMOTIVE INDUSTRYTransport industry is responsible for several activities that one way of life or another cause environmental damage and these may include fuel extraction, processing and captivate, manufacturing and 90 percent of all carbon monoxide emissions are too cause by cars. In addition to this, cars are also a major cause of acid rain. Fol downhearteding are some facts and figures compiled by examining the lively data that accounts for ample evidence of the environmental damage caused by carsAmongst all land-based modes of transport, cars are the most capability intensive with petrol-powered cars consuming in aggregate more(prenominal) energy and producing more greenhouse gas emissions than any other type of vehicle (International Energy Agency 1993).Annually seven billion pounds of scrap and hazardous is produced by international car industry (Elster,1989)Cars are a prime cause of the depletion of the worlds resources (Freund and Martin, 1993).About 25 percent of total CO2 emissions are caused by transportation industry out of which up to 85 percent is caused by road transport (UNEP 2003).On average, road transport accounts for 48 percent of nighttime emissions in OECD countries and around 60 percent of this is done by cars (Paterson, 2000).1.2 ANALYZING THE NEED FOR CO2 EMISSION LEGISLATIONThe CO2 emissions in the EU grew by 32% between 1990 and 2005 unlike other sectors accomplished to reduce their emissions by 9.5% on average over the same period (World Values Survey, 2003). Earlier, the share of CO2 emissions by transport was 21% in the year 1990 which rose up to 27% by 2005 (UNEP, 2003). Passenger cars and vans are responsible for over half of the CO2 emissions. Kyoto indicates that transport is the wo rst performing sector that seriously jeopardises the achievement of the ranges. Under Kyoto protocol the European Union is committed to reduce greenhouse gas emissions by 8 per cent by 2008-2012 compared to the 1990 level (UNEP, 2003). Approximately 20% cut in its greenhouse gas emissions by 2020 has been committed by the EU and around 30% cut provided that the other countries follow suit when a new climate deal is agreed. The EU has also adopted a target of improving energy efficiency in the European Union by 20% by 2020 (UNEP, 2003). The legal implementation of these targets along with climate and energy package was adopted in December 2008. The package of emissions trading scheme contains laws for carbon capture and storage, renewable energy, transport fuel quality, and car emissions (Held et al, 1999).1.3 ASSESSING THE LOOPHOLES OF LEGISLATIONThe enforcement of CO2 emissions legislation will score place through a system of fines. For every g/km a manufacturer exceeds its compa ny target, it has to pay a 95 fine per vehicle sold, in principle. However, there have been some ambiguities in the commandment indicated in several studies and when all these ambiguities are put together in practice then(prenominal) it signifies that the target for 2015 is close to 140 g/km, rather than 130 g/km (Paterson, 2000). The detected loopholes in the law includeFor currently unmeasured and vague eco-innovations, up to 7 g/km credits that could be exchanged for measured reductionsFor very low-emission cars there are super credits, which would count for more than one car and hence water down overall CO2 reductions which are based on fleet averagesMuch lower penalties for small surpassing of the target until 2018. The penalties for the first, second and third g/km of surpassing are only 5, 15 and 25 per g/km respectively instead of 95Exemptions for small-volume carmakers.1.4 EU CAR INDUSTRY VS CO2 EMISSION LEGISLATIONIn accordance with the CO2 emission legislation it has be en anticipated that its implementation would be fruitful full to gain at least 20% cut in domestic EU emissions and at most 30% is the target to attain (The Economist, 2002). Scientists believe that closely 40% targets are essential to hit the EUs maximum 2 degrees warming (The Economist, 2002). The climate policy is going off track where the substitution of reduction in real emission has been counterbalanced by the effort sharing and ETS laws and the renewable energy law on the other hand, allows bio fuels which could cause the transport emissions to intensify. Transport is also critical in the debate on Europes energy dependence. By mid-2008, approximately 1 billion worth of crude oil has been imported by Europe per daytime (Leveque, 1996). The noticeable fact is that EU recognises cars as the single biggest consumer utilizing around 4.4 million barrels per day and is also responsible for 40 per cent of imports which constitutes that car MNCs have a very strong and economicall y powerful position (World Values Survey, 2003). In order to put political pressure on governments against environmental regulations car MNCs have consistently lobbied governments against emission controls to reduce greenhouse gases on the basis that this would lead to severe economic impacts (Bradsher, 2002).PROPOSED STRATEGY FOR THE EU CAR INDUSTRY notwithstanding of the strict regulations by European Commissions that may impose financial loss to the EU car industry, even then they could gain. In accordance with the strategy suggested by Porter, selling poorly performing, unsafe, or environmentally damaging products is not a route to real competitive advantage in sophisticated industry and industry segments, especially in a world where environmental sensitivity and concern for social welfare are rising in all advanced nations (Porter 1990). The proposed strategic model also supports this vision together with the UNEP, World Resources Institute and World Business Council for Sustai nable Development which sees competitive advantages for tradinges that voluntarily adopt environmentally sustainable strategies (United Nations Environment Programme and World Business Council for Sustainable Development 2002).2.1 PESTLE ANALYSISEuropean Automotive industry is greatly influenced by the global economic circumstances, political scenarios, changing market trends and revolutionizing technological conditions (Hutton, 2002). All these factors put an impact both directly and indirectly upon the subsistence of the industry. This PESTLE analysis is a significant operator to illustrate the political, economic, socio- demographic, technological and legislative aspects for managers to groom a strategic approach in order to reduce CO2 emissions in compliance with the legislation.POLITICALThe self-propelling industry is greatly influenced by European Union that will continue to introduce new legislation and modify the existing ones. The political scenario of EU is exacerbated by the fuel tax which is ineffective to address the environmental issues rather working as a tool for governments to raise revenues (Ostrom, 1990). The European Commissions Auto Oil II programme illustrated in the Table 01, indicates the inefficiency of fuel tax CO2 savings if fuel duty was increased by 20% above 1999 UK levels by 2002 which are unlikely for political reasonsTable 01Finland-0.43%France-0,43%Germany-0,61%Greece-2,14%Ireland-1,52Italy-0,54Netherland-0,52Spain-1,41United Kingdom-0,55Source European Commission2.1.2 ECONOMICThere is a vast scope for improvements in efficiency and environmental sustainability within the self-propelled industry. The increased use of low carbon technologies in accordance with the CO2 emission legislation creates value and offer catch jobs in the self-propelled industry. Furthermore, it reduces the 30bn fuel bill that Europes businesses, particularly small and medium-sized enterprises, currently pay every year to fill up their vans and th is account for a exculpate benefit to the consumer (OBrien et al, 2000). Small and medium sized enterprises in particular stand to benefit from the fuel savings resulting from this legislation.SOCIO-DEMOGRAPHICIn future, china and Latin America are expected to account for the bulk of new car sales worldwide and the ability of the EU to enter these markets is restricted. Most of the revenue generated by the big tierce American firms is through the sales of pick-up trucks and sports utility vehicles (SUVs) which are considered tarnished due to their size, load and high fuel consumption however, European and Japanese manufacturers are producing similar gas-guzzlers to compete for market share in this sector (Storm Clouds over Detroit 2002 Fords Troubles 2003 Bradsher 2002).TECHNOLOGYFor developing a low carbon emission strategy for sustaining business competitiveness, the EU automotive industry must enable cost effective reductions in carbon emissions from production, distribution a nd energy use across the production process (Dicken, 1998). There is a need for well-timed investment in technologies which are eco-friendly and vital enough to minimise the cost of making the conversion and will provide the potential for business to get the most out of market opportunities.LEGISLATIONA number of legislative directives and government policies followed by the growing awareness of climate change issues are aimed at reducing the negative environmental impact of the EU automotive industry. The End of Life Vehicles Directive (ELV) is a complex piece of legislation that aims to increase the levels of re-use and recycling of vehicles that are to be scrapped to improve environmental standards and also limit the use of material harmful to the environment in new vehicles (Martin and Raes, 2002). Moving to low carbon fuel will require a technology shift for both fuel and vehicle technology.2.2 PORTERS FIVE FORCE MODELTo develop a wholesome model for competitive rivalry risk-ad justed rates of return should be invariable across the business. The structure of an industry explains how it may sustain different levels of profitability (Hasenclever, Mayer and Rittberg, 1997). Porters model is a tendingful contrivance to develop a well thought out and a competitive strategic plan that congregates the opportunities and threats of the external environment of the organizations. For an ideal stratagem the understanding of industry structures and their ways of evolution is extremely important. The following Porters five force analysis of EU car industry is intend to propose a valuable strategic approach that is profitable and also tends to comply with the CO2 emission regulations.Potential EntrantsSupplier occasionBuyer PowerCompetitive RivalrySubstitute of Products2.2.1 BARGAINING POWER OF SUPPLIERSA significant proportion of the total number of vehicles in EU will continue to be outside warranty age thus generating business for the maintenance and repair sub-sect or of the automotive industry but cars are likely to be less competent potentially damaging the industrys environmental agenda (OBrien et al, 2000). On the other hand the legislation consents for basing car taxation on environmental characteristics of the vehicle however, suppliers choice is as important regarding vehicles for development and promotion. To gain an eco-friendly development and promotion policy economic incentives to suppliers is much more effective and the consumers can be framed to meet the infallible targets. The adapted version of tradable CO2 performance scheme proposed by California could be beneficial to European automotive industry (OBrien et al, 2000).2.2.2 BARGAINING POWER OF BUYERSConsumers help to encourage rivalry through their consumption decisions and switching behaviour however, they currently require the data about the environmental footprint of new and existing automotive products to make fully informed choices. Considering the consumers frame of mind a mixture of regulatory instruments and economic incentives should be launched by the automotive industry and attention should be drawn towards the trade of new cars as well as the usage of the vehicle supply. The public procurement directives could be a step forward to name a lead market for EU automotive industry for environmentally enhanced vehicles.2.2.3 THREATS OF POTENTIAL ENTRANTSThe strict CO2 emission regulations do not inevitably hinder competitive advantage against foreign rivals (Ordeshook, 1993). The EU automotive sector should situate determined environmental standards for its market as potential new entrants from Asia including China and India adopt EU car emission rules and hence progressive standards will put the EU automotive industry in a leading position to make the first move.2.2.4 SUBSTITUTE OF PRODUCTS AND SERVICESDue to the highly technical environment of the automotive sector across the globe the key challenge for European car industry is to introduce more inventive products in the markets. The revenues of electronics and catalyst firms of the automotive sector will be damaged if compromises are made over environmental standards for vehicles (Green and Shapiro, 1994). Moreover it is not in the interest of the EU as a whole to become ever more dependent on oil imports. Dominance of the international players like US and China is often considered as a market barrier but the competitiveness of EU automotive industry depends on utilising its potential. It is also imperative to note that he demand for service and mechanical repairs has been evidently reduced due to improved reliability of cars which lead to press cutting the labour hours by 32% and the total number of service and repair outlets has fallen by 5,500, to a total of 24,700 in 2004 (Paterson, 2000).2.2.5 COMPETITIVE RIVALRYThe comment of competitiveness in EU is heavily prejudiced towards creating monetary benefits for the car industry. The automotive sector of EU must r ecognise the significance of the soaring challenger and rivalry and should adopt the norms of democratic society which demands self-confronting and integrates all stakeholders equally. The competitiveness of this knowledge-based economy can be improved if the car industry gives up its lobbying against the environmental regulations and develop an eco-friendly stratagem (Holliday, Schmidheiny and Watts 2002).CONCLUSIVE REMARKSThe introduction of CO2 emissions legislation comes with both negative and positive externalities, information asymmetries and significant uncertainty that subsequently erect barriers. The strategic approach of EU automotive industry to persuade reduced carbon emissions in compliance with the CO2 emission legislation needs to be addressed in a balanced and appropriate manner taking into account of relevant drivers of change such as market trends, consumer behaviour, the technological conditions and financial facet of the automotive industry. There is an evidence that strong environmental policy, indeed stronger than the rest of the worlds, does not hurt the industry and but improves rather than deteriorates its competitive position and this is illustrated by the volunteer commitments by EU car manufacturers to reduce fleet average CO2 emissions to140g/km by 2008 (ACEA 2002).