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New research shows consumers willing to pay more for higher fuel economy

Tue 29 January 2008 | Back to news list

The Department for Transport has published two new research reports commissioned to enhance understanding of consumers' car purchase decisions and help analyse which policy instruments might best be used to reduce CO2 emissions from road transport. One study, by Cambridge Econometrics, found that households would be willing to pay £510 more to purchase a car in return for reduced fuel costs of £1 per 100 km.

Car purchase costs are expected to rise as a result of the European Commission's proposed regulation to cut CO2 emissions to 120g/km. From a consumer's perspective, however, the price rise would be countered by improvements in vehicle fuel economy.

The DfT's research findings imply that UK consumers would be willing to pay an additional purchase price of around £1000 for the improvement in fuel efficiency in a typical car (at current fuel prices) resulting from the European Commission's proposals for a 120g CO2/km regulated emissions target. Should fuel prices rise further, consumers could be expected to be willing to pay a higher purchase premium.

A recent report by Moody's Investors Service (see link) says that the additional cost to car makers of meeting the 2012 targets will be in the range £220-£740. ACEA, however, says the additional costs to car makers of compliance with the EC regulations will be more like £2700 while the EC itself expects the extra cost to be about £970.

The Cambridge Econometrics report also confirms the prior beliefs of the DfT that, following a change in either the purchase price of a vehicle or in the costs of motoring , there is likely to be a greater response (higher elasticity) in the middle CO2 bands (121-165g/km) than in the upper bands.


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