Are car manufacturers on the way to reduce CO2 emissions?: A DEA approach

- We test the ability of car manufacturers to meet emission targets.
- A DEA-Malmquist model is estimated using panel data between 2004 and 2010.
- With post-2007 technical change, the vast majority of companies beat the 2015 target.
- 27% of the market meets the 2020 target, and 3% meets the 2025 target.
- More stringent regulation is needed to meet the goals set by the European Authorities.

One of the pillars of the fight against climate change is reducing the amount of greenhouse gases that are emitted into the atmosphere. In that regard, curtailing CO2 emissions from transport activities is a major objective. In its attempts of “decarbonising” transport, the European Commission set in 2009 different emission limits on the vehicles sold in Europe. With this background, this paper aims to test the ability of the major car manufacturers to meet these present and future targets with the existing technological trends. To that end, we provide an in-depth analysis on the temporal evolution of emission efficiencies in the Spanish car market. The well-known DEA-Malmquist method is applied over a large sample of car models sold in Spain between 2004 and 2010. A second-stage regression allows us to identify the main drivers of efficiency, catch-up and technical change over the period. Finally, the estimated trends are extrapolated to predict future emission levels for the car manufacturers. Using post-regulation rates of technical change, results show that the vast majority of companies would meet the 2015 target, 27% of the current market would meet the 2020 target, and around 3% would be able to comply with the 2025 target. Thus, since all targets are technologically feasible, stricter regulation is the recommended approach to encourage manufacturers to meet the goals set by the European Commission.