Walk and chew gum: A demand and supply illustration of macro and micro net-zero initiatives for the automobile industry

Abstract

This paper draws upon several related perspectives not necessarily following a single assumed methodology in addressing climate changes issues for the automobile industry. It utilizes economists' simple demand and supply tools in illustrating how net-zero initiatives can be considered from a “micro” as well as a “macro” perspective. Drawing this distinction can illustrate a difference between green car and green certificate initiatives for an agenda for the industry's drive to net zero. Macro net-zero is almost universally agreed and implemented in many industries of the world including the automobile industry. A pragmatic approach for micro net-zero arguably may be additionally needed, as we are likely to see fossil fuel driven vehicles coexisting with alternative energy vehicles during an unavoidable transitory phase-out period. As an illustration of benchmark carbon pricing method, a CO2 auditing exercise is conducted based on specific car information retrieved from the US Department of Energy dataset. We found under quite reasonable assumptions, green certificate fee calculated specific to a new car in dealership showroom would not be high in absolute as well as in percentage term compared to the price of the car. Furthermore, if green fees can be monitored to be spent on tree planting agencies, an acreage-tree equivalent of the green fee can also be calculated, thus enabling the pricing mechanism to be integrated with green marketing. The importance of marketing as a means to privatize a Pigouvian tax is recommended, pointing out the notion of augmented product inclusive of a green certificate for vehicles may contribute to net-zero. The proposed framework stated in the context of integrated perspectives can be useful for static efficiency while also noting the limitation of market economics towards contributing to dynamic efficiency, which is currently going through a process of Schumpeterian competition. The framework helps clarify energy policy issues that have now mixed discussions of old (i.e., fossil fuel) and new technology (i.e., alternative energy). This micro net zero perspective may not be limited to the automobile industry.