The Future of Low-Carbon Vehicles

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In Europe and most advanced economies, government regulation and growing consumer interest are driving the development and deployment of vehicles that reduce the consumption of fossil fuels and resultant carbon emissions.

While the expanding market for more sustainable vehicles does not yet signal the imminent demise of the internal combustion engine, the combination of consumer demand and regulatory pressure will accelerate the shift toward hybrid, electric, and alternative-fuel vehicles over the next two to three decades.

This shift will undoubtedly affect national and international economies in many ways, both direct and indirect. Direct impacts, for instance, will include reducing dependence on—and demand for—(often imported) fossil fuels, heightening demand for the development and production of new vehicle technologies, and shrinking government revenues gleaned through gas taxes.

In 2013, Cambridge Econometrics and global sustainability consultants Ricardo-AEA published a technological and economic analysis of the impact of the transition to low-carbon vehicles, particularly light-duty vehicles (cars and vans) on the economy of the EU.

The report, An Economic Assessment of Low-Carbon Vehicles, evaluates the economic impact in the EU of improving the efficiency with which vehicles burn fossil fuels. The study focuses on anticipated efficiency gains delivered via technological improvements in internal combustion engines (ICE)—including weight reduction, engine-downsizing, and hybridization—as well as the expanded use of hybrid electric vehicles (HEVs).


  • Technological advancements needed to improve fuel efficiency will add significantly to the cost of new cars.
  • Fuel savings and lower operating costs will more than offset the hike in purchase price.
  • Scenarios suggest that by increasing vehicles’ fuel efficiency, the EU can add jobs and boost GDP.


The shift to more fuel-efficient, less carbon-emitting vehicles will require technological advances both in ICE vehicles and in hybrid and electric vehicles.

  • CE improvements: In the short term, and likely in the medium term as well, the dominant technological advances that improve fuel efficiency in the automotive industry will probably center on improvements to internal combustion engine technology. Indeed, even in the long run, advancements in the manufacturing of high-efficiency internal combustion engines will remain critically important, as they will have continued use in plug-in hybrids and range extenders.
  • Weight reduction: Reducing a vehicle’s weight, aerodynamic drag, and rolling resistance can also be effective in improving fuel efficiency. Redesigning the seating, glazing, and interior components to minimize vehicle weight and increasing the use of high-strength steel and aluminum in vehicle body structures will likely be the focus of weight reduction efforts in the near term. Simplifying assemblies to minimize the number of components can also reduce overall vehicle weight. A 2012 study commissioned by the US EPA found that, employing these and other technologies, vehicle weight reduction of 20% could be achieved by 2020 at minimal or no cost with no loss of performance compared to current models.
  • Battery advances: The cost and performance of car batteries (currently mostly nickel- and lithium-based) exercise a powerful influence on both the cost and the performance of HEVs and plug-in vehicles. As a result, advancements in battery technology and the reduction of battery and overall vehicle costs will have a significant impact on the speed at which hybrids and other electric vehicles are adopted over the next 15 years. Battery technology also influences the efficiency of ICE vehicles, of course. Advanced lead-based batteries, for example, now provide start-stop functionality in almost all new cars today, adding to vehicles’ efficiency and cutting down on their carbon emissions.


  • Although Cambridge Econometrics and Ricardo-AEA focus on the economic impact of low-carbon vehicles solely in the EU, their conclusions also apply to World 1 economies elsewhere. All developed economies that shift to low-carbon vehicles can anticipate similar costs (expensive technologies to meet emission regulations, rising costs for new cars, rising taxes to compensate for falling fuel-tax revenues) and benefits (less dependence on imported oil, job growth related to fuel-efficient technologies, and rising real household incomes), to a greater or lesser degree than that projected for the EU.
  • Manufacturers of auto parts will find it incumbent to make increasingly lightweight products. R&D investments in developing and adapting lightweight materials (carbon fibers, bioplastics, high-strength aluminum and steel) to optimize weight reduction of auto parts will provide these manufacturers with a competitive advantage.
  • A shift to low-carbon cars may heighten demand for aftermarket upgrades. The climbing cost of new cars due to fuel- efficiency technologies may dissuade new-car purchasers from buying additional options directly from auto dealers at the time of purchase. The lower cost of operating these vehicles, however, may prompt owners of cars that are several years old to seek to upgrade them with such optional accessories as in- vehicle Bluetooth, DVD entertainment systems, navigation systems, smart keys, and the like.