Policies and predictions for a low-carbon transition by
2050 in passenger vehicles in East Asia by 2050: Basedon the analysis using E3ME-FTT modelAileen Lam
University of Macao
Co-Authored bySoocheol Lee, Jean-François Mercure, Yongsung Cho, Chunhsu Lin, Hector Pollitt,
Unnada Chewpreecha, Sohpie Billington

Contents
1. Background
2. Research goal and gap in the existingliterature
3. E3ME and FTT-Transport
4. Policy assumptions and data review
5. Results
6. Conclusions

Background• East Asian countries, including China, Japan and Korea and Taiwan
were responsible for CO2 emissions totalling approximately 12% in1980 and 18% in 2013 of global levels from consumption ofpetroleum.
• Decarbonization of the transport sector is critical in order toincrease our probability of staying within 2℃ target of the Paris
Agreement.
• The diffusion of zero emissions vehicles into the marketplace
determine technological trajectories that are critical in emissions
reductions.
• It is important to determine the relationship between policy
instruments and the rate of adoptions for low emissions vehicles.

Gap in the existing literature• Most existing studies feature a few policy instruments, for
one particular country.
• It is not possible for these studies to compare theeffectiveness of different instruments across countries.
• Most studies have not used an Integrated Assessment
Model (IAM) to study the transport policies and therefore,cannot be used to understand the impact of policies on
global climate change.
• The existing studies have either taken one particular car
model or use a representative agent to examine theresponse of agents to a set of policy incentives, while in thereal world, consumers are diverse and they do not respondto policy incentives collectively.

Research goal
• The main objective for this research is model oftechnological diffusion, called the FTT: Transport, to study thepossible future technological transitions in the passenger car
sector and motorcycles in China, Taiwan, Japan, Korea.
• The FTT-Transport is able to model the effect of different
forms of policy incentives in the passenger transport sector,including fuel tax, vehicle tax/subsidies, annual tax, fueleconomy standards, technology mandate and biofuel
mandate for the East Asian countries• We performed four policy scenario analysis for the four East
Asian countries in order to find a set of policy incentives thatwill lead to significant emissions reductions

E3ME• E3ME model is an out-of-equilibrium macroeconometric model of the global economy.
• Used for economic evaluation of environmental policy.
• E3ME key strength Two-way linkages between economy, energy (andmaterial) inputs and environmental systems
 Detailed sectoral disaggregation
 A strong empirical grounding Short and long-term econometric specification

Structure of E3ME

E3ME-FTT-Transport• The FTT-Transport model is a sub-module of the E3MEFTT-GENIE.
• E3ME is a non-equilibrium macroeconometricsimulation model based on a demand-led Post-Keynesianstructure.
• FTT-Transport model (Future TechnologyTransformation)• Uses Lotka-Volterra equations to model technology
substitution and diffusion.
• Reproduces typical S-shape technology diffusion curves.
• Models consumer decision with discrete choice theory.

Framework

The model structure of the E3ME-FTT-Transport model. Tax policies are simulated in
the model to influence the cost component. New car sales will eventually impact on
global energy use and emissions from passenger transport.

Technological diffusion in the FTT model
The FTT framework models technological diffusion by a set of differential
equations of the Lotka-Volterra family. The flow of market shares fromtechnology j to technology i is

And the flow of market shares from technology i to technology j is

The market shares for technology i as a result of flow of market shares is

Where Fij is the consumer choice matrix, Si is the shares for technology I, Sj is theshares for technology j, 𝜏 is the relative technological turnover rate.

The levelised cost of transportation

Intangible variable•How do we find non-financial cost (γi) ?
•The non financial cost (constant) is adjusted so that theprojected shares follow the overall historical trends.

Consumer choice
Learning by doing• Endogenous technical change is assumed in the E3ME:FTT
both at the aggregate level in E3ME and through learning bydoing.
• Capital costs for vehicle technologies (I (t)) fall by a certain
percentage (learning rate b ) every time the total quantity
manufactured Wi(t) doubles:ii• For niche technologies, the existence of technologicallearning implies that prices for the new technologies (e.g.
electric cars) will fall as the quantity of production increases.

Consumer decision matrix••

For a model of technology diffusion, we require an
aggregate representation of decision-making when
agents are diverse, and cost have variations.
We postulate that distributions of perceived costs
correspond to distributions of observed costs.

Transport demand and vehicle sales• Passenger transport demand can be measured in different ways,
including the number of trips, vehicle kilometres and passengerkilometres.
• Two factors are particularly important in projecting emissions: thenumber of vehicles VS registered to be on the road and the number ofpassenger kilometres PM

where PM is the demand for transport in passenger kilometres (pkm), RRPD is
the real income, PFRM is the price of middle distillates for road transport, VS is
the number of new vehicle sales and PV is the real price of vehicles and ST is
the number of vehicles on the road, all specified for each region j.

Integration into E3ME
• The integration of FTT:Transport to E3ME is made through several
variables. The vehicle and transport demand econometric equations
are technically part of E3ME, not FTT, and interact directly with othervariables such as income, prices and output (GDP).
• Changes in the demand for oil for transport affect the price of oil
through our fossil resources depletion algorithm• If the demand increases, more costly resources are developed andthe marginal cost goes up, while if the demand declines, costlyresources are abandoned and the marginal cost goes down.
• The demand for electricity from electric vehicles in FTT:Transport isalso accounted for in E3ME, which is fed through to the sister model
FTT:Power.

Data overview

Policy assumptions
Policy incentives

Model representation

Examples of the real-world
policyRegistration tax
As vehicle tax, this is a tax on Acquisition tax based on fuelexpected (not yet emitted) CO2 economy road tax
emissions. The tax is proportional tofuel economy in the unit of USD/(gCO2/km). It is added to the annual
costs summed to get the LCOT.
Fuel tax
Added to the fuel cost. As vehicle Fuel tax (e.g. petrol tax, diesel
tax, this is a tax on expected (not tax); acquisition tax based onyet emitted) CO2 emissions. The tax fuel economy
is proportional to fuel economy in
the unit of USD/(g CO2/km).
Biofuel mandate Biofuel as a certain percentage of Biofuel mandate
liquid fuels is added to fuel cost.
Fueleconomy The sale of lower efficiency liquid- Fuel economy standards
regulationfuel vehicles is banned.
Kick-start
A certain percentage of EVs are Kick-start program
programbought (e.g. by public or private
institutions) as a policy or strategy.
EV subsidies
EVs are financially subsidized by the Government-financed
public sector.
purchases

Definition of policy incentives
Assumptions of policy scenario for China, Japan, Korea and Taiwan

EV subsidies (USD)

Fuel tax (USD/liter)

Carbon tax (USD/(tCO2)

Kick-start program

Biofuel mandate

Baseline scenario

Current subsidy ofeach country

Current fuel tax ofeach country

000

Scenario 1

+1000

+0.1

203%

0

Scenario 2+2000+0.2

505%

5%

Scenario 3

+3000

+0.3

1008%

10%

Results

Emissions

Conclusions• It is possible for Japan to achieve over 50% emission reductions
without any policy incentives.
• An integrated approach (combine tax incentives, subsidies and kickstart program) will lead to more than 70% EV shares in China by 2050.
• We performed four scenario analysis to examine the interactive
effect of the policy incentives in the four East Asian countries.
• We find that the tax incentives are not sufficient to cut emissions
significantly for all countries• The diffusion of hybrid cars in Korea will not lead to a significant
emissions reduction in Korea. It is important to encourage thediffusion of EV in Korea by a kick-start program with an integrated setof policy instruments• In the case of Taiwan, without a kick-start program, emissions frompassenger cars in Taiwan will not be cut significantly.

DataThank you!
Any questions?
Email: meimeilam@umac.mo