No trend reversal: Gasoline and diesel continue to dominate road transport

Press Release of September 2, 2015

Alternative drive systems like electric and hybrid models, and alternative fuels like LPG and natural gas, continue to play a minor role – policy should focus on efficiency improvements to reduce CO2 emissions from conventional fuels and increase the environmental friendliness of road transport – preferential tax treatment for diesel should be abolished

Gasoline and diesel will continue to dominate the fuel demand in German road transport; electric, hybrid, and fuel cell cars will continue to play a subordinate role. This is the result of a recent study conducted by the German Institute for Economic Research (DIW Berlin).

German Institute for Economic Research (DIW Berlin)

The German Institute for Economic Research (DIW Berlin) is one of the leading economic research institutions in Germany. Its core mandates are applied economic research and economic policy advice as well as provision of research infrastructure. As an independent non-profit institution, DIW Berlin is committed to serving the common good. The institute was founded in 1925 as Institut für Konjunkturforschung (Institute for economic cycle research). Since 1982, the Research Infrastructure SOEP (German Socio-Economic Panel Study), a long-term study, is affiliated to DIW Berlin. The institute has been headquartered in Berlin since its founding. As a member of the Leibniz Society, DIW Berlin is predominantly publicly funded.

Around the globe, conventional fuels remain dominant and the demand for them is increasing – primarily due to the expansion of road freight transport and the fact that more and more people in developing and emerging countries are using motor vehicles.

“Alternative drive systems and fuels have not been able to fulfill the expectations placed upon them, despite massive government funding,” says Uwe Kunert, a researcher with the Department of Energy, Transport, and Environment at DIW Berlin who conducted the study with his colleague Hella Engerer. “Therefore, policy has to counteract these trends in order to increase the environmental friendliness of road transport overall. This includes focusing more on  lowering the emissions of and efficiently using conventional fuels.” The policy should also end the disproportionately preferential tax treatment given to diesel, since diesel emissions are particularly hazardous to human health, according to the authors.

Developing and emerging countries experiencing sharpest increase in fuel demand

In 2012, some 1.8 billion tons of fuel were consumed in road transport worldwide – this includes gasoline and diesel, as well as biofuels and liquefied petroleum gas (LPG). The demand stood nearly 30 percent higher than it did at the beginning of the millennium; only in the global recession of 2009 was there a slight lag. While demand in the U.S. and some other OECD countries has fallen since 2007 and now stands at the same level as it did in 2000, it has increased by 80 percent in the non-OECD countries, and in the BRIC countries (Brazil, Russia, India, China), it has actually more than doubled. Overall, the share of non-OECD countries’ road transport in global fuel consumption stands at 45 percent. By comparison, European road transport’s share stands at 15 percent – and it is decreasing.

Although LPG, as an example of an alternative fuel, has seen an increase in its usage, its share of the global market – with little more than one percent – is comparatively low. Particularly striking is the booming demand for diesel: Worldwide, the annual demand has increased by nearly 300 million tons since the beginning of the millennium, and the global market share now stands at 45 percent. In Europe, diesel’s share stands at 70 percent – mainly because more and more goods are being transported by trucks, which run on diesel fuel. In Germany, as well, diesel is becoming more prevalent: While there are fewer and fewer gas-powered cars (2013: approximately 30 million) to be found on the roads, both the number of diesel cars (2013: 13 million) as well as their mileage and fuel consumption has more than doubled since 2000.

Promotion of alternative fuels will have little impact

Overall, the fuel consumption in Germany has fallen by four percent since the start of the millennium – even though the number of motor vehicles has increased by 16 percent and the mileage has increased by 9 percent. This was due to more efficient combustion engines. Vehicles with alternative drive systems, however, are still not very common: They make up only 1.5 percent of the vehicle stock in Germany. And despite significant tax benefits, natural gas and LPG cover only 1.5 percent of energy needs in road transport. Germany is not alone in this situation: In the rest of Europe as well, little has changed in the fuel mix despite tax advantages for alternative fuels.

Engerer and Kunert point to several reasons for the continuing dominance of gasoline and diesel: In addition to the technological advantages of these fuels, such as higher energy density, the network of filling stations for alternative drive systems is far too underdeveloped and the product range from automobile manufacturers is too unattractive to consumers. “The policy should also consider increasing the diesel tax in particular – preferably at the European level,” says Kunert. “In Germany, the energy taxes have remained unchanged for twelve years – and given the price developments during this period, this means that the tax rates have fallen in real terms by nearly one-fifth.”