Policy Shift

When consumer advocate Ralph Nader published Unsafe at Any Speed in 1965, its impact was immediate and far-reaching. The best-selling book drew back the curtain on an automotive industry that had failed to prioritize vehicle safety. The book prompted U.S. senate hearings that led to a range of safety regulations targeting vehicle manufacturers. Seat belts became mandatory. Then headrests, collapsible steering columns and eventually airbags. Today, automotive safety is at its peak.

Governments regulated the auto industry again beginning in the 1970s, when the goal was to reduce air pollution. This time, regulations targeted vehicle criteria air contaminant (CAC) emissions, including nitrogen oxides and volatile organic compounds. Today’s new cars emit virtually no CACs.

“The auto industry is accustomed to being the regulatory target as governments enact social policy,” says analyst Dennis DesRosiers, President of DesRosiers Automotive Consultants. “Given those achievements in safety and CAC reduction, governments have come to see the regulation of vehicle manufacturers as a powerful tool.”

Most recently, government has again turned to regulation to address another social policy issue—the reduction of greenhouse gas (GHG) emissions. And again, the primary focus of these regulations is the vehicle manufacturers.

“The assumption is that fuel efficiency and GHGs are correlated,” says DesRosiers. “To tackle GHG emissions, you have to improve fuel efficiency and reduce the amount of petroleum fuel that vehicles use.”

UNINTENDED CONSEQUENCES

Once again, regulations have had impact—if not entirely the one that was intended. “I’ve been supplying the government with vehicle fuel-efficiency ratings for two decades,” says DesRosiers. “Over the past decade, every class of vehicle in this country has improved about two percent per year. So virtually every vehicle in the fleet is 20 percent more fuel efficient today than 10 years ago. The average is actually closer to 26 percent.”

One would expect those improvements to have led to remarkable reductions in GHG emissions in Canada. They haven’t.

“What I hear in focus groups is that every consumer wants a better life,” says DesRosiers. “And when you translate that into their choice of vehicle, it means ‘I want a car with more get up and go.’ They want bigger and more powerful.”

They got it. As internal-combustion engine (ICE) technology improved, the power of these engines increased. According to DesRosiers, the average vehicle today has about 100 more horsepower than 20 years ago. “Every time a vehicle company introduces fuel efficiency advances, consumers tend to move to larger or more powerful vehicles, which offsets the net improvement of fuel efficiency in the overall fleet.”

And then there are the sales figures.

“Consumers are embracing vehicle ownership at a record pace,” DesRosiers goes on. Between 2000 and 2017, the number of vehicles on the road in Canada increased by 9.2 million units. Projecting current sales, DesRosiers estimates there will be another eight to 10 million cars on the road by 2030. What’s more, all the recent sales growth has been in light trucks, which tend to be less fuel efficient. Sales of passenger cars have dropped.

What I hear in focus groups is that every consumer wants a better life,” says DesRosiers. “And when you translate that into their choice of vehicle, it means ‘I want a car with more get up and go.’ They want bigger and more powerful.

Dennis DesRosiers
President of DesRosiers
Automotive Consultants

HAVE FUEL-EFFICIENCY REGULATIONS BACKFIRED?

Safety and CAC-emission regulations demanded action by auto manufacturers. The same is true with fuel-efficiency regulations, but as DesRosiers points out, fuel efficiency works only if consumers choose it. “If the consumer wants to buy the least fuel-efficient vehicle, there’s nothing the dealer or the manufacturer can do to prevent it,” he explains. Turning the table and restricting consumers’ choices through regulation is an unpalatable political choice. As DesRosiers points out, “Consumers vote. Manufacturers don’t.”

A GAP BETWEEN GOVERNMENT POLICY AND CONSUMER GOALS

Emissions reductions appear to be at odds with consumer preference. This was part of the findings in a recent consumer behavior study by the Conference Board of Canada’s (CBoC) Centre on the Low-carbon Growth Economy, which uses research and dialogue to inform an effective and efficient transition to a low-carbon future and sustainable economic growth in Canada.

“One of the profound insights from our study is that most Canadian consumers would support a transition to a low-emissions economy,” says Dr. Ovo Adagha, a CBoC Senior Research Associate. More than 80 percent of study respondents felt it was every citizen’s responsibility to change their habits and reduce their carbon footprint. “Yet a third of the respondents are not willing to let go of their cars for the sake of reducing that footprint,” adds Roger Francis, CBoC’s Director of Energy, Environment and Transportation Policy. “That’s a pretty good indication of how transportation policy has yet to affect consumer behaviour.”

Francis thinks his study makes a case for more consumer-focused policy. “Many current policy practices seem disconnected from actual consumer goals,” he says. “I think there’s an opportunity to make the consumer a key part of the policy equation. And policies that develop a deep knowledge of consumer behaviour could potentially accelerate the transition to a low-emissions economy.”

Consumers generally consider environmentally friendly branding on products to be important,” says Adagha. “But we find that the majority will not be influenced by such labels when making a purchase, more so if they must choose between other products that offer better value, pricing and quality.

Dr. Ovo Adagha
CBoC Senior, Research Associate

Consumers generally consider environmentally friendly branding on products to be important,” says Adagha. “But we find that the majority will not be influenced by such labels when making a purchase, more so if they must choose between other products that offer better value, pricing and quality.

Dr. Dilip Soman
Canada Research Chair in Behavioural Science and Economics
and a professor at the University of Toronto’s Rotman School of Management

A NEW APPROACH TO ECONOMICS

Dr.  Dilip Soman knows something about human behaviour. He’s the Canada Research Chair in Behavioural Science and Economics and a professor at the University of Toronto’s Rotman School of Management, as well as the director of the Behavioural Economics in Action at Rotman (BEAR) research centre.

“We’re looking at the field of economic decision-making through a human lens,” says Soman. “Economics traditionally presented consumers as rational, unemotional, forward-looking and able to consume any information that’s thrown at them. Behavioural economics acknowledges that people are forgetful, emotional, impulsive, confused by too much choice and are loathe to consume too much information.”

Soman believes we need to relax some of the assumptions we make about consumer motivations and behaviours, and begin engaging citizens in the policy development process. “We are better off showing people three or four different versions and asking, ‘Which policy are you most likely to act on?’” he says. “That is more consistent with the way humans express preferences.”

Soman points to the recent success of Ontario’s organ donor program. “Many people in Ontario have expressed a preference to be organ donors, but when it actually comes time to act, the ten minutes of bureaucracy gets in the way. We said, suppose we prompt people to commit when they’re involved in another task—renewing their driver’s license. Something they have to do anyway. Prompt them with a specific question: Would you like to donate your organs? Make it easy for them to say yes. Allow them to act on their preferences.”

The nudge worked. In tests, the intervention increased organ donor registration rates by 143 percent. Once implemented province-wide, a simplified application form significantly increased the likelihood that people’s preferences were converted to action.

APPLIED BEHAVIOURAL ECONOMICS

Soman and his team recently applied behavioural insights in studying electric vehicles (EVs). “We were interested to learn why people who care about the environment don’t adopt EVs,” says Soman. “There is some behavioural friction, and this has to do with habit. We’re used to finding a gas station easily whenever we need fuel. With EVs, that habit has to change. People worry they’ll end up in a place where there is no opportunity to recharge.”

The team came up with a series of interventions that clarified the economic benefit of EVs and, to reduce range anxiety, made it easier for consumers to find charging stations. At the time of this writing, Soman and his team were in the process of testing their interventions.

“Many current policy practices seem disconnected from actual consumer goals,” Francis says. “I think there’s an opportunity to make the consumer a key part of the policy equation. And policies that develop a deep knowledge of consumer behaviour could potentially accelerate the transition to a low-emissions economy.”

Roger Francis
Director of Energy, Environment
and Transportation Policy, CBoC

CONSUMER-FOCUSED POLICY AND REGULATION

Some auto industry experts may be skeptical that these interventions would, in wider application, have much impact on EV sales. The industry tracks 33 factors that influence consumers’ decisions to buy cars. Value for money is number one. Fuel economy has fallen from third to fifth since 2010. The environmental friendliness of a vehicle ranks thirtieth. That ranking is consistent with CBoC’s consumer study findings.

“Consumers generally consider environmentally friendly branding on products to be important,” says Adagha. “But we find that the majority will not be influenced by such labels when making a purchase, more so if they must choose between other products that offer better value, pricing and quality.”

Soman’s advice to climate-change policy makers is not to over­emphasize the benefits of reduced emissions. “People understand that,” he says. “The key is to focus on those who are psychologically committed to making environmentally friendly decisions and to use behavioural insights to essentially tip them over the edge and help them accomplish their goal.”

Dennis DesRosiers explains what such consumer-focused policy could look like. “The key word in the auto sector in the last ten years has been quality,” he says. “As a result, vehicle survival rates have essentially doubled between 2000 and 2017.”

DesRosiers estimates that 90 percent of older vehicles won’t be scrapped for 20 to 25 years—and the least fuel-efficient among them will remain on the road the longest.

“Keep in mind the 20 percent fleet fuel efficiency gains that have been achieved in ICE vehicles in just the last 10 years,” he says. “If the goal truly is to reduce GHG emissions in Canada, then the quickest route is to encourage people to get rid of their old cars and buy new ones.”

Embedding behavioural insights in public relations campaigns could inform consumers of the savings offered by new vehicles. Reduced federal and provincial taxes on new vehicles could be offset by tax increases on used vehicle purchases. Compensation could also flow to consumers forced to take old vehicles off the roads.

The time may be right for such a regulatory package. The Conference Board of Canada study suggests that there is room to improve consumer trust in governments in the planning and pace of climate-change mitigation. Clearly, Canadians are looking for leadership. The question is, does the political will exist to respond?