A Rorschach test for transport geeks: Passenger vehicle fuel efficiency in Japan


The latest version of Japan’s fuel economy guide for passenger vehicles was posted last week (Japanese only). Released annually by the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) for each fiscal year (in this case, April 2013 to March 2014), this year’s version provides a nice Rorschach test for those interested in how government policy can push the auto industry to make and sell more fuel-efficient vehicles.

MLIT estimates that the average fuel economy for new passenger vehicles sold domestically in 2013 was 22.5 km/L and 21.0 km/L on the 10-15 mode and JC08 modes, respectively. This translates to an improvement of about 7% and 8%, respectively, since 2012. New vehicle fuel economy has been improving reliably by about 6% annually since 2007, or more than triple the previous long-term rate. Improvements are being driven by the strong sales of hybrid electric vehicles (HEV), endogenous improvements within each class through the adoption of fuel efficient technologies, and, to a lesser extent, a shift in consumer preference in favor of “minicars”. In fiscal year 2013 HEVs plus minicars accounted for nearly 60% of domestic sales, with a sprinkling of plug-in electric vehicles as well (figure).

New passenger vehicle market share by vehicle type, 2005 to 2014 YTD

Clearly, Japanese automakers have been working overtime on efficiency. But what about their colleagues in the Japanese government? This is where the picture gets murkier. The data shows that over the past two decades Japan’s automakers have consistently exceeded the policy targets set for them by the Japanese government (figure). On average, Japanese manufacturers met the 2010 and 2015 fuel economy standards five years earlier than required. Moreover, the recent 6% annual efficiency gains have added another two years of padding, such that the 2020 standards were on average met in 2013.

New passenger vehicle fuel economy and regulatory targets, 1995 to 2020. The 2020 target is set on JC08 test cycle and approximated here on the 10-15 mode.

Back to the Rorschach test. Depending on your interpretation, the fact that Japanese automakers stay five to seven years ahead of regulatory targets could be taken as evidence that they are geniuses, their regulators are unable to set realistic targets, or perhaps somewhere in between. One might also conclude that government policy doesn’t matter much, since innovative companies in competitive industries will clearly excel no matter what the government does (or doesn’t do). To be sure, an overly narrow focus on standards misses the important role of public policy in Japan. There, standards are just one part of a suite of policies to promote vehicle efficiency, from taxation and registration schemes that promote lighter vehicles and smaller engines, to generous R&D support, to incentive programs that reward manufacturers for complying early with standards. Also important is administrative guidance (gyousei shidou), the soft regulatory power which central ministries use to police Japan’s industrial policy.

More broadly, should it worry us if Japan’s fuel economy standards are, well, substandard if their automakers continue to churn out more efficient vehicles? After all, neither the Earth’s climate nor global petroleum markets care whether oil use drops due to government policy or corporate excellence.

It should. From an international perspective, it matters a great deal how, and how well, public policy promotes efficient, clean transportation solutions. Many of Japan’s neighbors in Asia look to its experience in regulating motor vehicle pollution when setting their own domestic targets. Too often, Japan’s weak standards have been used as an excuse for its neighbors to not adopt technologically feasible, cost-effective policies to reduce emissions. To compound the problem, those policymakers typically can’t rely upon the wider policy toolbox their Japanese colleagues have to make up for weaker standards.

Until fairly recently, Japan could lay claim to having the world’s strictest fuel economy standards for passenger vehicles. That is clearly no longer the case. As Japan prepares its climate mitigation commitment for a post-Kyoto global framework for climate change this December, a bit of reflection about the gap between what its 2020 passenger vehicle standards say is possible and what Japanese industry can actually deliver is in order.