Car engines and environmental policy The car engine sector has been dominated by internal combustion (IC) technology for more than a century now. The engines constructed by Otto, Daimler and Benz in the 1880s have been greatly refined since then, but they still rely on the principle of IC. More than a sole technology, IC engines (ICEs) are at the heart of a regime, which has grown around production technologies, user perspectives and practices (reflecting their preferences and endorsed social connotations), producer capabilities and business models, regulations, and supporting institutions. In addition to established petrol and diesel ICEs, battery electric vehicles (BEVs) (re-)emerged as a market niche in the 1990s. For suppliers, full electric vehicles require a considerable extension of their technology competencies and skills, since the character of electric components significantly differs from that of IC ones. For users, too, driving an electric vehicle means a drastic reduction in vehicle autonomy compared to the ICE, and another way of refuelling. An alternative refuelling infrastructure would be required to support the wider use of such vehicles. These differences in the social and institutional context (over and above the technical novelties) mean that electrical vehicles can be identified as a niche outside the ICE regime. As an intermediate solution, hybrid-electric vehicles (HEVs) emerged on the market after 1997. They combine an ICE with an electric engine. Vehicle autonomy and refuelling are similar to ICEs. For suppliers, HEVs require an extension of their technology competencies and skills, as in the case of electric vehicles (EVs). Hybrids are typically more expensive than ICEs, but have better fuel economy. Many owners see their vehicle as ‘socially responsible’, and as ‘the right vehicle for society’. In the context of increasing oil prices, stricter emission regulation and rising environmental concerns, this type of vehicle has gained market shares of a few percentage points in Japan, the United States and various European countries. In the meantime, a third technology has attracted attention from time to time: hydrogen fuel-cell vehicles (FCVs).1 We devote less attention to them here, since these vehicles have not found application on the market yet. There have been various demonstration projects with these vehicles, however, and most
large car suppliers have one or more prototype vehicles. Like BEVs, FCVs should be seen as a niche outside the ICE regime. The co-existence and co-development of the electric, hybrid-electric and hydrogen niches next to the dominant ICE regime in the market sector over the course of time can be mapped in a typology of innovation modes of the car engine market sector based on two dimensions (Figure 3.1). The first dimension is the level of the change in the sector. It refers to the rate at which suppliers refine their skills and competencies in a technology or the rate to which user practices or regulatory settings adapt. Change may be fast or slow. The second dimension of the typology is the location of (the majority of ) the change. This may be located inside the regime in the sector – that is, sustaining the regime – or outside the regime – that is, disruptive to the regime. Thus, niches may develop inside (close to) the dominant regime or outside (further away). This typology helps to show that, in general, innovation in the car engine market sector may be in one of four phases or modes at a certain point in time. The first quadrant (bottom-left) depicts a time of little or no change, either within the established regime or in niches. Some incremental innovation takes place at the component level, cumulatively shaping a trajectory of slow refinement of ICE technology. Primarily, however, there is ‘reproduction’ of existing actor perspectives, practices, infrastructures and technologies of the regime in the market sector. The second quadrant (bottom-right) is a time of strong change within the ICE regime and little change in the niches, entailing ‘transformation’ of the regime and redirection of the regime trajectory. The established technology, ICE, is
gradually substituted with a new one (e.g. low-emission ICEs or mild hybridelectrics). In the social context of the market sector, user practices, market structure and producer capabilities and business models are sustained but modified and gradually transformed. The third quadrant (top-left) portrays a phase of slow changes but primarily in niches outside the regime – for example, the small-scale but substantial development of an alternative to the dominant design, which entails alternative user practices and producer capabilities. Here, diversification of the market sector takes place, since the regime stays in place, but co-existing niches become slightly stronger. Finally, the fourth quadrant (top-right) represents a phase of strong change in an outer-regime niche and stagnation of the regime. Here, transition in the market sector occurs – that is, a switch of momentum from the regime trajectory to the former (outer-regime) niche trajectory, where developments unfold nonlinearly. The new technology to a large extent entails alternative user practices, production practices and so on. An example would be the case of the use of fully electric vehicles surging at the expense of ICE vehicles, which would entail another way of refuelling, a reduction in the average length of journeys and possibly new combinations with public transport services. New infrastructures for electric refuelling would be required, whereas established petrol stations may deteriorate. In such turbulent times new suppliers can more easily enter the market, whereas established producers may typically struggle to survive (Geels, 2005). This chapter studies the impact of environmental policies on the character of innovation in car engine technology that policies have triggered in the past two decades. We distinguish impacts on the IC regime and impacts on various niches (BEV, HEV, FCV). We find that, in the past 20 years, policy instruments were mostly applied within a neoclassical economic welfare perspective. The resulting regulation in Europe (both on a national and the European level) has led mostly to diffusion of existing technologies and incremental innovation, rather than transformation or a shift to alternative niche trajectories.2 In light of this, we discuss evolutionary policy options to support transition to low-carbon cars. The second section elaborates our co-evolutionary framework; the third analyses what this framework means for the role of innovation policy; and the fourth section evaluates environmental policies for car engines in Europe within this framework. The fifth section then discusses policy options for drastically mitigating CO2 emissions from cars; followed by the final section, which provides the conclusions.