Influencing Consumers to Choose Low-Emission Motor Vehicles

Climate change and the impact of pollution on our planet are affecting all of us on a daily basis. The motor vehicles we drive pollute the air in which we live and work and in which our children play. Many countries around the world charge emission taxes on new motor vehicles sold to promote the sale of low-emission motor vehicles.

In 2010, South Africa introduced a CO₂ levy on new motor vehicles sold in order to influence the composition of South Africa’s vehicle fleet to become more environmentally friendly. Yet, the sale of certain high-emission motor vehicles continued to outperform the sale of low-emission vehicles. Various studies have confirmed that the CO₂ levy currently charged in South Africa is not influencing consumers to choose low-emission motor vehicles and most consumers are not even aware of the CO₂ levy or CO₂ emissions of their new motor vehicles. It is also possible that the CO₂ levy currently charged in South Africa is too low relative to the cost of the motor vehicle to have a material impact on consumer behaviour.

Our study was designed with two research objectives in mind: (1) To determine the differential impact of a CO₂ penalty versus a CO₂ incentive on consumers’ behaviour in South Africa when a new motor vehicle is chosen; (2) To determine the differential impact of transparency in respect of future fuel costs on South African consumers’ behaviour when a new motor vehicle is chosen. The impacts of an information policy that gives the estimated future fuel costs combined with either a CO₂ penalty or a CO₂ incentive was also measured.

Penalty versus incentive

In the first part of the experiment, participants were presented with the basic scenario of purchasing a new motor vehicle. They were informed that they had already decided to purchase a certain make and model of a new motor vehicle. The only decision that remained was to choose between two engine variants of this motor vehicle, being Model A or Model B. They were also informed that the vehicles were identical in all respects, except for the engine variants:

• Model A is less fuel efficient with higher CO₂ emissions and has a purchase price including value-added tax of ZAR280,000 (AUD28,000 using an exchange rate of AUD1 = ZAR10); and
• Model B is more fuel efficient with less CO₂ emissions and has a purchase price including value-added tax of ZAR310,022 (AUD31,002).

The fuel consumption of each model was given instead of the CO₂ emissions as fuel consumption is better understood by consumers. In addition to the purchase price, a CO₂ penalty of ZAR10,500 (AUD1,050) was charged on Model A as it is less fuel efficient and no CO₂ penalty was charged on Model B as it is fuel efficient. The CO₂ levy (penalty) in this study of ZAR10,500 (AUD1,050) was 283 per cent higher than the CO₂ levy currently levied in South Africa. The results showed that participants’ average preference for the more fuel efficient Model B increased when a CO₂ penalty was charged on Model A. It is noteworthy that the participants of the first experiment had the highest frequency of participants who chose Model B out of all the experiments that formed part of this study.

In addition to CO₂ penalties, many countries also use CO₂ incentives or rebates to successfully promote the sale of low-emission motor vehicles. South Africa does not currently use CO₂ incentives to promote the sale of low-emission motor vehicles. The second part of the experiment was aimed at measuring the impact of a CO₂ incentive on South African consumers. The participants were again asked to choose between Model A and Model B. Model A was again less fuel efficient with higher CO₂ emissions and Model B more fuel efficient with less CO₂ emissions. A CO₂ incentive was given on Model B and no CO₂ incentive was given on Model A. The participants’ average preference for more fuel efficient Model B increased when a CO₂ incentive was given on Model B.

A CO₂ levy or penalty can be seen as a loss and a CO₂ incentive as a gain. The CO₂ penalty can further be seen as punishment (a stick) for purchasing a high-emission motor vehicle and the CO₂ incentive as a reward (a carrot) for choosing a low-emission motor vehicle. The differential impact between the CO₂ levy (the stick) and the CO₂ incentive (the carrot) was also measured. The study never measured the impact of the combination of the carrot and stick on consumer behaviour. When the results of the CO₂ penalty was compared to that of the CO₂ incentive, the CO₂ penalty was slightly more effective than the CO₂ incentive in changing consumer’s preference towards Model B. This can be translated as the stick being more effective than the carrot when influencing consumer behaviour. Consumers are loss averse which means they will normally want to avoid the emotion of loss or the feeling of being punished. Consumers also perceive a loss (in this case a penalty) to be larger than what it really is. In this study, the CO₂ incentive and CO₂ penalty were not measured in one experiment; the participant was exposed to either a CO₂ penalty or a CO₂ incentive.

What if information of future fuel costs is provided?

Previous studies indicated that when consumers choose a new motor vehicle, they ignore the future costs of driving that motor vehicle. In the third part of this experiment, the future fuel costs of driving Model A and Model B was calculated for five years. The future fuel cost of Model A was more than that of Model B. These costs were provided to the participants who then had to choose between Model A and Model B. The participants’ average preference for more fuel efficient Model B increased slightly when the participants were given the future fuel costs in respect of each model.

When the information of future fuel costs was combined with a CO₂ incentive on Model B, the preference for the fuel-efficient Model B increased slightly in comparison to the experiment where the future fuel costs were not given. When the information was combined with the a CO₂ penalty on Model A, the preference for the fuel-efficient Model B decreased slightly in comparison to the experiment where the information was not given. The inference drawn from this is that the CO₂ penalty lost it sting once the information of future fuel costs was provided.

An analysis of the background and manipulation check questions yielded the following interesting observations:

1. Participants were asked to indicate the importance of six factors when choosing a new motor vehicle, namely status of vehicle, safety, fuel economy, comprehensive motor service plan, functionality (such as boot space and off-road capability) and engine size. Safety was indicated as the most important factor, followed by fuel economy and a comprehensive motor plan.
2. In order to measure environmental morale and willingness to care for the environment, participants were asked if they would be willing to donate money to prevent environmental pollution. 63 per cent of the participants agreed. When the answers provided by men and women were compared, 69 per cent of women agreed versus only 58 per cent of men.
3. 96 per cent of the participants were of the view that it is the motor vehicle manufacturer’s responsibility to reduce the emissions of new motor vehicles.
4. 83 per cent of the participants preferred an incentive as a measure to influence their behaviour, and 17 per cent preferred a penalty.

The results of all the above experiments were not statistically significant. 230 participants South Africans in Pretoria were randomly allocated to the different experiments. It is possible that the results could have been statistically significant had the population and sample size been bigger. It is also possible that this study will yield different results in other countries.

Policy implications

This study provides statistical evidence of two factors that have a small but meaningful influence on a consumer’s choice of motor vehicle: (1) The importance of the fuel economy of a motor vehicle, and (2) The consumer’s environmental morale, being their willingness to protect the environment. Policy makers should focus more on creating policies with the objective of educating consumers on the fuel efficiency of motor vehicles and on the dire effect that pollution has on our environment. In addition, a small but meaningful interaction was found between gender and the environmental morale of the consumers which indicates that women are more concerned about the environment than men.

The inferences of this study should be interpreted within the context of a laboratory-designed experiment that was conducted in an artificial setting. A well-designed laboratory experiment will have high internal validity but may lack external validity. The ability to generalise the findings of a laboratory experiment are limited as the real world is more complex than an artificial setting. As a result, the cause-and-effect relationships found in this study may not extend to other more complex settings. Nevertheless, the findings of this study add to the findings of recent studies which concluded that the current CO₂ levy in South Africa is not changing consumers’ behaviour when choosing a new motor vehicle.

 

The study on which the post is based was the subject of the author’s master’s dissertation. The study is also published as: de Villiers, M & Nienaber, SG 2019, ‘The differential impact of CO2 penalties, CO2 incentives and information policies on consumer behaviour when purchasing a new motor vehicle’, eJournal of Tax Research, vol. 17, no. 1, pp. 35-62.