What drives decarbonization of new passenger cars?

Transition towards a low-carbon transport sector fundamentally depends on decarbonization of the passenger car fleet. Therefore, it is critically important to understand the driving factors behind decreasing CO2 emissions of new passenger cars. This paper develops a new decomposition method to break down the change in the average CO2 emissions of new passenger cars into components representing changes in available technology, carbon efficiency of consumer choices, vehicle attributes, fuel mix, and the gap between type-approval and on-road CO2 emissions of passenger cars. Our decomposition draws insights from the traditional index decomposition analysis and frontier-based decomposition of productivity growth. It satisfies such desirable properties as factor reversal, time reversal, and zero-value robustness. An empirical application to a unique data set that covers all registered passenger cars in Finland sheds light on why and how the CO2 emissions of new cars decreased from year 2002 to year 2014.