China's green drive to boost oil demand instead

In China’s government-driven economy, the law of unintended consequences is strong. So, a new rule meant to help the environment could boost big oil instead.
Beijing unveiled new fuel-consumption standards in March 2013 to help combat record smog in Chinese cities. The regulations are supposed to make cars more fuel-efficient. But a quirk of the rules relaxes standards for heavier cars like SUVs, and gives automakers an incentive to build more gas-guzzlers. That exacerbates a growing demand from consumers who see SUVs as both a powerful status symbol and a safer option on China’s often-dangerous roads.
Already, SUV purchases are outstripping sales of passenger cars. Chinese SUV sales expanded 45% year-on-year in April, three times more than passenger cars, according to the Chinese Association of Automobile Manufacturers (CAAM). At Great Wall Motor, the country’s largest SUV maker, the 70% year-on-year growth in SUV sales was twice its total April sales.
While this trend is important for automakers, it could have significant implications for global oil demand, Bernstein Research analyst Neil Beveridge said.
Bernstein estimates that 22% of the cars in China will be SUVs by 2020, up from around 15% currently. More gas-guzzlers means more demand for oil, and that could partially offset slowing growth in the broader Chinese economy. Bernstein says transportation will account for more than 50% of China’s oil needs by 2020, compared with just 30% a decade ago.
Of course, there are risks to the theory. For starters, further changes to fuel-efficiency regulations down the line could crimp SUV sales. Also, Chinese SUV owners might not drive their vehicles as far as SUV owners in other countries.
For now, though, Beijing’s efforts to improve fuel efficiency standards may be driving more Chinese car owners to select bigger engines.
(May 22, 2013)