FAQ on EC's Proposed Regulation to Reduce Vehicle CO2 Emissions

December 19, 2007 // Published as a news service by IHS

What is the problem?
After power generation, road transport is the second biggest source of greenhouse gas emissions in the European Union (EU). It contributes about one-fifth of the EU's total emissions of carbon dioxide, the main greenhouse gas.

Road transport is one of the few sectors where emissions are still rising rapidly, so at present it is undermining, rather than helping, the EU's efforts to tackle climate change. Passenger cars alone are responsible for around 12% of EU CO2 emissions.

Although there have been significant improvements over recent years in vehicle technology - particularly in fuel efficiency, which translates into lower CO2 emissions - these have not been enough to neutralise the effect of increases in traffic and car size. CO2 emissions from road transport rose by 26% between 1990 and 2004.

This increase acted as a brake on the EU's progress in cutting overall emissions of greenhouse gases, which fell by just under 5% in the first 25 EU member states (EU-25).

What is the EU's objective?
To help reduce greenhouse gas emissions and meet its Kyoto Protocol targets, the EU has agreed that average CO2 emissions from new passenger cars should not exceed 120 grams of CO2 per km by 2012.^[1] This target was reconfirmed most recently at last June's meeting of the European Council, when EU leaders revised the EU Sustainable Development Strategy.

The target compares with an average emissions level of 186 grams of CO2 per km in 1995. Achievement of this target will help member states in the delivery of the reductions needed to meet the Kyoto Protocol.

How much progress has the existing strategy delivered?
The original strategy was proposed by the EC in 1995, and supported by the council and European Parliament. It has three pillars:

• Voluntary commitments by car markers - The European, Japanese and Korean car industries need to make voluntary commitments to reduce CO2 emissions from their new cars sold in the EU to an average of 140 g/km by 2008 (for European manufacturers) or 2009 (for Japanese and Korean manufacturers).
• Raising awareness among consumers - An EU directive^[2] requires that each new car display a label showing its fuel consumption and CO2 emissions, as well as publish fuel efficiency information in other formats, including in printed advertisements.
• Promoting fuel-efficient cars through fiscal measures - Several member states have done this, and the EC has proposed EU legislation^[3] aimed at including a CO2 element in national car taxes.

The strategy has brought only limited progress towards achieving the target of 120 grams of CO2/km by 2012. Between 1995 and 2004, average emissions from new cars sold in the EU-15 fell by 12.4%, from 186 grams of CO2/km to 163 grams of CO2/km. Over the same period, new cars sold in the EU became significantly bigger and more powerful.

What new measures are proposed in the revised strategy?
As part of the European Climate Change Programme, the EC last year carried out a review of the strategy in close consultation with key stakeholders. The conclusion is that the voluntary approach has delivered a solid CO2 reduction, but has not been as successful as hoped. Given the slower than expected progress to date, the 120 grams of CO2/km target will not be met by 2012 without additional measures.

The revised strategy is based on a comprehensive set of measures to influence both the supply and demand sides of the EU market for cars and vans. The overall effect of these is to promote affordable fuel economy improvements and reductions in CO2 emissions, as well as substantial fuel savings for car and van drivers.

Together with the recent proposal to update the fuel quality directive, which will reduce greenhouse gas emissions from transport fuels by 10% between 2010 and 2020, the strategy represents the first concrete implementation of the EC's recent Energy Efficiency Action Plan and of its Jan. 10 energy and climate change package.

The main measures of the revised strategy are as follows:

• EU legislation to reduce CO2 emissions from new cars and vans:

• For new cars sold in the EU-27, the average emissions would have to reach the 120 grams of CO2/km target by 2012. Improvements in motor technology would have to reduce average emissions to no more than 130g/km, while complementary measures would contribute a further emissions cut of up to 10g/km, thus reducing overall emissions to 120g/km.
  
  These complementary measures include efficiency improvements for car components with the highest impact on fuel consumption, such as tyres and air conditioning systems, and a gradual reduction in the carbon content of road fuels, notably through greater use of biofuels. Efficiency requirements will be introduced for these car components.
• For new vans, the fleet average objectives would be 175g by 2012 and 160g by 2015, compared with 201g in 2002.

• Support for research efforts aimed at further reducing emissions from new cars to an average of 95 grams of CO2/km by 2020.

• Measures to promote the purchase of fuel-efficient vehicles, notably through an amendment to the car labelling directive to make it more effective, and by encouraging member states that levy road tax to base it on cars' CO2 emissions. The council will be encouraged to adopt the EC's proposal on road taxes without further delay.

• An EU code of good practice on car marketing and advertising to promote more sustainable consumption patterns. The EC is inviting car manufacturers to develop this and sign up for it by mid-2007.

How does the new regulation work?
The draft legislation defines a limit value curve of permitted emissions of CO2 for new vehicles according to the mass of the vehicle. The curve is set in such a way that a fleet average for all new cars of 130 grams of CO2 per kilometre is achieved.

Starting in 2012, a manufacturer will be required to ensure that the average emissions of all new cars that it manufactures and that are registered in the European Community are below the average of the permitted emissions for those cars as given by the curve.

That curve is set in such a way that heavier cars will have to improve more than lighter cars, but such that manufacturers will still be able to make cars with emissions above the limit value curve, provided these are balanced by cars that are below the curve. Manufacturers' progress will be monitored each year by member states on the basis of new car registration data.

The proposal will provide the manufacturers with the necessary incentive to reduce the CO2 emissions of their vehicles by imposing an excess emissions premium if their average emission levels are above the limit value curve. This premium will be based on the number of grams per kilometre (g/km) that an average vehicle sold by the manufacturer is above the curve, multiplied by the number of vehicles sold by the manufacturer.

A premium of €20 per g/km has been proposed for the first year (2012), rising to €35 in 2013, €60 in 2014, and €95 in 2015 and thereafter. Most manufacturers are expected to meet the target set by the legislation, so significant penalties should be avoided.

The precise formula for the limit value curve is:

Permitted specific emissions of CO2 = 130 + a × (M - M₀)

where:

M = mass in kg
M₀ = 1289.0
a = 0.0457

How are the manufacturers placed in relation to their targets?
Table 1 shows the actual position of the various car manufacturers in terms of the average CO2 emissions of the new cars they manufactured in 2006.

Table 1: 2006 Automobile Sales, Weight and CO2 Emissions

Table 2 shows how much additional progress the manufacturers will have to make in order to achieve their targets under the proposed legislation.

Table 2: Progress Required of Automobile Manufacturers to Attain Their Targets
(in grams per kilometre, rounded to whole numbers)

How will manufacturers' progress be monitored?
Manufacturers' progress will be monitored each year by the member states on the basis of new car registration data. This data will be reported to the EC and published so enabling progress can be tracked.

What incentive is there for manufacturers to comply with the new legislation?
It is clear that the voluntary commitments of the original strategy have not worked as well as had been hoped, and so there is a need to further stimulate the move towards more efficient vehicles.

The proposal will provide the manufacturers with the necessary incentive to reduce the CO2 emissions of their vehicles by imposing a penalty premium linked to how well they progress towards their specific emissions target. Naturally, the premium must be set at a level that encourages the manufacturers to innovate and deploy new fuel-efficient technologies rather than to accept paying the penalty.

As such, the premium has been designed so that it will be paid for each gram per kilometre (g/km) by which the average car sold by the manufacturer in that year is above the target, times the number of vehicles sold by the manufacturer. A premium of €20 per g/km has been proposed in the first year (2012), rising to €35 in 2013, €60 in 2014, and €95 in 2015 and thereafter. It is expected that most manufacturers will meet their target set by the legislation and so that they will not have to pay significant penalties.

Will this limit be harmful for the competitiveness of the European car industry? Will the proposal cover American and Japanese manufacturers?
Europe has a strong and innovative automotive sector, and the legislative proposal aims to safeguard that global competitiveness by being equitable, providing flexibility and stimulating the development and deployment of cutting-edge automotive technologies.

Nonetheless, the proposal will address all manufacturers that sell new cars in Europe, so American, Japanese and Korean manufacturers will be concerned as much as European ones. The European car industry includes American manufacturers since they sell their cars through European subsidiaries or parent companies - for example, Ford of Europe and Opel (GM).

Under the legislation, several manufacturers will be able to group together to form a pool that can act jointly in meeting the specific emissions targets. In forming a pool, manufacturers must respect the rules of competition law, and the information that they exchange should be limited to average emissions of CO2, their specific emissions targets and their total number of vehicles registered.

In addition, independent manufacturers who sell fewer than 10,000 vehicles per year and who cannot or do not wish to join a pool can instead apply to the EC for an individual target. Special-purpose vehicles, such as vehicles built to accommodate wheelchair access, are excluded from the scope of the legislation.

How much will the measures cost? Will car prices increase?
Our investigations show that car prices will rise by a certain amount, but this will be compensated by fuel savings. On average, purchase prices may increase by up to 6%.

It should be underlined that average CO2 emissions from new cars have been reduced by 12% since 1995, but over the same period, the price of new cars has increased significantly less than inflation. This shows that CO2 can be reduced in an affordable way. There are already several cars on the market that have low CO2 emissions,^[4] and no major price differentials have been observed.

What impact will the strategy have on the car industry? Would jobs be lost or moved outside the EU?
All manufacturers, wherever they come from, will be subject to the CO2 requirements when selling cars in the EU. The need to meet the mandatory target by 2012 will stimulate research and development, most of which would be done in the EU as far as EU car makers are concerned. It is worth noting that the most competitive auto industries are located in the regions where the most ambitious fuel efficiency standards are applied, namely Europe and Japan.

The EC's action will strengthen the competitiveness of Europe's car industry since there is growing evidence, including from key players in the financial markets, that fuel efficiency will become an increasingly important competitive factor for car manufacturers as global constraints on carbon emissions tighten.

Will cars have to be taken off the market?
No, the emissions targets will only apply to new vehicles (cars and vans) when they are put on the market. Cars sold before the requirement takes effect will not be affected and will not have to be taken off the road.

What role is foreseen for biofuels?
The EU recognises that biofuels can help to meet its Kyoto emission targets, and an EU directive^[5] aims to raise the market share of biofuels in road transport fuels to 5.75% by 2010. Biofuels and vehicle improvements are two essential elements of the EU's policy for addressing the climate change impacts of transport.

In order to reduce the fossil carbon content of transport fuels, the EC has proposed as part of the revision of the fuel quality directive^[6] to progressively reduce the carbon content of transport fuels from 2011 onwards (see IP/07/120). The CO2 savings delivered by this measure up to 2012 will be counted towards the achievement of the 120 grams of CO2/km objective.

What is the next step?
The draft regulation will now be discussed by the European Council and the European Parliament as part of the co-decision procedure. If and when adopted by the co-legislators, the regulation will be directly applicable in the member states and will not need to be transposed in national law by national legal instruments.

^[1] This corresponds to fuel consumption of 4.5 litres per 100 km for diesel cars and 5 l/100 km for petrol cars.

^[2] Directive 1999/94/EC.

^[3] COM(2005)261 final.

^[4] Examples include VW Polo (102 g), Peugeot 206 (113 g), Ford Fiesta (116 g), Renault Megane (120 g).

^[5] Directive 2003/30/EC.

^[6] Directive 98/70/EC.

Source: European Commission.

IHS Information and Insight
This article was published to make you aware of documents available from IHS on the subject.

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• SAE Digital Library - includes technical papers addressing emissions, emissions control systems and emissions testing.
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• EU 2006/51/EC - COMMISSION DIRECTIVE amending for the purposes of adapting to technical progress Annex I to Directive 2005/55/EC of the European Parliament and of the Council and Annexes IV and V to Directive 2005/78/EC as regards requirements for the emission control monitoring system for use in vehicles and exemptions for gas engines.
• ASTM D 4814 - Standard Specification for Automotive Spark-Ignition Engine Fuel