Proposed EU regulation to reduce CO2 emissions from cars

19 December 2007
by eub2 -- last modified 19 December 2007

The European Commission on 19 December 2007 proposed legislation to reduce the average CO2 emissions of new passenger cars to 120 grams per kilometre by 2012. The proposed legislation is the cornerstone of the EU's strategy to improve the fuel economy of cars, which account for about 12% of the European Union's carbon emissions. The proposal further underlines the EU's leadership and determination to deliver on its greenhouse gas commitments under the Kyoto Protocol and beyond.

What is the problem?

After power generation, road transport is the second biggest source of greenhouse gas emissions in the EU. It contributes about one-fifth of the EU's total emissions of carbon dioxide (CO₂), 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 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 120g 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 186g CO₂ per km in 1995. Achievement of this target will help Member States in the delivery of the reductions needed to respect of the Kyoto protocol.

How much progress has the existing strategy delivered?

The original strategy was proposed by the Commission in 1995, and supported by the Council and European Parliament. It has three pillars.

The first consists of voluntary commitments by the European, Japanese and Korean car industries to reduce CO₂ emissions from their new cars sold in the EU to an average of 140g/km by 2008 (for European manufacturers) or 2009 (for Japanese and Korean manufacturers).

The second pillar involves raising awareness among consumers. An EU directive^[2] requires the display on each new car of a label showing its fuel consumption and CO₂ emissions, as well as publication of fuel efficiency information in other formats, including in printed advertisements.

The third pillar aims to promote fuel-efficient cars through fiscal measures. Several Member States have done this, and the Commission 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 120g CO₂/km by 2012. Between 1995 and 2004 average emissions from new cars sold in the EU-15 fell by 12.4%, from 186g CO₂/km to 163g CO₂/km. Over the same period new cars sold in the EU became significantly bigger and more powerful.

The revised strategy & new measures and legislation

As part of the European Climate Change Programme, the Commission last year carried out a review of the strategy in close consultation with key stakeholders. The conclusion of the review 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 120g 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 efficiency 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 Commission's recent Energy Efficiency Action Plan and of the 10 January 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.
• Average emissions from new cars sold in the EU-27 would have to reach the 120g 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 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 95g 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 Commission'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 Commission is inviting car manufacturers to develop this and sign up to it by mid-2007.

The New Regulation

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. From 2012, a manufacturer will be required to ensure that the average emissions of all new cars which it manufactures and which are registered in the 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 compared to today, but that manufacturers will still be able to make cars with emissions above the limit value curve provided these are balanced by cars which are below the curve. Manufacturers' progress will be monitored each year by the 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.

Table with the limit value curve

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?
The chart below shows the actual position of the various car manufacturers in terms of the average CO₂ emissions of the new cars they manufactured in 2006.

The data for this graph is summarised in the following table.

The following table below shows how much additional progress the manufacturers will have to make in order to achieve their targets under the proposed legislation.

Table showing further progress required of the 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 European Commission and published so enabling progress to be tracked.

What incentive is there for manufacturers to comply with the new legislation? The penalty premium

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 which encourages the manufacturers to innovate and deploy new fuel efficient technologies rather than accepting to pay 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, by providing flexibility and by stimulating the development and deployment of cutting edge automotive technologies.

Nonetheless the proposal will address all manufacturers that sell new cars in Europe, so that 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, e.g. Ford of Europe, Opel (GM).

Under the legislation, several manufacturers will be able to group together to form a pool which 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 specific 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 Commission 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 cars will rise in price 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 carmakers 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 Commission'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 Commission 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. The CO₂ savings delivered by this measure up to 2012 will be counted towards the achievement of the 120g CO₂/km objective.

What is the next step?

The draft regulation will now be discussed by the 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.

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^[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: 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