What does the Commission’s car emissions proposal mean for the climate and the auto industry?

November 14, 2017

The recent European Commission proposal on CO2 regulations for cars and vans to 2030 has provided the car industry with an early christmas gift. The unambitious 3%pa improvement rate and removal of a binding sales target for zero-emission vehicles (ZEV) followed last minute lobbying by carmakers. With Vice President Sefcovic, and the architects of the package Commissioners Cañete, Bulc and Bienkowksa all aligned in favour of a system of credits and, crucially, debits for carmakers that exceeded or breached a ZEV sales target, the package was virtually finalised before a last-minute intervention diluted the proposal.

The carmakers’ favourite Commissioner, Oettinger, was reduced to shouting from the sidelines as the German Government, embroiled in Jamaica coalition negotiations, remained silent, on this occasion declining to drive to the assistance of its discredited car industry. German Martin Selmayr (President Juncker’s all-powerful Chief of Staff) therefore represented the carmakers’ last hope for weakening the proposal – and duly delivered!

Along with making the ZEV target toothless, the goal for vans was lowered from 40 to 30%; but following a frantic fightback the contentious 2025 target was saved after a heated final College discussion on the morning the proposal was announced. After the Dieselgate scandal, air pollution crisis in cities and recent cartel investigation raids, it is a sad reflection on European politics that the auto industry continues to wield such power on the 13th floor of the Berlaymont, as the European Commission building is known.

The retention of the 2025 target was important for the package to retain any semblance of balance between the demands of the industry and needs of the planet. In its absence the discredited 95g/km target for 2021 (that has delivered less than half of the intended emissions reductions on the road as a result of test manipulation), would have remained in force until 2029. Carmakers could have delayed developing the market for ZEVs until after 2025 and the net emissions savings in 2030 would have been halved compared to a regulation with a meaningful 2025 goal. This would have made it all but impossible for member states to meet their 2030 climate targets.

Without a 2025 target carmakers could have continued to sell diesels in large numbers in Europe recovering some of the unwise investments they have made in diesel that represents just 5% of car sales outside of Europe and is why carmakers are so desperate to get the 2025 goal out of the final version. However, such a strategy is an own goal, presenting China with an opportunity to flood the European market with its ZEVs jeopardizing hundreds of thousands of European auto-industry jobs.

The most effective way to make the EU a leader in new powertrains is to introduce a ZEV sales target as China and 10 US states have done including California. By driving carmakers to supply ZEVs they would increase the range of models (presently just 20 battery vehicles are available) and actively market these (which is not currently the case). It would also create a business case to invest in recharging infrastructure and for electricity companies to use ZEVs to help balance smart, renewable electricity grids. By having a sizable market for ZEVs in the EU it would make it far more likely carmakers would build the vehicles in Europe rather than importing them from leading markets like China and the US. In the car CO2 regulation the EU could achieve all these benefits simply by reinstating the debit for carmakers failing to achieve the 15/30% ZEV targets for 2025/30 that were removed following Selmayr’s intervention.

Current new car CO2 emissions are 118g/km (measured on the NEDC test) and by 2025 will need to meet on average the equivalent of 81g/km, which requires a reduction of 3.5%pa. This is much slower than current progress to meet 95g from the 130g/km goal for 2015 that requires 4.5%pa and is illustrative of the lack of ambition in this proposal. The European Parliament in 2013 called for a reduction of 18-28% by 2025 and nine member states called for -40% or more by 2030.

The 2025 goal presents the industry with a conundrum. Should they focus on selling more than 15% zero-emission vehicles and thereby lower their CO2 targets by earning a credit and as a result continue to sell high-performance engines to retain profit margins? Or, should they forget trying to earn the bonus by selling ZEVs and instead invest in mild hybrid and other technologies that improve efficiency? Analysis by the ICCT shows that both strategies have similar costs (€400) but the second option is a dead-end as after 2025 further emissions reductions will increasingly require a shift to zero-emission solutions. Carmakers such as Fiat, Peugeot-Citroën-Opel, Ford and possibly Mercedes will probably have little choice but drive down the dead-end due to a lack of past investment in electrification – another reason they were so keen to avoid a penalty for missing a ZEV target.

Whilst the -30% CO2 target for 2030 appears to be significant at first sight it can be met by selling 35% ZEVs and 65% conventional cars with emissions of 110g/km (NEDC), which is higher than the average of 95g in 2021! Most manufacturers are forecasting 20-25% ZEV sales by 2025 so 35% by 2030 is not challenging. In effect, by selling ZEVs in reasonable numbers carmakers need not improve at all the efficiency of the majority of conventional cars they sell! In fact, if they sell enough ZEVs, carmakers could even afford to decrease the efficiency of their conventional fleets.

Furthermore, to meet climate goals transport will need to be decarbonised by 94% by 2050 and cars and vans to be zero-emission given the challenges in aviation. This means the last vehicle with a combustion engine needs to be sold by 2035 as the limited available quantities of synthetic and advanced biofuels will need to be used predominantly in aviation. Between 2030 and 2035 a 65% share of conventional vehicles will need to be lowered to zero – a very rapid phase-out. Had the Commission opted for a more ambitious target for CO2 reduction and larger share of ZEVs by 2030 the regulation would be on a trajectory to meet climate goals – the current draft is not.

The proposal is also disappointing in that it has failed to properly learn past lessons and prevent carmakers achieving their goals in large part by manipulating the laboratory test. The new WLTP is better than the NEDC test but will still measure around 20% lower than average real-world emissions. But worse, this gap is expected to grow by 2025 to around 30% due to test manipulation and fitting technology that performs better in the lab than on the road. The Commission had various options to address this, but chose to only do more lab checks and monitor through fuel economy meters. A real-world test that was recommended by their own experts, an example of which has been designed by T&E and PSA, was omitted. The test and not-to-exceed limit would have helped tackle test abuse and shows the Commission has not learned.

Overall, this is a proposal that panders to the car industry and lacks ambition. Fortunately, Parliament and Council will now get their say. On this occasion Council may be more divided with many car producing and buying countries facing tough CO2 reductions of more than -35% for 2030 in the non-ETS sectors, which includes transport. Germany may even adopt a -42% domestic transport cut as part of its climate plan that may form part of the coalition agreement. If this materialises it will need a stronger car CO2 regulation to avoid highly unpopular policies to curtail car use and meet its targets.

The weak Commission proposal arises from their skewed modelling that has transport making only a small contribution to meeting effort sharing goals (16-18%) and the majority of the cuts being made in buildings. Member States may conclude it is easier to make a bigger cut in transport than stimulating widespread home refurbishment programmes. If EU countries choose this path they will want more ambitious 2030 cuts than the Commission has proposed. Whilst the industry is a goal up at half-time the game is not over and the battle soon recommence.