What the car CO2 deal means

A few years ago carmakers were almost successful in their efforts to scrap the CO2 standards altogether and put transport in the EU emissions trading system (ETS). When the Commission finally made its proposal – a few years late – we were bitterly disappointed. It was so unambitious that the unthinkable happened: a coalition of 19 progressive member states increased the ambition of the Commission proposal and forced a compromise at 35%. But the price they paid was the introduction of a number of major loopholes. Fortunately parliament and its exceptional team of negotiators stood firm and secured a sensible final deal with higher ambition and limited loopholes.

So, compared to where we began, we made great progress and this law is a breakthrough for e-mobility in Europe. But let’s not fool ourselves: this deal is not the game changer needed to protect the planet.

Contrary to car industry claims, it is not overly ambitious. Carmakers including Volkswagen, BMW, Daimler and others have said that by 2025 they’ll be selling 15-25% plug-in vehicles. Assuming they’ll continue to make engined cars at least a little bit better, if carmakers hit the bottom end of their EV sales promises, they’ll be complying with the new standards – if they hit the upper end they’ll be overachieving big time. Evidently the new 2030 rules require them to step up but they’ve got more than a decade to prepare.

Nevertheless, the newly adopted car CO2 law means carmakers will have to deliver on their promises. As such it will be the single most important driver for emission reductions and technology change in the car industry in Europe. The law does give a decisive signal that the countdown towards phasing out engine cars has started in earnest. Carmakers will almost certainly choose to comply by greatly increasing the sales of attractively-priced low and zero-emission vehicles. VW themselves have accepted as much, stating that the next new engine – due in 2026 – will be their last.

Carmakers now face a choice. The traditional attitude towards automotive regulation is to do the minimum required to comply and to do it as late as possible. Carmakers might be tempted to follow the same tactic for 2025 and 2030. By cheating on the starting point in 2021, selling plug-in-hybrids with token batteries that are hardly ever charged, abusing the double counting in Central and Eastern Europe, and other ways we haven’t even thought of, carmakers can undermine the stringency of the law by several percentage points. Based on their record and behaviour throughout the negotiations, this is probably what many of them are gearing up for.

There is a different path though. Toyota opted for hybrids two decades ago. It was a visionary choice at the time and has meant that Toyota has had no problems with car CO2 standards ever since. Volkswagen and Nissan-Renault now seems to be making a similar choice. VW’s commitment to electrification appears genuine and its plan to start selling a Golf-style electric vehicle at the price of a diesel could be a game changer. VW CEO Herbert Diess reacted to the car CO2 deal, not to criticise it, but to say the targets were attainable but that it would require them to accelerate the transition.

The price of batteries has fallen 18% this year after a 26% reduction in 2017. If more carmakers follow this forward-looking path, it would mean zero-emission vehicles take off in a much bigger way than foreseen in the regulations, with carmakers not just doing bare minimum to comply but actively trying to create a market for ZEVs. Tesla, China, Dieselgate, and now the EU car CO2 law, all point in the same direction: zero emissions. Auto CEOs that ignore these signals and think they can continue with the old ways are gambling with the future of their company and its jobs.

Regulators and governments can help carmakers make the right choice. The Commission needs to immediately start developing the real-world emissions mechanism agreed in the car CO2 law. They should also vigorously monitor how carmakers are transitioning from NEDC to WLTP and intervene forcefully if carmakers are caught inflating WLTP figures. National governments need to get much smarter about fiscal incentives, switching to bonus-malus schemes by incentivising electric and hydrogen cars at the expense of very polluting vehicles. In Central and Eastern Europe in particular, support for such vehicles should be conditional upon them remaining in the country for a number of years.

Finally, governments do need to understand the new cars law is not nearly enough to hit their binding 2030 climate goals. That means much more ambitious action on transport at national level will be required. Car taxes and company cars are extremely powerful instruments that need to be deployed not just to achieve, but to significantly exceed the EU car CO2 targets. More countries must adopt combustion engine phase-out plans and this should be facilitated by the EU. Cities need to move from low-emission zones to zero-emission zones. Combined with private and public investment in charging infrastructure, and a major push to develop a green battery industry in Europe, we now have a tremendous opportunity to put Europe on track to become the world leader in electromobility and hit its climate targets.