Background

This briefing gives an overview of the benefits of regulating new car fuel efficiency and CO2 emissions and details T&E's position on the current political debate about CO2 reduction targets for cars and vans in 2025 and 2030. 

Context

The current legislation on cars CO2 requires carmakers to achieve fleet-average CO2 targets of 95gCO2/km by 2021. The proposal for post-2020 CO2 standards was presented in November 2017. The draft law proposes a 15% emissions reduction in 2025 and 30% in 2030 compared to 2021 levels. It is expected to be agreed by the European Parliament and EU ministers by early 2019.

How does the EU’s car CO2 law work?

The CO2 g/km targets are to be achieved on average across all new cars sold in 2021 (and on 95% of the new cars sold in 2020). Individual cars can be above or below the limit. Vehicle manufacturers have to ensure that the average fleet emissions of their new sales meets these levels. Each manufacturer gets an individual annual fleet-wide target linked to the size (measured by weight) of all its new cars registered in the EU in a given year, meaning that heavier cars are allowed to emit more.

If car manufacturers exceed these limits they are obliged to pay fines of €95 per g/km over the target per each vehicle sold. Transport & Environment’s analysis concludes that most carmakers will have no problem to achieve their 2021 target, especially when all the flexibilities that carmakers can use (i.e. super credits and eco-innovation) are taken into account. The only ones that appear to be lagging behind based on the current progress are Fiat, Ford and Hyundai-Kia.

What are the main benefits of fuel-efficient and low-emission cars?

Fuel efficient cars bring enormous benefits: lower fuel bills for drivers, new technology investment and jobs in Europe, lower oil imports (and even lower oil prices) and reductions in greenhouse gas emissions. The money saved by drivers in lower costs of vehicle ownership will also be used to boost local economies.

A study for the European Climate Foundation and endorsed by car companies, auto suppliers, trade unions, consumer groups and NGOs found that more than 200,000 net additional jobs in Europe will emerge by 2030 through deploying innovative low-carbon vehicle technology. According to the study, CO2 will also be cut by 88 per cent in 2050. Air quality will be significantly improved, with emissions of health-damaging particulates down from 1.3 million tonnes to 70,000 tonnes by 2050. Improved technology to cut fuel consumption will allow the EU to reduce its dependence on foreign oil and cut spendings by €49 billion a year in fuel savings for the EU economy by 2030.

What is the link between car fuel consumption and CO2 emissions?

The amount of CO2 a car emits is directly related to the amount of fuel it consumes. A car that emits 130g CO2 per kilometer, as tested on the EU’s NEDC test procedure, would consume around 5.2 litres of fuel to travel 100km. This would be reduced to around 3.7 litres/100km with a 95g CO2 target met in the real-world (or 3.2 litres/100km if the 80g CO2 target originally advocated by T&E had been agreed). 

A large proportion of a household’s budget is now dedicated to buying fuel, and fuel-efficient, low-emission and zero-emission vehicles lower the costs of driving significantly. Consumers would save over €700 on lower fuel bills each year in 2025, if a reduction of 25% is achieved on CO2 emissions compared to 2021 (based on a 2017 model). More fuel-efficient vehicles are also likely to benefit from higher resale values. By lowering fuel costs motorists will have more disposable income they can spend in buying local goods and services – benefiting the EU economy. 

While overall greenhouse gas emissions have decreased by 20% between 1990 and 2016, those from transport have increased by 18% in the same period, according to the United Nations (UNFCCC). The latter estimates that cars are responsible for 17% of the EU’s total CO2 emissions; and are the largest single source of total transport emissions. This increase in transport emissions has happened despite improved vehicle efficiency because the amount of personal and freight transport has increased. Thus the improvements in vehicle efficiency to date have not been able to keep pace with the growth in vehicle use – further progress is needed. The desired reductions have also not been reached because cars emit much more on the road than tests show, largely due to test optimisation, manipulation and sometimes plain cycle beating. That’s why T&E is asking for more ambitious CO2  targets for 2025 and 2030 than the Commission proposal, given the need to put the car emissions back on the downside track. This should be accompanied by a real-world test of cars’ CO2  emissions. T&E has teamed up with French vehicle maker PSA to develop such a test

Won't more fuel-efficient and zero-emission cars be much more expensive?

No. Recent history shows that future costs of technology are always overestimated. The ICCT estimates that the additional costs linked to a 25% CO2 emission reduction in 2025 (compared to 2021 levels) could be just €650 per vehicle if there is an early shift to electrification (17% of sales being zero-emission vehicles in 2025). The increase in manufacturing costs could lead to higher purchase prices for the most fuel efficient vehicles, but savings related to lower running costs and maintenance will outweigh the initial cost increase.

Around half of new cars are bought by fleets. These companies are not only concerned about the purchase price but the total cost of ownership. Many predict that plug-in cars will reach the cost parity on the total cost of ownership basis with petrol and diesel vehicles in early 2020s, with some research estimating the cost parity has already been reached in some markets. Low and zero-emission vehicles have a lower cost of ownership through lower insurance and lower fuel bills. If the costs of technology to improve the efficiency of the vehicle are passed onto the buyer at least a third of this will be passed onto the second owner in a higher resale value. Many leasing companies support ambitious CO2 targets as they help them save on fuel costs. 

ICCT estimate that 25% CO2 emission reduction in 2025 would lead to lower fuel costs and higher resale values for more fuel-efficient vehicles and will provide a payback period - the amount of time before the initial cost increment of efficiency technology is offset by cumulative savings on fuel costs - of between two to four years on average.

Is a 30% reduction in 2030 enough?

No. The European Commission proposed to set the emission reduction target for new passenger cars and vans at 30% compared to 2021 levels, despite its own impact assessment recommendation of 40% having the most positive societal impact (and economic in the case of vans). 

The Commission targets of a 15% and 30% reduction on 2021 levels by 2025 and 2030 respectively sits well below a cost-effective trajectory to meet the global Paris climate goals, which would require around 60% CO2 reduction from new cars and vans in 2030. 

The Commission impact assessment is flawed for several reasons:

  • It is outdated:  it is based on the level of 2030 emission reduction that pre-dates the Paris climate agreement, and is therefore insufficient to meet this long-term goal. It is estimated that the 2030 CO2 targets for cars and vans need to be raised to more than 40% so that the road transport makes its fair contribution to the 30% reductions required form the non-ETS sectors by 2030. 
  • It is unhelpful: 30% reduction is insufficient to enable many western and northern European member states to meet their 2030 climate goals or ensure sufficient supply of low and zero-emission vehicles to help achieve planned diesel and petrol phase-outs in the 2030s and 2040s. 
  • It is overly-positive: it assumes a significant improvement in CO2 emissions based on the business as usual and in the absence of new future policy – as a result, the CO2 emissions in 2030 are much lower and the shares of plug-in cars much higher than the national and international emission inventories and forecasts predict.

These flaws in modelling assumptions are significant. Other research shows that in order to be on track to meet EU climate targets, a 60% reduction is needed by 2030 – double what is proposed. This necessary reduction in CO2 emissions will require a rapid shift to low and zero emission vehicles by 2030, and the post-2020 CO2 regulation should ensure the investment into technology and supply chain ramp up in a timely manner.

What is T&E position?

T&E is therefore advocating for the following CO2 standards and modalities: 

  • At least 20% reduction in fleet average CO2 emissions for each carmaker in 2025, for both new cars and vans. 
  • A range of 50-60% fleet-wide reduction by 2030 form new cars and vans; this target should be reviewed in 2022 to set a firm standard, which allows sufficient lead time for carmakers. 
  • An indicative zero gCO2/km target for 2035 to give signal to the industry as to the direction and speed of future transition. 
  • A bonus-malus (or two-way adjustment) mechanism for the sales of zero and low emission vehicles set at the benchmark of 20% sales in 2025 and at least 40% in 2030. The bonus would reward the carmakers selling more than the benchmark by reducing the fleet-wide CO2 targets, while the malus would penalise those that sell below the benchmark by making their CO2 target stricter.  

The binding 2025 target is essential to bring CO2 improvement and investment into new technology in the next decade. In the absence of such a target, much less improvement is envisaged in new car and van CO2 emissions between 2025 and 2029 and, as a result, the carbon savings are halved. 

Won't achieving the current 95g/km target require a huge increase in electric vehicles?

No. There is ample conventional vehicle technology available to achieve the 95g/km target in 2021 as confirmed by the association of automotive suppliers, CLEPA, which stated the 95g/km target “can be reached with available technologies by 2020”. Most manufacturers will achieve the target through downsizing engines with turbochargers, improved aerodynamics, stop-start systems, etc. For the future, a range of cost-effective technologies to improve the efficiency of conventional vehicles to well below the 95g/km 2021 target are also available (e.g. mild hybridisation, cylinder deactivation, light-weighting, etc).

But these new technologies will not be further developed and deployed on cars without a regulatory requirement. 2025 CO2 standards are therefore needed to continue to drive technology into the market and ensure European companies remain at the cutting edge in developing fuel-efficient and zero-emission technologies. A study by the European Commission has identified 34 separate technologies that can improve the efficiency of conventional vehicles beyond 2020. Automotive suppliers confirm that they are “developing a wide range of technologies for further CO2 reductions post-2020; and that there is, additional potential via both increased efficiency of the internal combustion engine and increasing market shares of alternative powertrain vehicles.” 

To be globally competitive, and to meet fuel-efficiency standards in 2025 and 2030, there will need to be, alongside improvements in conventional petrol and diesel cars, some degree of hybridisation and electrification of drivetrains, including 48V hybrids, plug-in hybrids and fully battery electric cars. This requires billions of investment and rapid, future-looking commitments. Carmakers will only make that investment if they have certainty that the investments will not be in vain, and if all their competitors make them too.

According to carmakers’ own announcements and promises made recently, by 2025 around 25% of new cars sold will be plug-in and electric. But very few models are currently available resulting in long waiting times and consumer frustration. A mere 3% of marketing budgets today are spent on promoting and selling plug-in cars. The currently proposed CO2 bonuses for carmakers that overachieve 15% of zero and low emission vehicle (ZLEV) sales in 2025 will not create the regulatory certainty needed to make EU carmaker serious about investing in enough supply and capacity, as well as being serious about selling those vehicles in Europe. This is one reason T&E advocates for a separate sales mandate for zero-emission vehicles by adding a malus to the proposed ZLEV bonus system. This will accelerate investment into supply of zero emission powertrains and ensure the EU auto industry continues leading the market. It will make selling plug-in cars, rather than diesels, industry’s business motto. 

Many more low and zero emission vehicles will be necessary to meet longer term transport decarbonisation goals, without them the 2050 climate goals are impossible to achieve. Importantly, some EU member states such as France, the Netherlands and the UK have decided to phase-out conventional combustion engine sales in the coming decade, while many cities are introducing diesel bans in 2020s already. All this will necessitate large supply of zero-emission vehicles needed in the coming decade, and the EU CO2 standards is the main tool to mandate timely investment and roll-out of the supply of vehicles. 

Don't we need costly subsidies to support the market for electric vehicles?

No. A number of European countries have committed to phase-out diesel and petrol engines and have set market objectives for zero-emission vehicles (ZEV) to meet their climate goals. Some governments give tax breaks or purchase subsidies for ZEV buyers. While other schemes – such as the French bonus-malus scheme – are revenue-neutral for the treasuries, and cross-subsidise purchase of lower emission vehicles with higher charges on older and higher emitting ones. 

Research shows that EVs will become cost-competitive to petrol and diesel cars in the early 2020s. What’s needed to grow the EV market in Europe beyond the current niche is a bigger supply and broader choice for customers that will bring prices down and foster quick adoption. 

While member states’ subsidies for purchase of plug-in cars can only be temporary and don’t provide security for customers and carmakers, EU-wide and industry-wide CO2 standards are the best cost-effective tool to offer investment security for carmakers and, importantly, their suppliers, to help the EU’s EV market to grow. This would offset the initial technology cost barriers and make cars cheaper due to economies of scale.

In addition to that, better incentives for zero-emission vehicle sales and uptake are needed to ensure Europe’s EV market does not fall behind China and several US states - such as California - where ZEV mandates/EV quotas are planned or in place. 

A bespoke zero-emission vehicle mandate is more effective than the super-credits that are part of the 2021 regulation today, which simply create “hot-air” by overrating sales of ultra-low carbon vehicles that have not actually been sold:e.g. cars with type approval emissions less than 50 gCO2/km will be counted as 2 cars in 2020, 1.67 in 2021 and 1.33 in 2022. If that multiplier was kept, this would equal 31 Mt of CO2 not saved cumulatively from 2020 to 2030. In contrast, a ZEV sales target of 20% by 2025, as advocated by T&E, would ensure the EU car fleet delivers much carbon saving and provides a tool to transition the EU car industry from diesel reliance today to electric motors in the future.

With China being the largest EV market based on ambitious EV quotas, the EU politicians and the car industry need to pick up speed to remain globally competitive. As these vehicles are likely to be fuelled with ever cheaper renewable electricity, the EU should aim to be the world’s leading green economy. 

Is Europe at risk of losing its leadership of low and zero emission vehicle technology?

Yes. There is a real danger that Europe is going to lose its competitive edge in low and zero-emission vehicles if manufacturers here don't get a big enough push to invest and upscale the latest technologies and supporting supply chains.

The impact of good regulation on driving the market for plug-in cars has also been clearly demonstrated in China and California. In the year that goes from May 2017 to May 2018 alone EU carmakers invested seven times more into EV manufacturing in China than in Europe. China’s EV quota is spurring a wave of investments by OEMs increasing production of electric cars and led by VW’s decision to invest €15 billion in building six EV factories in China – half of its €34 billion global investments. BMW has announced that it will produce the iX3 in China “following the market”. Volvo Cars’ CEO said: “China’s electric future is Volvo car’s electric future”. Ford has already created a joint venture to develop and produce full electric cars for the Chinese market, aiming at offering 70% of its models in an electric version by 2025. With full production volumes of EVs being built in China, the cost of manufacturing there will be significantly lower than on the low-volume production lines in use in Europe.

If the EU market remains small, it is therefore likely that companies will look to supply the EU market in part from importing cars produced in China. This will result in a shift in jobs and value from the EU to China.

Smart regulations drive innovation, investment and therefore new jobs. More and more countries globally are setting increasingly stringent CO2 or fuel economy targets. By developing lower carbon vehicles EU suppliers and manufacturers can supply fuel efficient vehicles and technologies into emerging, growing markets. 

If Europe used less oil, would that have an impact on the oil price itself? 

Yes. Every year, at current oil prices, Europe imports approximately €215 billion worth of oil, two thirds of it for transport. Cars are the single biggest consumer of oil in the EU. Importing €215 billion of oil every year is a massive waste of money that could be invested within the continent developing and mass manufacturing advanced fuel efficiency technologies, or other economic activity.

Europe is one of the world’s biggest oil consumers. If we used half as much, it would cause global oil demand to drop, which would lead to lower oil prices on the world market. This means even more savings for drivers and businesses. The International Energy Agency says that if the world cut its oil use by only 8%, oil prices would come down by 16%. The lower price effect triples the savings compared to lower consumption alone. 

The European Commission’s Joint Research Centre (JRC) also estimates that the improved energy security derived from lowering oil demand as a result of improving vehicle efficiency would be worth €20bn between 2020 and 2030.

Does the EU need to cut emissions from transport?

Yes. The EU aims to reduce overall emissions by 80-95% by 2050, compared to 1990 levels.

While overall greenhouse gas emissions have decreased by 20% between 1990 and 2016, those from transport have increased by 18% in the same period, according to the United Nations (UNFCCC). Three quarters of transport emissions are from road transport and three-quarters of these are from cars and vans. 

In early 2018 the EU agreed to reduce its overall greenhouse gas emissions from non-ETS sectors (transport, buildings, agriculture, waste) by 30% by 2030 below 2005 levels. This will be difficult, especially as reductions in the sectors such as agriculture and buildings are costly and difficult to implement. Road transport constitutes more than a third of all EU non-ETS CO2.

Reducing CO2 emissions from new cars is therefore one of the cost-effective and most important ways of cutting transport emissions and will help individual member states achieve their non-ETS goals. 

Is it right that manufacturers of heavier cars are allowed to emit more than those of smaller vehicles? 

No, this is a historical anachronism and needs to be removed. The current standards and the new post-2020 proposal sets an emission target for each car manufacturer based on the average weight of new cars it sells across the EU in a given year. The regulation defines the “slope of the line” that correlates the CO2 emissions target to the per kilogram average weight of vehicles for each manufacturer. For example, the ‘slope’ for hitting the 130 g/km by 2015 is 0.0333 (3.33 g/km per 100kg). In other words: a carmaker who makes cars that are on average 100 kg heavier than the fleet average receives a target of 134.57 g/km for 2015.

Comparing vehicles on the basis of their weight reduces incentives for making vehicles lighter – effectively eliminating an important and cheap technology to make vehicles more efficient by using better and lighter materials. In the US targets are set on the basis of the vehicle footprint (area) beneath the wheels and as a result vehicles are becoming much lighter.

Given advances in vehicle technology there is no longer a justified need to allow heavier cars emit more CO2. E.g. some of the heaviest cars on the market are plug-in hybrids due to dual motor but these are on average 20-40% more fuel efficient than diesel cars. T&E wants to see the unjustified benefit given to larger vehicles progressively reduced and the current mass adjustment factor removed from the post-2020 regulation. As of 2025 all manufacturers should have the same CO2 reduction target in percentage terms, and those producing larger, premium vehicles should deploy more technology to ensure their targets are met.
 

What do you make of eco-innovations?

Eco-innovations are technologies that improve the efficiency of the vehicle in real-world driving but are not captured in a laboratory test cycle. T&E believes the test-cycle and testing procedures needs to be updated so that it is more representative of real-world driving and therefore include the benefit of off-cycle technologies such as more efficient lighting or air conditioning.

This is why we call for an on-road CO2 test to complement the new WLTP laboratory cycle from 2025 onwards. Until the cycle is updated we can accept the need for eco-innovations so long as the current robust assessment procedure is maintained and the total contribution that eco-innovations can make to the target is capped at 7g/km.