Global Insight Perspective | |
Significance | The EC is likely to adopt a weight based system to regulate CO2 emissions as part of its new strategy to cut CO2 emissions from cars. |
Implications | Such a model would not discriminate manufactures of larger and more powerful cars and safeguard the diversity of the industry. |
Outlook | A system based on weight was also the preferred option for the industry represented by the ACEA which believes that the EC's policy should get some inspiration from Japan's overall strategy to cut CO2 emissions from cars. |
According to various media reports, it appears that the European Commission (EC) may decide that a weight-based system could be the best solution to impose strict carbon dioxide emission cuts from new cars. The Commission is preparing a binding legislation to ensure the 120 grams per kilometre (g/km) target is reached by 2012 through an engine technology target of 130 g/km and other vehicle technology measures (including gear-shift indicators, mobile air conditioning efficiency, tyre pressure monitoring systems, low-rolling resistance tyres and biofuels) contributing the remaining 10 g/km. However, the EC still has to formulate how the targets will be set and implemented. A weight-based system has been advocated by the European Automobile Manufacturers Association (ACEA), which believes it is the best solution to safeguard the diversity of the industry. The EC is currently working on a full impact assessment review that should form the backbone of the legislation to be presented by the end of 2007, or at the latest by mid-2008.
A system that would link the weight of a car to its CO2 emissions would be extremely beneficial to German and Swedish brands, which specialise in luxury and sports cars and feared a blanket cap on CO2 emissions would force them out of business to the advantage of Italian, French and even some Japanese brands. In an exclusive interview with Global Insight, ACEA's Secretary General Ivan Hodac said "CO2 reductions from cars should be related to the differentiation in the car portfolio of European manufacturers, with weight as the most suitable parameter, and CO2 targets applicable to their average fleet." According to the German press agency, the EC has so far evaluated 46 different models for a possible CO2 emissions limit. Eight of those are now being evaluated in more depth to assess their environmental, economic, social and technological impact.
Similar to Japan, a model based on weight is considered the best solution. If this is the option selected by the EC, a few details will still have to be clarified. For instance, for such a system to be effective, incentives and penalties will have to be put in place to encourage manufacturers to comply. This could take the form of penalty and bonus points like emissions certificates to be traded among automakers. Yet, the ACEA said to Global Insight that it did not see any benefits in being locked into a so-called internal emissions trading system. Furthermore, financial penalties for non-compliant manufacturers are not being supported. European Commissioner Günter Verheugen was quoted by Reuters as saying ""I think nothing of the idea that certain manufacturers could buy their way out of their environmental responsibilities." The evident truth being that carmakers with the worst environmental records are also those with the largest profit margins (Porsche, Audi, BMW, Volvo, Mercedes).
Outlook and Implications
Several weeks ago Hodac explained to Global Insight that a system based on weight was also the preferred option for the industry. He said "Our members produce different type of cars and inherently have different interests. But we have common positions on several points. We have began to discuss what kind of regulatory system we would like to have and a consensus emerged for a system based on weight similar to that adopted in Japan, applicable at Group level." The ACEA members also concur on other points. They argue that the timeframe proposed by the EC is not feasible because the industry needs sufficient lead time for the design and production of the next generation of engines and vehicles that will contribute to reducing CO2 emissions, and estimates that 2015 would be the right time for a legislative framework to start. To put the issue in perspective, Japan's fuel efficiency strategy was agreed in 2006 for implementation in 2015.
A system that varies CO2 limits based on the size or weight of the vehicle would safeguard the diversity of the industry and ensure that a new emissions rules are not distorting competition. This is possibly not the kind of argument "carbon-fighters" would like to hear but this unique combination of diversity and fierce competition is one of the main force behind innovation in the European automotive sector and also the basis to achieve global leadership in the field of clean technologies. Europe already has world-leading diesel engine technology, and will be able to further develop this technology while making advances in gasoline (petrol) technology, fuel efficiency and hybrid powertrains. This can only be achieved if manufacturers can focus on innovation and invest in cutting edge technologies rather than fight to improve their competitiveness, by exerting extra pressures of suppliers and relocate production outside Europe.
For the ACEA, the appropriate solution to reduce CO2 emissions from cars and to safeguard jobs and investments in Europe is an integrated approach, combining further improvements in vehicle technology, an increased use of alternative fuels, improved infrastructure and traffic management, a more economic driving style and harmonised CO2-related taxation. This requires a partnership involving the automotive industry, the fuel industry, policy-makers at all EU government levels and consumers