Car manufacturers to get new targets that will cut driving costs

Moustaches in the driving seat: Siim Kallas, Vice President of the EC in charge of Transport (left), and Dieter Zetsche, Chairman of Daimler AG and Head of Mercedes-Benz Cars, at yesterday's CARS 21 group meeting.

The European Commission is next month to propose tighter carbon emissions standards for new European cars with a 2020 target of 95gm CO2 per kilometre, that will cut costs for motorists by 25%.

But the Commission has not decided whether to make the target binding, and there are calls for the target to be even stiffer in order to save drivers even more on fuel costs.

Currently, manufacturers have to reach a binding target of 130gm CO2/km by 2015, which they are on target to attain. Fines for failure are presently €95 for every gram over the target per vehicle and these would be kept at the same level in the future.

Long-term carbon dioxide emission standards for new passenger cars, for 2025 and 2030, are also envisaged by the Commission. These would be set by the end of 2014 at the latest.

The new limits would cut fuel consumption in cars and vans by up to a quarter and save European citizens an estimated 25 billion euros ($31.2 billion) per year, as we reported last month. The estimated fuel savings from implementing the 2020 target would more than compensate for the expected cost of compliance.

The average motorist would save around €500 per year on fuel from the 95 gram 2020 target, based on a driving distance of 20,000 km per year and a fuel cost of 1.4 euros per litre.

Greg Archer, programme manager at the Transport and Environment campaign group, welcomed the news, but said that drivers should be helped to save even more. "Drivers have been short-changed," he said. “A 2020 target of 80g CO2/km is perfectly attainable."

The European Commission is currently assessing the feasibility of a 70gm CO2/km target by 2025.

In an interview in Der Spiegel people last December, Guenther Oettinger said "German automakers will have to fight hard [to meet the new emissions targets], but they will meet them".

But they will not have to fight that hard, being already well on the way towards meeting the 2015 target. According to the Society of Motor Manufacturers & Traders (SMMT)'s report on new car CO2 emissions, last year average emissions had fallen to 138.1g/km, down 4.2% on 2010 and 23.7% below the 2000 average.

Low emission cars are gaining market share

Lower emission, cheaper to run cars are also becoming more popular. In 2011, registrations of alternatively-fuelled vehicles rose by 11.3% to over 25,000 units, and accounted for a record 1.3% share of the total market. All market segments reported a further decline in CO2 emissions in 2011, highlighting the broad nature of the total market shift to more efficient cars.

The SMMT says that the continuing challenging economic situation has increased consumer awareness and the desire to reduce running costs by purchasing lower CO2-emitting cars.

While the UK has to comply with emissions standards set at the EU level, it has also introduced its own complementary policies to incentivise the uptake of low-carbon vehicles. These include a plug-in car grant scheme, a fund of over £300 million, which offers motorists up to £5,000 for the purchase of cars with tailpipe emissions of 75g CO2/km or less. A similar grant has been created to encourage the purchase of ultra-low emissions vans. However, take-up of this has been low so far.

British consumers and businesses also benefit from a favourable tax regime, with plug-in vehicles receiving Vehicle Excise Duty and Company Car Tax exemptions, as well as Enhanced Capital Allowances.

Furthermore, the Plugged-In Places programme has made £30m available to match-fund eight pilot projects installing and trialing recharging infrastructure in the UK to support the Carbon Plan commitment to install up to 8,500 charge points.

Support for the automotive industry

Although in the UK, the auto market is doing surprisingly well given the recession, the story is not the same across the whole of Europe, where altogether it supports 12 million jobs, a €92 billion trade balance, and receives €30 billion investment in R&D.

So yesterday the European Commission announced a series of actions to support the industry, with a proposed action plan that will include providing EU financing for research, in particular to help the sector adapt to the technologies of tomorrow, through reinforcing European Investment Bank lending.

It will also help to manage business costs by applying smart regulation, and improve exports through trade negotiations and work on global regulatory and procedural convergence with the ultimate aim of achieving the approval of a worldwide car type. This would mean that any car produced in the world can be marketed in every country of the world.

Also yesterday, members of the CARS 21 High Level Group, which consists of ministers and senior industry representatives, met for the final time and approved a report which sets out a complete vision for the automotive industry in 2020.

It calls for, amongst other things, support for the development of "a portfolio of propulsion technologies, dominated by advanced combustion engine technology, that would be increasingly electrified. In addition, the deployment of vehicles with alternative powertrain concepts (such as electric and fuel cell vehicles)".

Parallel to this they also called for "appropriate refilling and recharging infrastructure for alternative fuel vehicles" to be built up, "in line with their market potential".

European Commission Vice-President Antonio Tajani, responsible for Industry and Entrepreneurship, said: "The automotive industry needs to be in good shape first in order to realise this vision. We therefore need to act now and decisively in order to counter current economic difficulties by mobilising financing for research, carefully evaluating any new regulation and supporting the expansion on third markets”.

The future for low emission vehicles

This is still largely driven by European legislation, although high fuel prices and concerns about climate change are playing a large part, especially outside of Europe.

Under the 2009 Renewable Energy Directive, fuel suppliers are required to source 10% of their transport fuel from renewable sources (although this policy has been met with controversy due to concerns over unsustainable biofuel cultivation).

One in four business leaders have already making use of, or are considering introducing, alternative fuel vehicles to their business operations, partly as a response to oil prices remaining stubbornly high, according to a report last month from Grant Thornton. This finds that 24% of businesses globally are looking to alternative fuel vehicles, such as electric cars, hybrids, LPG and fuel cell cars, to help mitigate rising transport costs.

The survey covered 12,000 businesses per year across 40 economies, finding also that the price of oil prices was the leading cause driving business owners to consider alternative fuel vehicles, for 69% of survey respondents globally.

The drive towards clean alternatives is being largely steered by mature markets, with 28% of businesses in the G7 at least considering adopting such vehicles, compared to just 15% in the BRIC economies.

55% of businesses cited tax relief and 62% cost management as key motivators for switching to low emission vehicles. Businesses are also increasingly aware of the environmental impact of their fleets with 58% citing saving the planet as a driver towards the adoption of alternative-fuel vehicles.

Amongst those who have not considered alternative fuel vehicles, cost (49%) emerges as the greatest constraint, closely followed by the difficulty of charging/refuelling (48%) and a lack of choice (38%).

The trend toward alternative fuels is also visible in global sales of hybrid electric vehicles (HEVs) and battery electric vehicles (BEVs), which are projected to reach 5.4 million vehicles by 2021 (more than 6% of the automotive market).

But a recent KPMG report found that electrified vehicles will not exceed 15% of annual global new car registrations before 2025, because of cost and lack of charging infrastructure; for the immediate future, hybrids will continue to be more popular than pure battery-powered cars.

Over time, fuel cell vehicles are seen as a more promising prospect than battery-electrified cars, especially in the BRICs countries. They find that 9–14 million new electric vehicles will be registered in TRIAD and BRIC markets by 2026.