More climate protection by a more comprehensive and better CO2 regulation. Position on CO2 Regulation for Passenger Cars Post-2020

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1 More climate protection by a more comprehensive and better CO2 regulation Position on CO2 Regulation for Passenger Cars Post-2020

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3 Content Content Executive Summary 4 1. Expansion 2. Harmonization 3. Conditions 4. Percentage reductions 5. Technology neutrality Pillar 1: CO2 reduction potentials within the automotive industry 6 Technical reduction rate for new cars Crediting additional reductions 6 10 Pillar 2: CO2 reduction potentials outside the automotive industry Upstream chain: energy carriers Demand and the use phase Conclusion: necessary combination of all reduction potentials Imprint 15 Contact for this topic Dr. Kay Lindemann Managing Director Dr. Martin Koers Head of Department T koers@vda.de 3

4 4 Executive Summary Executive Summary Passenger cars and light commercial vehicles have been subject to a CO2 Regulation in the EU since Initially an average target of 130 g CO2 /km was set for new passenger cars for 2015, which was tightened up to 95 g CO2 /km for The European Commission is currently working on a draft Regulation for the period after The German automotive industry is working to enhance climate protection with an improved Regulation taking a holistic approach. A post-2020 CO2 Regulation should therefore focus on the following: 1. Expansion Comprehensive climate protection in road traffic requires the CO2 legislation to cover not only vehicle efficiency but all optimization potentials both within and outside the automotive industry. To do so, the post-2020 Regulation should build on two pillars: Pillar 1: CO2 reduction potentials within the automotive industry, i.e. further increases in the efficiency of new cars ( tank to wheel ) and other reduction options in the automotive industry. Pillar 2: CO2 reduction potentials outside the automotive industry, i.e. measures relating to forms of energy (fuels, electricity), demand, and the existing fleet ( well to tank and use phase ). 2. Harmonization To guarantee harmony with the EU Member States climate targets for 2030, the future Regulation for passenger cars should be aligned with the climate goals for The path taken in order to reach the target in 2030 must be examined in a midterm review in Conditionality Targets must be adjusted to the real market success of alternative powertrains and depend on the expansion of the infrastructure which actually occurs. This type of conditional fleet regulation can take account of the uncertainties in market ramp-up. This is necessary because unlike the CO2 reductions achieved so far, market penetration (e.g. by e-vehicles) will be crucially affected by the political and regulatory conditions in the Member States (charging infrastructure, public procurement, taxation, incentive policies, etc.). In 2025 at the latest, as part of the mid-term review, a transparent check should be carried out on the reduction steps achieved so far, and the CO2 reduction target for 2030 should be adjusted either upward or downward, depending on the ramp-up of alternative powertrains and the expansion of the infrastructure. 4. Percentage reductions In view of the changeover from today s testing cycle (NEDC) to the new WLTP testing cycle, a new target in 2017 can be indicated only as a percentage rate of reduction and not as an absolute limit value. Data for defining a WLTP limit value will be available from 2020 at the earliest. 5. Technology neutrality Effective climate protection in road traffic requires contributions from all propulsion technologies. Alongside powertrain electrification, the CO2 emissions from vehicles with combustion engines must continue to be reduced one option for this will be the use renewable fuels. A regulatory framework is therefore needed that includes all technological options and does not exclude specific technologies. Specific details of the VDA s two-pillar approach are given below.

5 Executive Summary 5 Future CO2 strategy on two pillars CO2 post 2020 Expansion: consideration of all reduction potentials Harmonization: target year 2030 to match EU climate policy Conditionality: targets to depend on the uptake of alternative drive systems & infrastructure Percentage reduction logic: necessitated by the new test procedure (WLTP) Technology Neutrality: reasonable combination of internal combustion & alternative powertrains CO2-reduction potentials within the automotive industry CO2-reduction potentials outside the automotive industry 1. Technical reduction rate: Optimization of conventional technology Ramp-up of alternative powertrains 2. Crediting additional reductions: Measures outside of the test cycle Enabling digital connectivity Compatibility for low-carbon biofuels Voluntary use of climate neutral synthetic fuels Pushing new mobility concepts forward 1. Energy sources: Ensure decarbonization of fuels Include all fuels in emission trading Integral connections 2. Demand side: Involve and replace existing fleet Continue developing policies to promote alternative powertrains Extension of infrastructure for alternative powertrains Promote eco-driving Expansion of digital infrastructure for connected and automated driving Guideline: More climate protection by a more comprehensive and better regulation Source: VDA

6 6 PILLAR 1: CO 2 REDUCTION POTENTIALS WITHIN THE AUTOMOTIVE INDUSTRY Pillar 1: CO2 reduction potentials within the automotive industry The determination of CO2 reduction potentials within the automotive industry highlights the following questions: How can a target value be set today, which takes account of the uncertainties in switching from the testing cycle NEDC to WLTP, plus the great uncertainty associated with the ramp-up of alternative powertrains? What other useful reduction potentials for CO2 reduction exist that can be shown to contribute to CO2 reduction, even if they cannot be measured in the testing cycle? Technical reduction rate for new cars Why a technical reduction rate instead of a limit value? The current Regulation sets a CO2 target value and verifies the fleet CO2 values for all new registrations, in relation to weight and for each manufacturer, at the end of the year. At present all new vehicles are still measured using the New European Driving Cycle (NEDC). From 2017 onward, this testing cycle will be replaced with the Worldwide harmonized Light vehicles Test Procedure (WLTP), which is also intended to form the basis for defining a new target value. The European Commission is applying the principle of comparable stringency to the switch from NEDC to WLTP.1 This means that a vehicle fleet that is legal today, under today s NEDC boundary conditions for testing, must also be legal under WLTP boundary conditions for testing.2 The NEDC and WLTP values cannot be converted by a simple calculation because individual technologies, such as a startstop system, have differing effects in the two test cycles and consequently there would be no comparable stringency. For this reason, the European Commission is leaving verification of the 95 g CO2/km fleet target as correlated NEDC values until 2020, using the CO2MPAS tool to do so. Although WLTP measuring will be introduced in 2017, a complete WLTP data set for an entire new car fleet will be available from 2020 at the earliest.3 Therefore, at this time a new CO2 fleet limit value for the period after 2020 cannot be set based on WLTP data. Instead, it is planned that a snapshot of the European passenger car market after 2020 will supply the new CO2 database from which, similar to today s procedure, a new CO2 slope will be derived for The new weight-based and manufacturer-related WLTP limit values for 2030 will then be based on this new slope. Conclusion In order to propose a post-2020 reduction path in 2017 in the sense of an interim regulatory step, only a percentage overall reduction rate can be set for the period from 2020 to It is not possible to give an absolute WLTP limit value because a WLTP starting point cannot be determined until How ambitious can the post-2020 technical reduction rate be? It will not be possible to maintain the speed of CO2 reduction achieved in the past by further optimizing the internal combustion engine. Instead, additional reductions to below 95 g CO2/km depend very largely on the market success of alternative powertrains. The market ramp-up of alternative powertrains is in its turn dependent on many exogenous factors that are not within the responsibility of the automotive industry and which it can influence only to a limited extent. They include the battery costs, charging infrastructure, fuel prices and public procurement. Therefore more ambitious targets after 2020 can be attained only if joint action by the automotive industry, Member States, infrastructure providers and regional and municipal political decision-makers can be relied on to create the right regulatory framework. The politicians, the industry and, not least, the motorists, must all contribute in order to ensure further reduction rates. 1. Article 13 (7) of EU Regulation (EC) No 443/2009 (amended by (EU) No 333/2014): The Commission shall [ ] adopt [ ] the formulae set out in Annex I, [ ], while ensuring that reduction requirements of comparable stringency for manufacturers and vehicles of different utility are required under the old and new test procedures. 2. The conversion between WLTP measured values and NEDC data, as decided in the summer of 2016 in the comitology procedure, considerably restricted the status quo. This loss of comparable stringency should be taken into account during final determination of a post-2020 reduction rate in order to maintain the comparability guaranteed in Article The WLTP testing cycle is being introduced step-by-step from 2017 onward. As of Sept. 1, 2017, new type approvals for vehicle emissions must be in accordance with WLTP. As of Sept. 1, 2018, all passenger cars registered in the EU for the first time (with the exception of end-of-series vehicles) must be certified according to WLTP. This means that in 2019 for the first time a fleet will exist that has been measured under WLTP in its entirety. The monitoring results for 2019 will not be available before October 2020.

7 PILLAR 1: CO 2 REDUCTION POTENTIALS WITHIN THE AUTOMOTIVE INDUSTRY 7 Reduction rates dependent on various e-mobility scenarios In the industry s view, technologically very ambitious reduction rates are possible if conventional and alternative powertrains are combined. However, the decisive factor is not solely the technological feasibility but the acceptance of e-mobility, which will be determined by the regulatory conditions in the EU states. Specimen e-mobility scenarios calculated for the EU: Basis: market share going to alternative powertrains in 2020 BEV 1%; PHEV 2% Assumption: annual growth in e-mobility in the overall market share of new vehicles (low for BEV, high for PHEV) BEV: PHEV: Scenario 1: moderate Scenario 2: realistic Scenario 3: optimistic 0.3% 0.6% 0.6% 1.2% 1.2% 2.4% Result: overall cumulative CO2 reduction rate in the EU s new car fleet between 2021 and 2030 Reduction rates: Approx. 13% Approx. 19% Approx. 31% Assumption: annual growth in e-mobility in the overall market share of new vehicles (high for BEV, low for PHEV) BEV: PHEV: 0.6% 0.3% 1.2% 0.6% 2.4% 1.2% Result: overall cumulative CO2 reduction rate in the EU s new car fleet between 2021 and 2030 Reduction rates: Approx. 14% Approx. 21% Approx. 35% Conditional reduction rates dependent on the ramp-up of alternative powertrains g/km CO 2 WLTP starting point 2020 Midterm review 2025 CO 2 reduction target 13% / 14% Conditional Target 2030 Lower Bound 19% / 21% Baseline Ambition Level for % / 35% Conditional Target 2030 Upper Bound 2030 Source: VDA

8 8 PILLAR 1: CO 2 REDUCTION POTENTIALS WITHIN THE AUTOMOTIVE INDUSTRY Therefore, reductions cannot simply be calculated in a linear manner as in the past. Instead, the future CO2 regulatory logic must take into account the uncertainties of this new technology and infrastructure development. In principle, the possible CO2 reductions for new vehicles after 2020 result from two main points of leverage: further optimization of conventional powertrain concepts4, and market success of the alternative powertrains will both determine the CO2-reduction rate. Depending on the development of the charging infrastructure, battery costs, fuel prices and other exogenous factors, the overall CO2 reduction will be either higher or lower depending on the growth in electric mobility. Since the market success of alternative powertrains cannot be forecast at present, in 2017 only a conditional overall reduction rate can be formulated for 2030 as an if-then statement: if the exogenous factors develop in a certain way, then an overall reduction of x percent is possible in This situation is illustrated by the figure below and the following table showing different e-mobility scenarios. The great uncertainty over whether market ramp-up can be achieved by 2030 will remain even after For this reason, at the latest in 2025 the reduction steps achieved should be subject to a transparent check in a mid-term review.5 Then, if the regulatory conditions for the alternative powertrains develop different from those predicted, the agreed reduction rates can be adjusted either upward or downward. A mid-term review could be drawn up for example in the following way: Qualitative mid-term review by an independent body of experts Policy-makers and the industry agree in 2017 on an independent body of experts that will assess in 2025 all the major parameters influencing the ramp-up of alternative powertrains, by considering the following indicators: Range of vehicles on offer (battery electric vehicles [BEV], plug-in hybrid electric vehicles [PHEV], fuel-cell electric vehicles [FCEV], etc.) Expansion of the charging infrastructure Oil and fuel prices Levels of subsidies and non-monetary incentives Level of public procurement, etc. In principle this type of tracking of the trends in relevant parameters and indicators is already known in the EU legislation. For example, in the current CO2 Regulation the average weight in the EU fleets, and the 7 g threshold for eco-innovations are already subject to regular verification. Quantitative mid-term review Alternatively the mid-term review could be simplified by basing it solely on individual, easily measurable indicators that are highly relevant for ramping-up alternative powertrains. Obviously the decisive factor for the reduction potential is the actual market share of alternative powertrains resulting from many indicators. However, many surveys indicate that total coverage with a rapid charging system is a relevant indicator for the purchase of electric vehicles. The European Commission also underscores the need for an infrastructure in its Directive on Deployment 4. Conventional powertrain systems are not filled with electricity or hydrogen, and therefore have classical combustion engines (as do hybrids). 5. A mid-term review would mean that the European Commission is empowered by a Delegated Act or by an Implementing Act to adjust the target value either pursuant to a previously defined condition, or to a recommendation from an independent commission of experts. 6. DAFI DIRECTIVE 2014/94/EU: Lack of alternative fuel infrastructure and of the common technical specifications for the vehicle-infrastructure interface is considered a major obstacle to the market introduction of alternative fuels and consumer acceptance. DAFI specifies a ratio of 1:5 (1 publicly accessible recharging point to 5 EVs).

9 PILLAR 1: CO 2 REDUCTION POTENTIALS WITHIN THE AUTOMOTIVE INDUSTRY of Alternative Fuels Infrastructure (DAFI).6 The Commission s proposal for the DAFI calls for a ratio of 1 to 5 between charging points and the number of electric vehicles. Verifying this ratio in the mid-term review in 2025 should include the feasibility of the reduction rate defined for Consequently, in the review year the expansion of the infrastructure would be measured and assessed in proportion to the achieved market share. From the measured and evaluated status a correction factor can be derived for the ramp-up of alternative powertrains and used to determine the final additional reduction rate. Conclusion As the market success of alternative powertrains is extremely uncertain and is the responsibility of more players than the automotive industry alone, the stringency of the future Regulation should react flexibly to actual market development and to the expansion of the infrastructure, and be examined in a mid-term review. Promotional strategy for alternative powertrains (eco-incentives) In October 2014 the European Council requested in its conclusions the Commission to further examine instruments and measures for a comprehensive and technology neutral approach for the promotion of emissions reduction and energy efficiency in transport, for electric transportation and for renewable energy sources in transport also after So a regulatory, non-monetary incentive system is to be created for the major investments in alternative powertrains. Manufacturers could be given an incentive in the form of a smaller reduction obligation if they invest especially heavily in alternative 9 powertrains and their models achieve the corresponding market success. Targets will not be relaxed for manufacturers that do not sell any models with alternative propulsion. By the same token, the super credits for alternative propulsion systems in the resultant carbon impact could also be an effective incentive instrument. Conclusion The legislators should encourage market penetration of vehicles with alternative powertrains. On the one hand, this has a positive impact on CO2 emissions from road traffic, and on the other may generate faster economies of scale, which then makes vehicles with alternative powertrains competitive even sooner. Summary Future technical reduction rates within the framework of conditional fleet regulation will result from conventional reduction rates and variable alternative reduction rates in line with the market success of alternative powertrains and the expansion of the charging infrastructure (conditional). The ramp-up of alternative powertrains should be promoted by an eco-incentive. This type of approach can bring about a significant reduction in CO2 emissions from 2021 to If the market for alternative powertrains and the expansion of the necessary infrastructure develop better than predicted, even greater reduction rates can be achieved. Any adjustment of the reduction rates should follow in the context of a mid-term review in CO2 target 2030 Conventional Alternative optimizing vehicles with combustion engines ramping-up alternative powertrains (determined by conditions) Replacing CO2 target in 2030 as % reduction from 2021 fossil fuels with renewable fuels Source: VDA

10 10 PILLAR 1: CO 2 REDUCTION POTENTIALS WITHIN THE AUTOMOTIVE INDUSTRY Crediting additional reductions Alongside the CO2 reduction potentials that can be directly measured in the test cycle, there are many more measures for effective emissions reduction. Since these emission reductions do not have a direct impact on the official CO2 value certified in the cycle, the manufacturers should be awarded credits if measures they have selected are shown to reduce CO2 emissions and this is not reflected in the test results. Expedient measures here include additional credits on the manufacturer s official fleet value. Any credits and their amounts are to be expressed in a manner that is binding and as specific as possible in a post-2020 regulation regime in order to facilitate planning and thus to incentivize the necessary, and in some cases long-term, investment. Expansion of eco-innovations (off-cycle technologies) Eco-innovations are measures that reduce a vehicle s CO2 emissions, but are not taken into account in the official type testing procedure. At present the EU is already using ecoinnovations as a fixed part of CO2 regulation and allows the incorporation of eco-innovations making savings of up to 7 g CO2/km. The current recognition procedure for ecoinnovations is however beset with regulatory and bureaucratic hurdles. In the next stage of regulation post 2020, eco-innovations should be designed such that the market penetration of innovative technologies in the volume segment is actually promoted, and thus makes a major contribution to the overarching climate protection targets. The automotive industry appeals for a pragmatic approach in which a list of predefined technologies and their CO2-reduction potentials is incorporated into the Regulation. The CO2-reduction potential can be recorded either as a formula dependent on a technical value to be measured, or as a fixed value. For the higher number of all-electric vehicles in the future, fuel-saving air-conditioning and comfort technologies will have a considerable effect on the range of electric vehicles in daily operations. Therefore these technologies should be included in the definition of eco-innovations. Furthermore, for the increased networking of vehicles with their environment, technologies whose CO2-savings potential depend on the way the vehicle is used (e.g. Adaptive Cruise Control, Adaptive Haptic Pedal, On Board Trip Computer and Eco-Mode programs), may be expected to become more common and should be accordingly promoted as eco-innovations. ITS and safety packages Similar to the additional measures from the existing target value regulation (Regulation (EC) No 443/2009), technology packages can be defined, for which every manufacturer that installs these unequivocally CO2-reducing technologies receives a standard credit for them. In the target value regulation of 2015, a lump sum credit of 10 g was already applied for the series installation of tire pressure control systems, low-resistance tires, efficient air-conditioning systems, gear-shift indicators and the adaptation to biofuels. In the post-2020 Regulation the following points for example could be offset: ITS (Intelligent Transport Systems) packages: equipping for digital connectivity and thus for smoothing out the traffic flow and for improving mobility (e.g. car-to-car communication, traffic light recognition, congestion avoidance/networked systems). Safety packages: avoiding congestion owing to fewer accidents (e.g. lane departure warning, line keeping, adaptive lighting). Eco-driving In addition, technologies depending on driver behavior, such as eco-mode and soft measures for CO2 reduction should be recognized as emission-reducing measures. For instance, if a manufacturer were willing to declare that it would offer every purchaser of a new car a free training in efficient driving, the manufacturer should be awarded credits for this. This would require an independent institution to determine statistically what average long-term CO2 savings could be achieved through driver training. Credits to the fleet emission value for equipping vehicles to use low-co2 and/or climate-neutral energy carriers The use of a significant share of renewable fuel of biogenic origin in vehicles requires the vehicles to be specially equipped. Therefore, the technological capabilities of vehicles for using second and third-generation biofuels must be promoted. Vehicles that have been homologated for running on biofuels could for instance be given a CO2-approval value that at least partially corresponds to the CO2-reduction due to the fuel. This kind of standardized option was already included in the existing Regulation.7 This article could simply be re-inserted in a subsequent post-2020 regulation. Crediting CO2-neutral fuels on the fleet emission value Electric vehicles (BEV, FCEV) and highly efficient internal combustion engines in combination with gaseous or liquid renewable fuels8 are perfectly complementary. Combustion engines are also needed in the long term for certain purposes (for commercial vehicles, hybrid passenger cars on long journeys, and air travel). If fuels for internal combustion engines are produced on the basis of renewable electricity, they are largely climate-neutral.

11 PILLAR 1: CO 2 REDUCTION POTENTIALS WITHIN THE AUTOMOTIVE INDUSTRY The Post-2020 fleet passenger car regulation for CO2 offers the unique opportunity of sustainably stimulating both ramp-up and market penetration of renewable fuels. A suitable incentive will encourage the use and the spread of renewable fuels, increase their absolute quantities, and ensure faster establishment of the necessary infrastructure. Accordingly it is important to promote the use of CO2-neutral substitute fuels by crediting their reductions of greenhouse gas (GHG) emissions to the fleet average for the new cars. When fuels are used whose quantities and sustainable GHG-reductions are demonstrated without doubt, the manufacturer should be given a CO2 credit for the vehicle fleet supplied with these fuels. The proven reduced emission values should be credited directly to the fleet emission value of the new vehicles of that particular manufacturer. This would require that these fuels are not used to satisfy the GHG reduction quota of the petroleum producers. Driving new mobility concepts forward New mobility concepts also play an important role in reducing CO2 emissions. Consequently, manufacturers should receive an incentive in the form of credits for their commitment to driving forward corresponding offers. 11 Examples of existing plants for the production of renewable fuel Power-to-gas project of Audi in Werlte/ Lower Saxony: with the aid of surplus renewable electricity, CO2 is converted into synthetic methane and fed into the natural gas network supplying a fleet of climate neutral vehicles. Sunfire system near Dresden: in a power-toliquid procedure renewable electricity from CO2 and water is initially used to produce a synthetic gas. A synthesis reactor then converts the gaseous molecules into the liquid hydrocarbons gasoline, diesel and kerosene. Car sharing is one way of reducing the number of vehicles on the roads, because vehicles can be used more efficiently within a single multimodal transport offering. In comparison with the existing fleet, car sharing reduces fuel consumption and CO2 emissions because new, lower-emission vehicles replace end-of-life vehicles. Various studies have shown that on average one car-sharing vehicle replaces eight to ten old vehicles. Furthermore, in free-floating car sharing the number of kilometers driven can also be reduced because drivers make one-way trips instead of return trips. If electrified vehicles are used, this also enhances the environmental benefits and the general interest in electric mobility. Car sharing has the potential for substantial CO2 reduction. A study conducted in London indicates a potential reduction of 49 percent in the carbon footprint. Supplementary studies are required to give a better estimate of the actual CO2 effect, but the potential justifies including the contribution from car sharing in the CO2 Regulation. 7. Article 6 of Directive (EC) No 443/2009 states: Specific emissions target for alternative-fuel vehicles: For the purpose of determining compliance by a manufacturer with its specific emissions target referred to in Article 4, the specific emissions of CO2 of each vehicle designed to be capable of running on a mixture of petrol with 85 % ethanol ( E85 ) which meets relevant Community legislation or European technical standards, shall be reduced by 5 % until 31 December 2015 in recognition of the greater technological and emissions reduction capability when running on biofuels. This reduction shall apply only where at least 30 % of the filling stations in the Member State in which the vehicle is registered provide this type of alternative fuel complying with the sustainability criteria for biofuels set out in relevant Community legislation. 8. Renewable energy carriers are inexhaustible unlike fossil energy sources, whose reserves do not replenish themselves. Renewable fuels are made from renewable forms of energy (sunlight, renewable electricity) or from raw materials that grow back (biofuels). In the production of renewable fuels, just as much CO2 is absorbed from the atmosphere as is later released during combustion. The exact CO2 reduction can be determined using the instruments in the existing EU Directives on RED and FQD. In contrast to first-generation biofuels, synthetic fuels based on renewable electricity (e-fuels) and second-generations or later biogenic fuels are not in competition with food production. They can either be added to conventional fuels or substitute them completely.

12 12 PILLAR 2: CO 2 REDUCTION POTENTIALS OUTSIDE THE AUTOMOTIVE INDUSTRY Pillar 2: CO2 reduction potentials outside the automotive industry Today s regulatory regime is based solely on improving the efficiency of about 14 million new vehicles every year. The total number of vehicles on the roads is almost twenty times that (approx. 253 million), and the average fleet age, plus the individual mileages and individual driving behavior have so far not been included in the EU Regulation. However, to achieve the overarching climate protection targets, in the future it will be essential not only to optimize the vehicle but also to include the upstream chain and the use phase, because these measures have much greater and faster leverage. Improving the existing fleet by 1 g for example by using a lower-co2 fuel has a prompt impact and is as effective as a 20 g improvement in the new car fleet. Upstream chain: energy carriers Decarbonized fuels The development of alternative fuels is of key importance for attaining the long-term climate protection targets. What is important is the comprehensive decarbonization of fuels, since they affect the entire vehicle fleet. Apart from taking into consideration higher shares of biofuels, in the future targeted promotion should also be given to the manufacture of gaseous and liquid fuels from renewable electricity (PtX technology, e-fuels). In this way excess production from renewable energies such as wind and solar power can be stored until it is actually used. So electricity that until now was surplus to requirements could be used for transport, to benefit the climate. With this link between the energy sector and the transport sector, the transport sector would become a decisive element in an effective shift to renewable energy. Coupling sectors in this way ultimately harbors the key to successful complete decarbonization of transport. The technology for doing this is already available. However, some changes to the regulatory conditions are needed to make the market competitive and to motivate investors to build up a European production capacity. The crucial factor here is alongside the imposition of taxes and levies on the original energy (electricity) and the final product (renewable fuel) in the individual Member States the possibility of crediting climate-neutrally produced fuels to the CO2 fleet values for vehicle manufacturers. Passenger cars new registrations in the EU in millions New passenger car registrations = appr. 14 million per year Passenger car existing fleet = 253 million Source: VDA

13 PILLAR 2: CO 2 REDUCTION POTENTIALS OUTSIDE THE AUTOMOTIVE INDUSTRY Including fuels in emissions trading As a supplement to fleet regulation for new cars, it also makes sense to include the fuels in the upstream emissions trading, because this too affects the complete vehicle fleet and the mileage driven. Numerous studies suggest such an approach, for instance most recently the Cologne Institute for Economic Research: As the most efficient form of CO2 regulation within a national economy, emissions trading is easy to apply to road traffic. 9 Upstream emissions trading is the allocation or auctioning of CO2 emission rights, called CO2 certificates, to the petroleum companies and their refineries. The allocated number of CO2 certifications is reduced every year. If a company exceeds its emission budget, is must acquire additional CO2 certificates. The cost of the certificates is passed on to the customers at the pumps. This kind of upstream emissions trading can act as a flanking measure to support the CO2 Regulation, as it takes into account mileages, driving style and the vehicle fleet because all vehicles (passenger cars, vans, trucks) visit filling stations. Ultimately the charge acts like a tax increase. But in contrast to a national tax increase, emissions trading can be applied by the European Commission in all 28 EU Member States. Ideally, the revenues thus generated could be used to expand the infrastructure for alternative powertrains and to push digitization forward. Irrespective of whether road traffic should be included in EU emissions trading, today elements of the EU emissions trading could certainly be applied for road traffic, for example the Clean Development Mechanism. Instead of rigid compliance with purely technological CO2 improvement rates and limit values, a certain amount of compensation would also be possible via alternative CO2 reduction projects in other areas. For instance the automotive industry could set up wind farms for electric mobility. Such measures could also drive forward the intended coupling of the energy and mobility sectors. Demand and the use phase Involve and renew the existing fleet In 2030, the entire EU passenger car fleet will emit over 30 percent less CO2 than it did in 2005 this is the result of fleet renewal and compliance with the CO2 legislation already passed. Incentives for fleet renewal in the EU could reinforce and accelerate this effect. The average age of passenger cars in the EU is around ten years and is rising. The average age of passenger cars in Germany has climbed by about 50 percent over the past 25 years. The great age of the European fleet is necessarily accompanied by outdated technology. 13 This trend must be reversed and not only for reasons of CO2, but also because of the pollution caused by old passenger cars. Regarding the alternative forms of propulsion: the longer old cars are on the roads, the later the new technologies will affect real-world CO2 values. This is where fleet replacement programs could come into play, which the manufacturers and policymakers should elaborate together. Continue developing promotional policies for alternative powertrains The policies in all EU countries should promote the market success of alternative powertrains, including the following incentives: Supercredits or more lenient targets in the European fleet regulation Tax incentives or direct subsidies Cofinancing of publicly accessible charging infrastructure Continuation of precompetitive research and development. Develop binding plans for and expand the infrastructure for alternative powertrains and the digital infrastructure The establishment of a charging infrastructure, especially in public spaces, must be accelerated and it must be available on a needs-driven basis as electric vehicles are rampedup. Customers expect an extensive and accessible charging infrastructure with a simple payment system. And in order to push forward connected and automated driving, the automotive industry needs to join forces with the national and international policymakers. The infrastructure in particular must be adapted and expanded for connectivity, so that CO2reducing technologies in new vehicles can become effective. According to a study by ERTICO, in the EU by 2030 this type of technological connectivity could bring about an additional reduction of 5 to 15 percent as compared with Promote efficient driving A change in driving behavior supported by on-board tools with indicators suggesting gear changes and speed, can result in an annual CO2 reduction of ten percent. Therefore, alongside manufacturers commitment, broad-scale public training programs should also be initiated. Moreover, it would be conceivable to have lower insurance premiums for customers who have completed a course in economical driving. 9. Cf. also the 2016 study by the Cologne Institute for Economic Research (IW), Konsistente europäische Industrie-, Klima-und Energiepolitik. Mit besonderem Augenmerk auf dem EU-Emissionshandel (Consistent European Industrial, Climate and Energy Policy. Paying special attention to EU Emissions Trading). IW Cologne and Delft University of Technology. 10. Ertico 2015, Study of Intelligent Transport Systems for reducing CO2 emissions for passenger cars

14 14 Conclusion: necessary combination of all reduction potentials Conclusion: necessary combination of all reduction potentials Most reduction potentials need action to be taken simultaneously both within and outside the automotive industry. Alternative powertrains such as electric mobility can be successful on the market only if the required recharging points are installed in the European Member States. The necessary use of the internal combustion engine, for example in commercial vehicles or on long journeys, should be backed with promotion of renewable fuels. The table below gives an overview of the areas of joint action for the automotive industry and politicians. CO2 reduction potentials Areas of action Automotive industry Politicians Combustion engines Optimize Decarbonization of fuels Regenerative fuels Alternative powertrains Market update Promotion (eco-incentives) Establish infrastructure Eco-innovations Offer and implement Promote with credits Facilitate recognition Intelligent Transport Systems (ITS) Equip vehicles Promote with credits Establish infrastructure New mobility concepts (e.g. car sharing) Offer and implement Promote with credits Embed in overall concept Low-CO2 fuels (biofuels, e.g. E20) Equip vehicles Promote with credits Ensure sustainability CO2 -free fuels (e-fuels) Offer Promote with credits Remove legislative and fiscal obstacles Eco-driving Offer and support within the vehicle Promote with credits Encourage acceptance Fleet replacement Push forward Create regulatory framework Promote Requirements based on conditional fleet regulation Additional voluntary measures: promotion/ incentives for OEMs as credits on fleet values

15 Imprint Author Association of the German Automotive Industry (VDA) Behrenstraße 35, Berlin Contact for this topic Dr. Kay Lindemann Dr. Martin Koers Copyright Association of the German Automotive Industry (VDA) Image licenses Cover: istock.com/kemter Page 2: istock.com/deepblue4you Design/Layout DANGEROUS. Werbeagentur GmbH Status April 2017

16 Association of the German Automotive Industry (VDA) Behrenstraße 35, Berlin