TABLE OF CONTENTS

1........... Procedural Issues and Consultation of Interested Parties.................................................. 5

1.1........ Procedural issues............................................................................................................ 5

1.2........ External expertise and consultation of interested parties.................................................... 5

1.3........ Consultation of the Impact Assessment Board................................................................. 6

2........... Policy context, problem definition, evaluation of the existing legislation and subsidiarity...... 8

2.1........ Policy context................................................................................................................. 8

2.2........ The nature of the problem............................................................................................. 10

2.3........ The underlying causes of the problem............................................................................ 11

2.4........ Evaluation of the existing legislation................................................................................ 12

2.5........ How will the problem evolve?....................................................................................... 16

2.5.1..... How is the problem likely to evolve without new EU action?.......................................... 16

2.5.2..... The Adaptation to Lisbon Treaty................................................................................... 26

2.5.3..... Form and stringency of legislation beyond 2020............................................................. 26

2.6........ Who is affected and how?............................................................................................. 27

2.7........ The EU's right to act and justification............................................................................. 27

3........... Objectives.................................................................................................................... 29

4........... Policy Options.............................................................................................................. 32

4.1........ Methodology................................................................................................................ 32

4.2........ Do nothing option......................................................................................................... 32

4.3........ Confirmation of feasibility of the 2020 target for LCVs.................................................. 32

4.4........ Policy options for the modalities of meeting the car and van targets................................. 34

4.4.1..... Policy options for the limit value curve........................................................................... 34

4.4.2..... Policy options for other modalities in the Regulations...................................................... 39

4.4.3..... Alternative modalities considered.................................................................................. 45

4.4.4..... Simplification and reduction of administrative burden...................................................... 45

4.4.5..... Conclusions of the preliminary assessment..................................................................... 46

4.5........ Adaptation to new test cycle......................................................................................... 48

4.6........ Form and stringency of legislation beyond 2020............................................................. 48

5........... Assessment of policy options........................................................................................ 50

5.1........ Criteria to compare the options..................................................................................... 50

5.1.1..... Main criteria................................................................................................................. 50

5.1.2..... Detailed aspects of assessment...................................................................................... 51

5.2........ Utility parameter - cars................................................................................................. 52

5.3........ Slope of the limit value curve - cars............................................................................... 58

5.4........ Utility parameter - vans................................................................................................. 61

5.5........ Slope of the limit value curve - vans............................................................................... 65

5.6........ Derogations for cars and vans....................................................................................... 69

5.7........ Summary of the economic impacts for cars and vans...................................................... 71

5.8........ Summary of the environmental impacts for cars and vans............................................... 72

5.9........ Summary of the social impacts for cars and vans............................................................ 72

5.10...... How do the main options compare in terms of effectiveness, efficiency and coherence?.. 72

5.11...... Comparison of options.................................................................................................. 73

6........... Monitoring and Evaluation............................................................................................. 77

6.1........ Core indicators of progress........................................................................................... 77

6.2........ Monitoring arrangements............................................................................................... 77

7........... Annexes (see Part II of the Document).......................................................................... 78

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the documents

Proposal for a regulation of the European Parliament and of the Council amending Regulation (EC) No 443/2009 to define the modalities for reaching the 2020 target to reduce CO2 emissions from new passenger cars and Proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 510/2011 to define the modalities for reaching the 2020 target to reduce CO2 emissions from new light commercial vehicles

Introduction

Regulation (EC) 443/2009 and Regulation (EU) 510/2011 set mandatory fleet-based CO2 reduction targets for the new car and van fleets respectively. They are the main tools of the 2007 Strategy to reduce Light Duty Vehicle (LDV) CO2 emissions.

The Regulations include two reduction steps: short-term targets phased-in from 2012 to 2015 for cars and 2014 to 2017 for vans; and long-term targets to be met in 2020. Article 13(5) of Regulation (EC) 443/2009 and Article 13(1) of Regulation (EU) 510/2011 request the Commission to review the "modalities"[1] of achieving the targets set for cars and vans for 2020 and to make proposals to amend the Regulations in a way that is "as neutral as possible from the point of competition, socially equitable and sustainable".[2] The Commission is also asked to assess the feasibility of attaining the 2020 target for vans.

As part of this review, the Commission could consider alternative car and van CO2 targets for 2020. Several stakeholders, mainly environmental NGOs, component suppliers and many individuals who took part in the public consultation, argued that the 2020 targets should be tightened. In view of the updated cost curves, and in the case of vans lower baseline emissions compared to those assumed in the original proposal, more ambitious 2020 targets could be considered, in particular for vans. However, neither of the Commission's original proposals contained a target for 2020, these were introduced and agreed during the co-decision process. That process was fairly recent: the 2020 car target was established three years ago, the van target one year ago. Establishing these targets involved balancing at a political level many varying interests and the outcome of the political process sent an important signal to industry. It would be extremely destabilising to propose alternative values so soon after the current values have been agreed. Doing so would effectively undermine the value of any new long-term targets that are set, since it would send a signal that these too might be altered after a few years.

While manufacturers can relatively easily adapt vehicle specifications and alter incentives so as to affect their average sales emissions, the less time that is available for this, the more costly would be any change. More substantial adaptations of the target could require longer lead times for product planning. For vans, there is an additional uncertainty relating to the implementation of a procedure to measure emissions from multi-stage vehicles[3] which is currently under development. It is also clear that the stringency of any future targets beyond 2020 and how the manufacturers choose to meet them may have direct implications on the average 2020 emissions from vans.

In view of these considerations, in particular the fact that any change to the targets would undermine manufacturer certainty, the current review and this Impact Assessment do not consider any alteration to the level of the 2020 car and van CO2 targets. However, in view of the benefits of planning certainty for industry, the need for an understanding of developments beyond 2020 and potential future is discussed.

1. Procedural Issues and Consultation of Interested Parties 1.1. Procedural issues

The review of the car and van Regulations is a strategic initiative on the 2012 Commission Work Programme 2012/CLIMA/016.

The Impact Assessment Steering Group (IASG) established in July 2011 was composed of the following DGs: COMP, ECFIN, ENER, ENTR, ENV, LS, MOVE, RTD, SANCO, SG, TAXUD. Five meetings of the IASG took place between July 2011 and April 2012.

1.2. External expertise and consultation of interested parties

· External expertise

Two external studies[4] have provided the main analysis underlying this impact assessment. These are: 'Support for the revision of Regulation (EC) 443/2009 on CO2 emissions from cars'[5] referred to as 'the car study' and 'Support for the revision of Regulation (EU) 510/2011 on CO2 emissions from light commercial vehicles'[6] referred to as 'the van study'. Both reports present an evaluation of different modalities and assess their costs.

The PRIMES-TREMOVE model has been used to assess the overall impacts of the 2020 targets.

· Consultation of interested parties

Stakeholders have been formally consulted through an online questionnaire and through a stakeholder meeting. In addition there has been a continuing dialogue with interested stakeholders in bilateral meetings. Input from stakeholders has been taken into account in assessing the different possible options to regulate CO2 emissions from light-duty vehicles, particularly with regard to the design of the legislation, possible unwanted effects, and implications for competition on automotive markets, global industrial competitiveness and environmental outcome. External expertise was used to assess the various options available including aspects raised during the consultation process (the external contractor attended the public hearing).

– Public consultation

An on-line public consultation was carried out between 19 September and 9 December 2011 (12 weeks). A total of 3233 replies were received including 137 stakeholder organisations. The majority of responses came from three Member States (UK, DE, FR). Overall the responses give a generally clear message that regulating LDV emissions is important, should be carried out in line with long term greenhouse gas (GHG) goals, be based on new vehicle average emissions and be technologically neutral. Opinion was highly divided on whether the current legislation is working well. The main reason appears to be that many think that the current legislation is not sufficiently robust. There is strong support for setting targets beyond 2020, regardless of other measures that may be implemented, and that these should consider the whole energy lifecycle and include other GHGs, not just CO2. Finally there was support for considering alternative approaches to vehicle based GHG regulation either now or in the future. The results of the public consultation are summarised in Annex 7.2.

– Stakeholder meeting

A stakeholder meeting was held on 6 December 2011 with 76 participants. The list of participants is given in Annex 7.3. The completed car study and the preliminary conclusions of the van study[7] were presented as well as an outline of the work that will be carried out looking beyond 2020.

Participants did not express any substantial disagreement with the analysis presented. Environmental NGOs argued that since costs are lower than had previously been thought, and in the case of vans emissions are substantially lower than anticipated, the targets should be tightened. Regarding regulation post-2020, there was acknowledgement of the contradiction between industry's need for certainty versus the difficulty of knowing what level of CO2 reductions may be cost effective. Setting out a pathway forwards in line with the EU's long term GHG reduction goals was largely supported. Participants generally recognised the necessity to consider whether the current regulatory approach is optimal or will need to be changed in future, although no stakeholder took a definitive position on this. The presentations from the meeting are at http://ec.europa.eu/clima/events/0048/index_en.htm along with a summary of the discussion, the latter is attached in Annex 7.4.

1.3. Consultation of the Impact Assessment Board

A draft Impact Assessment was submitted to the Impact Assessment Board (IAB) on 25 April 2012 which issued its opinion on the document on 23 May 2012. The opinion stated that the Impact Assessment should strengthen the problem definition by providing a more detailed policy context, focussing more on the underlying problem drivers and presenting thoroughly the evolution of the situation without new EU action. The IAB recommended establishing a clearer intervention logic by better linking the problems, their drivers, objectives and policy options. The objectives were recommended to be made SMARTer. Futhermore, the IAB concluded that a more substantiated and differentiated impact analysis were needed. Finally, some aspects regarding future monitoring and evaluation arrangements were to be clarified.

These comments were taken into account in the resubmitted Impact Assessment as follows:

· Restructuring of text and further clarifications regarding the nature of the problem, the underlying drivers and the policy context resulting in a more consistent problem definition, SMARTer objectives and clearer intervention logic.

· The description of the baseline scenario was restructured and extended to better explain the evolution of the current situation without the new EU action.

· The presentation of options has been clarified and the impact analysis and presentation have been restructured to assist readability and enhance the link with the objectives.

· The description of monitoring arrangements has also been strengthened.

· Additional information has been presented on the under-valuation of light-weighting with a mass-based utility parameter.

· A glossary of technical terms has been added.

The IAB gave its final opinion on 12 June 2012. The final opinion requested that some aspects be further strengthened. In particular this concerns explaining the intervention logic, quantifying the objectives, explaining the balance between social, enviornmental and economic impacts and further explaining the monitoring arrangements.

These comments have been taken into account in the final Impact Assessment as follows:

· Addition of a graphic illustrating the intervention logic.

· Changes to the objectives to include the 2020 CO2 targets and footnotes explaining how social equity and inter-manufacturer competition are measured.

· A further explanation of why the main impacts from the options for the modalities will be economic as opposed to social or environmental.

· Additional text explaining how the annual monitoring process enables the required evaluation of progress.

2. Policy context, problem definition, evaluation of the existing legislation and subsidiarity 2.1. Policy context

· General policy context

The review of the Regulations takes place in the following policy context:

– The EU has a stated objective of limiting global climate change to a temperature increase of 2ºC above pre-industrial levels.

– While emissions from other sectors are generally falling road transport is one of the few sectors where emissions have risen rapidly. Between 1990 and 2008 emissions from road transport increased by 26%.

– The Commission 'Roadmap for moving to a competitive low carbon economy in 2050'[8] outlines a plan to meet the long-term target of reducing domestic emissions by 80% by mid-century in the most cost-effective way. According to the Roadmap and the underlying analysis every sector of the economy must contribute and, depending on the scenario compared to 1990, transport emissions need to be between +20 and -9% by 2030 and decrease by 54-67% by 2050 (excluding international maritime emissions).

– The Commission's 'Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system' sets out future transport strategy within a frame of achieving a 60% reduction in transport GHG emissions by 2050.

– The EU is committed to innovation and boosting industrial competitiveness. Research and innovation drive productivity growth and industrial competitiveness. A transition towards a sustainable, resource efficient and low carbon economy is paramount for maintaining the long-term competitiveness of European industries.

– In view of the concerns of increasing scarcity of oil and increasing price volatility, measures that further reduce energy consumption in transport are desirable for increasing the energy security of the EU.

A detailed description of the general policy context for the review is set out in Annex 7.5.

· Specific policy context

Implementation of the 2020 targets by defining the "modalities" to reach the targets

The car and van Regulations function in a similar manner (see Annex 7.6 for a detailed summary of the car and van Regulations). The Regulations include two steps of reduction: short-term targets to be phased-in from 2012 to 2015 for passenger cars and 2014 to 2017 for light commercial vehicles; and long-term targets to be met in 2020. For the van Regulation the feasibility of the 2020 target is to be confirmed. For both, cars and vans, the modalities of reaching the 2020 targets must be defined to implement the targets.

The Regulations contain a number of "modalities"[9] or parameters which impact on how the targets are achieved and may be considered for amendment in view of implementation of the 2020 targets. The following modalities are currently employed:

· Utility parameter, shape and slope (these together define the limit value curve );

· Excess emissions premium;

· Derogations;

· Manufacturer pooling;

· Eco-innovations;

· Phase-in of targets;

· Super-credits.

The Regulations function by establishing a fleet-average CO2 emission target for each vehicle manufacturer. This target is calculated by aggregating a nominal CO2 emission value for each vehicle registered in the EU (in gCO2/km) which is interpolated from a curve of CO2 emission versus vehicle mass (the 'limit value curve' where mass is the "utility parameter"). The limit value curve is a function specified in Annex I of the Regulations and is based on vehicle mass. The utility parameter, shape and slope of the function do not have an impact on the stringency of the target but influence the distribution of the reduction effort between vehicles of different utility. The current car and van formulae are based on the short-term target. To implement the 2020 targets it is necessary to introduce, in Annex I to the Regulations, new formulae for 95 gCO2/km for cars and 147 gCO2/km for vans. The modalities concerning the limit value curve are therefore considered the most important. A description of the other modalities is given below.

The excess emissions premium aims at ensuring compliance with the target. An excess emissions premium is payable in a particular calendar year if the actual average vehicle emissions for a manufacturer's entire fleet are above the manufacturer's target. The Regulations set the premia for both cars and vans at €95 per gCO2/km as of 2019. Without further intervention this premium would remain valid for 2020 and beyond.

Derogations allow certain manufacturers (small volume up to 10,000 annual registrations and niche between 10,000 and 300,000 annual registrations) to have targets which are independent of the limit value curve, and in case of the small volume manufacturers are based on their individual reduction potential. For small-volume manufacturers a second five year compliance period to 2020 could be foreseen. However, for niche manufacturers no new post-2015 target is set by the current Regulation.

The possibility for manufacturers to form a pool is a flexibility allowing a less costly way to meet the targets. It is neutral as regards the overall stringency of the legislation and the CO2 reductions achieved. This flexibility is independent from other modalities but its use may be influenced by the limit value curve shape or slope, the utility parameter and the scope for derogations. It is not phased-out thus with no change it would continue in 2020 and beyond.

Eco-innovations contribute towards reaching the targets since they cover technologies which reduce CO2 outside the test procedure. A manufacturer will deploy an eco-innovation only if it is cost-effective thus the provision is expected to reduce overall compliance costs and the existence of the modality encourages innovation. The legislation specifies that this provision should phase-out once the new test-procedure is in place. However, it is likely that there will also be technologies not covered by the new procedure in the future.

Phase-in sets a period over which compliance with the target is progressively tightened. This means for example that achieving new car fleet average emissions of 130 gCO2/km for 100% of the fleet is delayed until 2015. Super-credits in principle lower the stringency of the legislation since they effectively allow emissions from vehicles that do not receive them to be higher. These are all phased out before 2020.

In short, of these modalities the limit value curve is the most important because on its basis the individual manufacturers' targets are calculated. Excess emissions premia, derogations and pooling are significant for manufacturers to whom they apply. The other modalities are considered rather less important.

2.2. The nature of the problem

· The need to reduce CO2 emissions from light-duty vehicles

As described in section 2.1, road transport is one of the few sectors with rapidly rising emissions and between 1990 and 2008 emissions from the sector increased by 26%. This trend is not sustainable in view of the EU's climate policy. According to the Commission's 'Roadmap for moving to a competitive low carbon economy in 2050'[10] and Transport White Paper, road transport has to significantly reduce its CO2 emissions by 2050.

Light-duty vehicles are responsible for a significant part of the overall transport emissions and emit around 13.5% of total EU emissions of CO2 and about 15% when the emissions from supplying the fuel are included. In view of the expected increase in the light-duty vehicle fleet (see section 2.3), a continuation of the effective application of the EU mandatory CO2 targets is necessary to ensure further reduction of road transport emissions of CO2.

· The modalities of the 2020 target and planning certainty

The two-step approach of the Regulations requires that the Commission proposes detailed modalities of meeting the 2020 targets by end of 2012. This necessitates updating the formulae in Annex I to the Regulations for the 2020 targets. In addition, the vans target for 2020 requires confirmation of feasibility. The modalities of meeting the 2020 CO2 emission limits, and indications of how those limits will evolve beyond 2020, are needed to guide the automotive industry. Without this, uncertainty may discourage investments in innovation and delay bringing new technologies to the market. Because the cost of adapting to change for manufacturers is likely to increase as the time available for them to plan decreases, and in view of the time schedules for vehicle platform and powertrain developments[11], it is important to establish as soon as possible the modalities for 2020.

The two Regulations leave uncertainty for the period beyond 2020. However, the automotive industry works to planning cycles that suggest the need to know approximately ten years in advance the broad framework within which vehicles need to be designed, and a shorter period of around five years for more precise decisions on variants that will actually be produced. It is thus important to provide indications as to the future reductions early enough to allow for appropriate planning certainty.

2.3. The underlying causes of the problem

The overall annual CO2 emissions from usage of light-duty vehicles are a result of the multiplication of the vehicle stock, the annual mileage of LDVs, and their emissions per km. Therefore, each of these factors has a direct impact on the scale of the problem.

· Stock of the LDV fleet

The number of LDVs in the EU continues increasing. The stock of passenger cars has increased by 45% since 1990 and by 17.5% since 2000[12]. There is no evidence to indicate that this trend will stop. The stock of vans increased by 24% between 2000 and 2007[13] but this trend has somewhat stabilised during 2008-9 when new registrations of vans in the EU started decreasing. According to ACEA[14] the most recent decrease especially concerned Spain and Italy, followed by the UK whereas sales in other major markets, such as France and Germany, were more stable. However, a reverse trend is expected to occur once the economic outlook improves and businesses currently deferring new vehicle purchases resume their orders.

· Distance travelled by light-duty vehicles

There is evidence that the average annual distance travelled by LDVs has stabilised. EU transport in figures shows between 2000 and 2009 passenger km per car dropped slightly from 21,000 to 20,000 per year. There could have been a reduction in average load factors, but this suggests little overall change. The ODYSEE project[15] shows figures suggesting that average car distance driven is just above 12,000km per year and has decreased by 750km since 2000.

The FLEETS study assessed national data for different vehicle categories. Based on this it is possible to produce EU weighted average annual mileages. In the car study these are shown for 2005 as being:

Vehicle type || Petrol small || Petrol medium || Petrol large || Diesel small || Diesel medium || Diesel large

Total annual mileage (km) || 14,438 || 16,772 || 16,839 || 23,041 || 24,574 || 26,318

Lifetime mileage (km) || 250,592 || 285,222 || 300,347 || 379,465 || 362,316 || 444,662

Average life || 17 years || 17 years || 18 years || 16 years || 15 years || 17 years

The PRIMES-TREMOVE model assumptions for private car use are broadly consistent with the ODYSEE data, using average annual private car activity of just under 12,000km over the period 2020 to 2030. The average annual mileage assumptions used for the cost benefit calculations throughout the Impact Assessment are at the low end of the FLEETS data.

The driving patterns for vans are slightly different than for cars. The FLEETS study shows that vans are mostly used in urban conditions (shorter distances, lower speeds, many restarts and periods of idling) which results in higher fuel consumption and therefore generates more CO2 emissions than extra-urban, motorway driving. However, the EU average annual mileage of the whole fleet (old and new vehicles) has been found to be similar between cars and vans. This Impact Assessment assumes the average annual mileage of new vans at 23,500 km.

Overall, this evidence illustrates that while there is some uncertainty over annual driving distances by LDVs, there is little indication that they are changing significantly.

· Rebound effects

There is risk of a perverse effect from increasing fuel efficiency of vehicles whereby lower fuel costs lead to the vehicles being driven more. This phenomenon is called a rebound effect. This effect could offset some of the tailpipe emission reduction and could be minimised in case of major increases in fuel costs.

· Regulatory instrumens

Taken together, the increasing stock and assumption of constant annual mileage would lead to increasing fuel use and CO2 emissions without there being a further reduction in LDV emissions per km. The main EU instruments impacting on this problem are the existing Regulations setting CO2 emission standards for LDVs. At Member State level other policies with an important impact include vehicle circulation and registration tax policies. Fuel taxation is an important factor affecting the problem. Higher levels of taxation would be expected to encourage the purchase of more fuel efficient vehicles.

In view of current developments it is clear that EU CO2 emissions standards are essential to constrain and reduce LDV CO­2 emissions.

· The two-step approach of the Regulations

Finally, the other underlying cause of the problem is that the two LDV CO2 Regulations have a two-step operation. In the first period (up to 2015 for cars and 2017 for vans) the modalities of compliance with the targets have been established. However for the second phase (2020 in both cases) the formulae in Annex I of the Regulations to incorporate the 2020 targets as well as other modalities are left to be determined in the current review.

2.4. Evaluation of the existing legislation

The effectiveness of the legislation

The targets in the existing car and van Regulations are phased-in from 2012 and 2014 and enter fully into force in 2015 and 2017 respectively. This means the effectiveness of the legislation with respect to its main goal of reducing CO2 emissions from new cars and vans cannot be fully evaluated at present. However, based on EU passenger car registration monitoring data it is clear that average new car CO2 emissions are falling as shown in figure 1 below.

Figure 1 Long term trend in car CO2 emissions.

Prior to the current CO2 standards, the European, Japanese and Korean car manufacturers' associations voluntarily agreed to reduce CO2 emissions to 140 gCO2/km by 2008 or 2009. However, average emissions were still 154 gCO2/km in 2008 and 146 gCO2/km in 2009 (see Table 1). The greatest reduction progress has been seen after 2007 when the Commission adopted its proposal for a Regulation on CO2 emissions from cars (the bottom row of Table 1 shows year on year improvement). This illustrates the need for, and effectiveness of, mandatory CO2 emissions limits. While part of the reductions in 2009 and 2010 might be due to the financial and economic crisis and scrappage schemes implemented in several Member States in that period, the decreasing trend is evident.

Table 1 Average CO2 emissions from new cars registered in the EU[16]

Year || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || 2009 || 2010 || 2011

grams CO2/km || 172.2 || 169.7 || 167.2 || 165.5 || 163.4 || 162.4 || 161.3 || 158.7 || 153.6 || 145.7 || 140.3 || 135*

% yearly change || na || 1.45 || 1.47 || 1.02 || 1.27 || 0.61 || 0.68 || 1.61 || 3.21 || 5.14 || 3.71 || 3.06

* Source: 2011 EU monitoring data subject to final confirmation by the Commission

Procedures to measure CO2 from light-duty vehicles

Measurement of the CO2 performance of new cars and vans is carried out as part of the type approval procedure. Tests are carried out by manufacturers on the basis of the New European Driving Cycle (NEDC) and following the procedures set out in the type-approval legislation. There is growing evidence that vehicle performance under real world driving conditions is increasingly diverging from the test procedure results. More detailed investigations have also illustrated the difficulty of repeating road load measurements carried out by manufacturers which provide a key input to the NEDC test. There are likely to be a range of factors contributing to these divergences which are discussed in more detail in Annex 7.7.

In spite of these problems, the Commission does not have evidence that light-duty vehicle test cycle CO2 results are not correlated with real world CO2 emissions. Addressing the problems inherent with the test procedures is outside of the scope of the current review and this Impact Assessment. The Commission is working to develop a better understanding of the factors contributing to the divergence, in particular where this results from flexibility inherent in the mandated procedures. In particular it is important to ensure that any updates to the test procedures result in no greater flexibility or margins with regard to measurement of CO2 emissions. While challenges to ensure that measured CO2 emissions better reflect real driving emissions remain, the fact that test results are still correlated with real world emissions ensures that the Regulation continues to work appropriately. In view of this it is concluded that the underlying basis for the regulatory approach is robust.

Implementation of the car and vans Regulations

Secondary legislation is needed to implement the two Regulations. Implementation of the cars Regulation is more advanced than the vans Regulation. The latter will however be consistent with the approach of the former. The following implementing measures have been adopted so far:

– Implementing Regulation on CO2 monitoring from cars[17]

The monitoring scheme is now operational and is working well and, despite the need for some further adjustments, the overall quality of the data is satisfactory. The Commission is currently evaluating the database error margin and developing a methodology to calculate it. The additional administrative burden of the monitoring scheme differs significantly between Member States and is linked to the cost of amendments to the preceding scheme established in Decision 1753/2000 to monitor new car CO2 emissions. Article 8(9) of Regulation 443/2009 enables the Commission to introduce any necessary amendments to the monitoring scheme in the light of experience through the comitology procedure. In view of this and the limited experience so far, there is no need for action in the current review.

– Implementing Regulation on CO2 monitoring from vans[18]

Based on the monitoring scheme for cars, the Member States are required to provide data on van registrations from 2012. The implementing regulation is based on the one for cars appropriately adapted. Similarly to the car monitoring scheme the Commission is enabled to introduce any necessary amendments through comitology, therefore it is not further discussed in this review.

– Monitoring of CO2 emissions from multi-stage vans

One of the most urgent implementation tasks for vans is the monitoring of multi-stage vehicles (MSV). MSVs are vehicles built in stages by different manufacturers, often to a client's specification[19]. According to Article 13(4) and Annex II of the vans Regulation, the Commission is to propose a new procedure to obtain a representative value of the final vehicle CO2 emissions. This proposal is currently under discussion with the Member States. The proposal foresees that the manufacturer of the base vehicle will be responsible for the final CO2 emissions of the completed vehicle. These emissions are to be established based on a simplified method to avoid burdensome measurement of emissions of each MSV while ensuring the OEM has access to the information on the vehicles under its responsibility.

– Implementing Regulation setting out a procedure for derogations applications[20] for cars

The derogation scheme for small-volume registrations (up to 10,000 cars per year) and niche manufacturers (10,000 to 300,000 per year) is operational. In 2011 the Commission received 23 applications (3 niche, 20 small volume) for the derogation period starting in 2012. These were assessed and 18 small-volume and 2 niche derogation decisions adopted. The remaining applications were submitted too late for decisions to be taken in 2011. The targets proposed by small-volume manufacturers mostly represent reductions.

Small-volume applications must provide supporting evidence of the manufacturer's economic and technological potential. Most information required, especially regarding the economic situation of the companies, should be readily available to them. Other supporting evidence concerning market characteristics and technological potential is needed to allow an assessment of the proposed targets against competitors.

For the two categories different issues arise:

For small-volume manufacturers, the procedure is relatively cumbersome and creates an administrative burden for the Commission and manufacturers. It could be desirable to reduce these burdens as far as possible. The absence of a minimum threshold means that even where a very small number of cars of a brand may be placed on the EU market the manufacturer is covered by the Regulation.

For niche manufacturers, the procedure is straightforward. A fixed baseline and reduction is set in the legislation, however, if these are not updated, manufacturers falling under this derogation would have no further target beyond 2015. In addition, the suitability of the upper threshold of 300,000 cars per year could be reconsidered as it would potentially enable a new entrant to supply up to 2.5% of the EU market while being in an advantaged competitive position compared to incumbent manufacturers.

– Van derogations

The van Regulation contains only one type of small volume derogation which concerns manufacturers of less than 22,000 vans per year. The procedure has not yet been put in place but will be based on the equivalent car procedure.

– Implementing Regulation for cars setting out a procedure for application and approval of eco-innovations[21]

The Implementing Regulation was adopted in 2011 however no complete eco-innovation application has yet been received. The regulation includes a review clause committing the Commission to revise the scheme by 2015 at the latest and inter alia to consider ways of simplifying the application and approval procedure in the light of experience. Similar rules are to be adopted for vans.

– Practical arrangements on application for pooling for car and van manufacturers

Manufacturers are requested to apply for pooling via a straightforward application form available on the DG CLIMA website[22]. No supporting evidence is required resulting in a small administrative burden.

– Decision on excess emissions premium for cars[23]

The decision states that the procedure to be used for collecting premiums are the rules for recovery of receivable amounts, i.e. of fixed amount, certain and due, set out in the Financial Regulation and its Implementing Rules.

2.5. How will the problem evolve? 2.5.1. How is the problem likely to evolve without new EU action?

Without action the 2020 car and van CO2 targets could not be implemented and no reduction beyond respectively 2015 and 2017 would be required. This is because neither 2020 target can take effect without legislation defining and implementing the modalities for 2020. This can only be done via the amendment of the relevant Regulations in the ordinary legislative procedure.

Without further EU action in this field it is likely there would be little additional substantial CO2 reduction from new light-duty vehicles. Some reduction would still be expected beyond 2020 due to the continuing renewal of the existing fleet with newer cars and vans meeting the current CO2 standards. In addition, the formulae setting the current targets would be regularly adjusted to take account of changes to the average mass of the fleet preventing any increase in average new car and van CO2 emissions per km.

However, based upon evidence from the EU and US for periods when there was no administrative requirement for fuel efficiency or CO2 emissions to improve and no significant changes in oil price, it is concluded that car emissions and fuel efficiency improve on average by the order of 0.1 to 0.2% per year. There may be certain expectations that in view of the current CO2 requirements and expected regulatory action in this field in third countries to which European vehicles are exported, the fuel efficiency improvement of vehicles may continue somewhat beyond this rate. However, as seen in the EU in the period between 1995 and 2006 for cars, in the absence of the mandatory CO2 standard this progress is likely to be offset at least to some degree by the increase in power, size or comfort of new cars.[24] When combined with the expected increase in the vehicle fleet and static travel distances (described in section 2.3), overall CO2 emissions from the LDV fleet would continue increasing.

This 'do nothing' option forms the baseline scenario for the modelling used and is implemented in the modelling as Scenario 1 described in Annex 7.8. For the purpose of assessing this option, improvements in CO2 emissions beyond the mandatory targets in 2015 and 2017 are assumed to continue at historical rates when there was no requirement to reduce emissions. The following paragraphs present the overview of the estimated impacts of implementation of the 2020 targets as compared to the 'do nothing option', effectively presenting the benefits that would be foregone in case of no new EU action.

· Environmental impacts

Introduction of the 95 gCO2/km target represents a 27% reduction in CO2 tailpipe emissions per vehicle km relative to do nothing by 2020 and beyond. The 2020 target for vans is a 16% reduction per vehicle km relative to do nothing by 2020, and for subsequent years. Total emissions between 2010 and 2030 are estimated to reduce by 24% for cars and 13% for vans.[25] PRIMES-TREMOVE modelling shows aggregate CO2 emission reductions for cars and vans of around 422 Mt CO2 in the period up to 2030. In addition, these savings are expected to reduce requirements for EU ETS allowances in the order of 0.5% to 1% in the period up to 2030 due to lower refinery emissions caused by decreased fuel demand.

· Macro-economic impacts

EU crude oil consumption was 656 Mt in 2008 of which 598 Mt were imports[26]. Of this some 300 Mtoe is used for road transport, approximately two thirds of which is for light duty road transport. EU oil consumption for LDVs costs approximately €100bn per year.

The main macro-economic impacts of implementing the 2020 targets are linked to reducing fuel consumption and avoided fuel expenditure, financing additional vehicle technology and other economic activity. This is discussed in Annex 7.8. Avoided fuel use increases progressively over the decade 2020 to 2030 from €27bn per year in 2020-2025 to €36bn per year in 2025-2030. Energy use is around 25 mtoe per year lower in 2030, saving in total almost 160 mtoe to 2030.[27]

The impact of this reduced fuel expenditure depends on alternative spending patterns. To achieve the fuel savings, a part of this resource needs to be allocated to innovation and investment and manufacturing of more complex vehicles. These will have a positive economic impact due to an investment multiplier effect[28]. These aspects are explored in detail in Annex 7.10 which indicates that spending on employment could rise by around €9bn and GDP by around €12bn. However, if total imports decrease due to lower oil demand, the exchange rate rises until the balance of trade is restored, making EU goods more difficult to sell abroad in the long run. Some of the initial positive economic impact may be lost due to this rebound effect.

· Energy security

Reducing energy consumption contributes to energy security. The full value of this is uncertain, however two aspects are noted:

– Reduced energy consumption (principally crude oil) means that energy-security related costs (the so-called ‘oil premium’) decrease. The lower oil premium has two effects. Firstly, a lower demand for oil in the EU has a downward impact on the world oil price and secondly, macro-economic disturbances from oil price shocks are reduced. This has a positive economic effect[29].

– The JRC estimated a value for the economic benefits of improved energy security from increased biofuel use by calculating the cost of achieving a similar improvement in energy security through the establishment of a (additional) strategic stock of oil[30]. The cost was estimated to be about €130 per tonne of oil equivalent, although this estimate is considered to be the upper bound value. Based on this, the estimated aggregate energy security benefit between 2020 and 2030 of introducing the 2020 car and van targets is some €20bn.

· Impact on taxation revenues

Fuel taxes are the most relevant category of taxation in this respect, as fuel consumption will be lower compared to the 'do nothing option' (as described above). The impact on vehicle registration taxes depends on their structure. If dependent on vehicle prices, revenue will go up if the average retail prices increases due to CO2 standards. If dependent on CO2 emissions revenues from sales taxes will decrease.

Total fuel expenditure avoided will be approximately €27bn per year in the period 2020-2025 rising to €36bn per year in the period 2025-2030.[31] Tax represents a large proportion of fuel costs. It is estimated that if tax rates are not changed government fuel tax revenues (excise and VAT) would decrease by around €15bn per year in the period 2020-25 and around €22bn per year over the period 2025-30. This decrease could be avoided by altering tax rates or by replacing them with alternative transport pricing mechanisms.

Since the effects on tax revenues are predictable and manageable, they are not considered to be crucial. Any changes that occur are likely to relate primarily to the level of ambition of the 2020 targets rather than any of the modalities under consideration.

The net effect on government revenue is unknown and any loss due to decreased consumption of fuel may or may not be compensated by higher VAT revenue or vehicle taxes. The approach taken by government to replace these revenues may have a strong effect on the eventual outcome in terms of employment. A decrease or reduction in fiscal stimuli for fuel efficient cars could compensate these negative effects in part or in full, depending on the pre-regulation stimulus level.

· Net costs and benefits for consumers and society

Ø Savings on fuel spending to end-user

The largest single economic impact on consumers of no EU action to implement the 2020 car and van targets is foregone benefit of fuel saving for vehicle purchasers. The level of fuel savings per vehicle is purely driven by the existence of the 2020 targets and their overall level of ambition.

The impact of implementation of the 2020 CO2 targets on fuel savings for private consumers and business owners is evident. Moving to 95 gCO2/km and 147 gCO2/km in the new car and van fleets implies reductions in annual fuel consumption of about 27% and 16% respectively (with equal mileage). However, fuel savings may be lower than expected due to rebound effects, as lower running costs may lead to higher distances driven.

In aggregate, these amount to around €27bn per year in 2025 rising to €36bn in 2030. For an average car, and depending on the price of fuel, the end-user will save from €2904 to €3836 over its lifetime[32] as compared to retaining the 130 gCO2/km target (i.e. a 'do nothing' option). For vans these savings are expected to range from €3363 to €4564[33] as compared to 175 gCO2/km (see Table 2).

Table 2 User perspective - lifetime fuel cost savings for cars and vans relative to the short-term targets and relative to 2009/10 situation [in €]

Oil price [$/barrel] || || 90 || 100 || 110 || 120 || 130 || 140

Relative to 130 gCO2/km || Cars || 2904 || 3091 || 3277 || 3463 || 3650 || 3836

Relative to 2009 || 4411 || 4694 || 4977 || 5259 || 5542 || 5825

Relative to 175 gCO2/km || Vans || 3363 || 3603 || 3843 || 4083 || 4324 || 4564

Relative to 2010 || 4040 || 4329 || 4617 || 4906 || 5194 || 5483

Ø Cost-effectiveness to society

Equally, no implementation of the 2020 targets will result in foregone economic benefits to society linked to no further fuel savings resulting from increasing efficiency. Based on the central cost scenario (i.e. scenario 2)[34] which in view of the results of a thorough analysis undertaken by the US Environmental Protection Agency[35] and factual evidence seems most appropriate, Table 3 shows that both 2020 targets have negative abatement costs which means that society overall saves from implementation of the targets. The higher the oil price the greater the overall savings.

Table 3 Societal perspective[36] - Annual and lifetime fuel savings, NPV of lifetime fuel savings and abatement costs for society

|| Oil price [$/barrel] || 90 || 100 || 110 || 120 || 130 || 140

Cars || Diesel price (ex taxes) [€/l] || 0,74 || 0,82 || 0,90 || 0,99 || 1,07 || 1,15

Petrol price (excl. taxes) [€/l] || 0,67 || 0,75 || 0,83 || 0,91 || 0,99 || 1,07

Lifetime fuel cost savings[37] (excl tax) [€] || 1695 || 1893 || 2091 || 2290 || 2488 || 2687

Abatement costs[38] [€/tonne CO2] || -82 || -112 || -142 || -173 || -203 || -234

Vans || Lifetime fuel cost savings (excl tax) [€] || 2198 || 2448 || 2699 || 2950 || 3201 || 3451

Abatement costs [€/tonne CO2] || -172 || -196 || -221 || -246 || -270 || -295

Figure 2 to Figure 5 show graphically the net present value (NPV) of fuel cost savings compared with additional vehicle costs for the end-user[39] and society with four different cost scenarios for cars. These figures not only show that during the lifetime of the vehicle, fuel cost savings greatly outweigh additional costs for the level of the limits envisaged but also demonstrate that this will happen within a five year period. These conclusions hold for both passenger cars and vans.

Figure 2 NPV of fuel savings for an average medium petrol passenger car compared to cost curves constructed in the car study.

Figure 3 NPV of fuel savings for an average medium diesel passenger car compared to cost curves constructed in the car study.

Figure 4 NPV of fuel savings (incl. VAT) for an average Class II diesel LCV compared to cost curve constructed in the van study (assuming annual mileage of 23,500km and 13 years vehicle lifetime).

Figure 5 NPV of fuel savings (excl. VAT) for an average Class II diesel LCV compared to cost curve constructed in the van study (assuming annual mileage of 23,500km and 13 years vehicle lifetime).

· Impacts on international trade and competitiveness

The 'do nothing' option is expected to have a potential negative impact on international trade and competitiveness. This is mainly due to a potential weakening of the competitive position of the EU automotive industry on the third markets. These impacts are presented by outlining the expected benefits of implementation of the 2020 targets.

Ø Effect on international market / trade balance

The implementation of the 2020 targets will have two main impacts on international trade: energy consumption and automotive sector sales.

A positive effect on the trade balance is expected in relation to energy as LDVs would consume less oil in the EU.

The new CO2 targets may affect the competitiveness of vehicle manufacturers and component suppliers on the international export market. If those markets value lower fuel consumption then competitiveness will be improved, if not it could deteriorate. There is a clear tendency towards greater LDV fuel efficiency in countries outside the EU with countries accounting for over 65% of EU automotive exports already having 2020 targets. Figure 6 shows how CO2 standards are evolving globally. This suggests that the EU is a frontrunner in producing low CO2 vehicles giving EU manufacturers a competitive edge (specialisation) in this domain which is valued increasingly highly. The stakeholders are also largely in agreement that retaining this leading position is essential for the competitiveness of the EU automotive industry (see section 4 of Annex 7.2). At the same time it is clear that the international standards are converging, putting increasing competitive pressure on the EU industry.

Figure 6 Evolution of LDV CO2 standards in different countries (ICCT)

Ø Impacts on competitiveness and innovation

The potential impacts of the Regulations on competitiveness are explored in detail in Annex 7.9. The main effect comes from the implementation of the 2020 targets. Introducing the targets may impact on the automotive sector (vehicle manufacture and component supply) and on all other sectors of the economy which use LDVs. The latter effect is due to lower LDV total costs of ownership (see Figure 2 to Figure 5).

For the automotive sector, the detailed assessment shows that for many of the indicators the impacts are unlikely to be significant (e.g. compliance costs, capital, labour, consumer choice, restructuring). Where impacts are expected to be significant they will lead to reduced energy and vehicle operating costs which will be beneficial to competitiveness for the EU as a whole.

The targets will stimulate innovation. It is clear that the automotive sector has a large capacity for innovation and enjoys a substantial comparative advantage. The industry continues to improve its labour productivity and remains globally competitive, ensuring a trade surplus. This trend has continued following the introduction of CO2 regulations, as it has in Japan[40], and there is no reason to believe they will be fundamentally altered by the introduction of the 2020 targets or any of the modalities.

The European automotive industry is considered to be a global technology leader - largely due to substantial investments into innovation, but also as a result of a demanding home market. In the responses to the public consultation (see Annex 7.2), 72% of stakeholders and 83% of individuals agreed or partly agreed that EU regulation of road vehicle emissions stimulates innovation in the automotive sector and helps keep Europe's automotive industry competitive.

The main challenges facing the industry appear to derive from other factors. The current situation shows large differences per manufacturer, plant or country, with some, not only premium brands, in good shape and having announced record financial results for 2011[41]. The current Regulations have not had a negative impact on competitiveness and the analysis suggests that, if anything, the implementation of the 2020 targets will further stimulate innovation in the EU automotive sector and enhance its competitiveness in particular making it better placed to benefit from CO2 and fuel efficiency regulations that will be implemented in other major vehicle markets over the next decades as shown above.

· Effect on job market / employees

The European automotive industry is a major employer of a skilled workforce, directly employing over 6 million people (1.2 million employed by car manufacturers and 4.8 million by suppliers) and indirectly responsible for approximately 12.6 million jobs in large companies and SMEs (2.3 million jobs are directly related to manufacturing, 1.2 million jobs in closely related activities, 4.9 million jobs related to road transport and 4.2 million in various services of automobile use).[42]

A number of reports cite that fuel efficiency could have a beneficial effect on employment[43] as fuel efficiency increases the value of cars manufactured and leads to proportionally higher labour demand. Avoided fuel costs are spent on other goods and services.

Table 4 gives an overview of the relative labour intensity (RLI) of some key sectors in the EU. The first column represents the percentage of the total wages each sector pays to employees, the second column represents the percentage of the monetary value of output each sector generates. The relative labour intensity is the fraction of labour compared to the fraction of output generated by each industry. Increasing fuel efficiency leads to a decrease in demand of relatively non-labour intensive sectors (refineries, extraction) and a shift towards the more labour intensive manufacturing of motor vehicles as well as other goods. The manufacturing sector however is still quite capital intensive.

Table 4 Relative labour intensity (RLI) of sectors (% of compensation / % of output in total economy), source: EU input-output table

Sector || % labour || % output || RLI

Coke, refined petroleum products and nuclear fuels || 0.002 || 0.012 || 0.18

Crude petroleum and natural gas; services incidental to oil and gas extraction excluding surveying || 0.00 || 0.00 || 0.31

Manufacture of motor vehicles, trailers and semi-trailers || 0.017 || 0.024 || 0.70

Other transport equipment || 0.007 || 0.007 || 0.98

Construction work || 0.064 || 0.062 || 1.02

Service of land transport; transport via pipeline services || 0.025 || 0.019 || 1.32

Trade, maintenance and repair services of motor vehicles and motorcycles; retail sale of automotive fuel || 0.021 || 0.015 || 1.40

Research and development services || 0.012 || 0.006 || 1.81

Health and social work services || 0.093 || 0.039 || 2.37

Public administration and defence services; compulsory social security services || 0.086 || 0.034 || 2.52

An indication of how changes to fuel consumption and purchase of vehicles affect other sectors of the European economy can be derived from EU Input-Output tables. A detailed description and results can be found in Annex 7.10. Substitution of fuel by capital and technology increases domestic demand. As illustrated in Annex 7.10 in Table 13 this can be expected to increase GDP by around €12bn and annual expenditure on labour by around €9bn. A major contribution to this comes from the fact that vehicle manufacturing is more labour and export intensive and purchase of fuels is import intensive.[44] These results are supported by assessments in a number of reports (see footnote 43).

The conclusion of this assessment is that an increase in vehicle consumption has a proportionally large effect on production and labour demand. The need for improvements in fuel efficiency will have positive impacts on the demand for basic metals, wholesale trade, chemicals and rubber. Other sectors will be largely unaffected.

Conclusion

Without new EU action the 2020 car and van CO2 targets could not come into effect and the problem of increasing CO2 emissions from light-duty vehicle would not be tackled by EU policy. Further progress in fuel efficiency could not be assumed as evidence from the EU and US indicates that in the absence of regulatory requirements or large fuel price increases, LDV fuel consumption improves at only a modest rate. This is included in the modelling as Scenario 1 described in Annex 7.8. As described in the section above and in the abovementioned annex, no new EU action results in substantially higher EU oil consumption, greater CO2 emissions and reduced GDP and EU employment. It would also mean abandoning the strategy of reducing LDV emissions and would be counter to current goals.

2.5.2. The Adaptation to Lisbon Treaty

Regulation 443/2009 was adopted prior to the coming into force of the Lisbon Treaty. As a result the comitology provisions need to be updated and brought into line with the Treaty as part of agreement between the Commission, the Council and European Parliament. This is a mandatory requirement and is therefore not further assessed.

2.5.3. Form and stringency of legislation beyond 2020

As indicated in section 5 of the car study, vehicle manufacturers have approximately 7 year timetables for complete changes to vehicle platforms and 10 to 15 year cycles for completely new engines. Much shorter timeframes apply for adaptations to these. The two-step approach that has been taken to date in the Regulations has been to fix a short term mandatory target approximately 6 years in the future[45] and provide a longer term target with a requirement to confirm the associated modalities at a later date. This is compatible with manufacturers' needs.

It is relatively easy to calculate the required level of CO2 emissions from different types of vehicles to be compatible with a certain level of overall emissions. However, the assessment of the costs of the technology needed to achieve those emission levels become increasingly uncertain the further ahead the projection is made. In view of this it becomes increasingly difficult to know whether the likely required level of emission reductions is best achieved through technology or through alternative policy instruments. This supports setting longer term targets subject to confirmation of feasibility.

To enable the most cost-effective planning of R&D and investments, it is desirable for manufacturers to have a sufficiently long lead time with regard to the future stringency of CO2 legislation so that they can adequately allocate resources and effort. This will be particularly important as manufacturers need to introduce different types of powertrain further into the future. In respect of the latter, it is also desirable to consider whether in the future the method of regulation would need adjustment to best ensure a technology neutral approach.

Without a continuation of the 2020 targets and without a communication discussing the Regulations beyond 2020, the automotive industry will not be provided with the necessary information for cost effective planning and investment.

2.6. Who is affected and how?

Major stakeholder groups affected include the general population, vehicle purchasers, vehicle manufactures, automotive component suppliers and fuel suppliers. The main impacts are:

· The EU population is increasingly affected by climate change through increased climate variability, more frequent extreme weather events, and their related impacts.

· Buyers of vehicles, both individuals and businesses, are affected by possible increases in the price of vehicles and reduced running costs, due to stricter CO2 emission requirements and the related fuel consumption improvement. Fuel saving benefits are expected to outweigh the cost of compliance with the standards.

· Vehicle manufacturers will be affected by the obligation to reduce CO2 emissions, and will have to introduce technical CO2 reduction measures. In the short-term, this is likely to result in increased production costs and could affect the structure of their product portfolios. However, demand for low CO2 vehicles is expected to increase throughout the world as climate change policies develop and other countries introduce similar standards, manufacturers have an opportunity to gain first mover advantage and the potential to sell advanced low CO2 vehicles in other markets.

· Component suppliers are expected to benefit from higher demand for advanced technologies. Along with vehicle manufacturers they will benefit from the possibility to export these advanced technologies to other markets.

· Fuel suppliers will be affected as they are likely to see lower demand for transport fuels in the future as a result of the legislation.

· Other users of fuel and oil-related products (e.g. chemical industry, heating) are expected to benefit from lower prices if demand from the transport sector decreases.

· Sectors other than transport that emit GHGs will avoid demands to further reduce emissions to compensate for increased transport emissions. In so far as these sectors are exposed to competition, this will be important for their competitiveness.

2.7. The EU's right to act and justification

The EU has already acted in this area when it adopted Regulations 443/2009 and 510/2011 based upon the environment chapter of the Treaty (cars on Article 175 of TEC[46] and vans on Article 192(1) of TFEU[47]). The single market also provides grounds to act at EU level rather than at Member State level so as to ensure common requirements across the EU and thus minimise costs for manufacturers. This is made clear in the recitals of the current Regulations whose objectives include: "…establishing CO2 emissions performance requirements..… in order to ensure the proper functioning of the internal market and to achieve the Union's overall objective of reducing emissions of greenhouse gases …"

EU action is necessary in order to avoid the emergence of barriers to the single market in the automotive sector and because of the transnational nature of climate change. Without EU level action there would be a risk of a range of national schemes to reduce light duty vehicle CO2 emissions. This would particularly disadvantage vehicle manufacturers and component suppliers as differing ambition levels and design parameters would require a range of technology options and vehicle configurations, diminishing the economies of scale. Manufacturers hold differing shares of the vehicle market in different Member States and would therefore be differentially impacted by various national legislations. Costs of compliance would increase and consumers would not benefit from lower costs and economies of scale that an EU wide policy delivers.

3. Objectives

GENERAL

The general objective which flows from the Treaty and various EU policies outlined in the policy context in section 2.1 is to:

Provide for a high level of environmental protection in the European Union and contribute to reaching the EU's climate change targets while reducing oil consumption, thus improving the security of energy supply in the EU, stimulating innovation and boosting competitiveness of the EU industry.

SPECIFIC

In line with the general objective but focussing on the scope of this review, the specific objective is to:

Ensure the continued and effective application of the car and van CO2 regulations particularly in respect of the 2020 targets.

OPERATIONAL

In designing the operational objectives the criteria for a review outlined in Article 13(5) of the car Regulation and Article 13(1) of the van Regulation that the Commission's proposal should be "as neutral as possible from the point of view of competition, socially equitable and sustainable" were taken into account. Furthermore, the operational objectives are also designed to be specific, measurable, achievable, realistic and time-dependent (SMART) to the possible extent. As a result, the operational objectives are as follows:

· Ensure that the 2020 van CO2 target is feasible.

· Ensure that the CO2 emission targets for 2020 of 95 gCO2/km for cars and 147 gCO2/km for vans are achieved cost-effectively.

· Ensure the modalities of achieving the 2020 targets do not have unacceptable social impacts[48].

· Ensure the modalities of achieving the 2020 targets do not have undesired competitiveness impacts for the EU automotive sector[49].

· Create sufficient certainty for the automotive sector with regard to future light duty vehicle CO2 requirements.

· Minimise where possible the administrative burden and costs for SMEs of the Regulations.

The problem described in section 2 and the objectives outlined in this section fit together to provide an intervention logic. This is shown in the graphic below, illustrating how the various modalities employed in the existing legislation impact on the main objectives sought.

4. Policy Options 4.1. Methodology

This impact assessment supports the amendment of two Regulations. These Regulations have a structure that has been decided on the basis of the Commission's original proposal and the co-decision process. In view of this, the aspects considered for amendment focus on potential modalities that can be altered within the agreed policy framework.

A broad approach has been taken to identifying policy options. This covers issues raised in the legislation, those arising with implementation and those assessed in the studies analysing possible approaches to improve the legislation's effectiveness. For each aspect an assessment is made of the options available. A preliminary assessment is then made of these options, primarily based upon the analysis carried out in the external studies and on the input from stakeholders. Based on this assessment it is determined which options should be taken forward for detailed analysis.

4.2. Do nothing option

This option implies that the 95 and 147 gCO2/km targets for 2020 for cars and vans respectively would not be implemented. Further to the extensive assessment of the 'do nothing' option in section 2.5 it is clear that this option would be counter to the general, specific and operational objectives (see section 3). The positive economic, social and environmental effects of reduced CO2 emissions, savings on fuel spending and resulting macroeconomic impacts, net benefits to consumers and business of increased fuel efficiency of vehicles, as well as positive impacts on international competitiveness of the EU industry would not materialise.

The conclusion to take action, and therefore dismiss this option, is reinforced by the results of the public consultation (see Annex 7.2) whereby 95% of individuals agreed that it was important to set greenhouse gas emission standards as part of overall EU action, and a majority of respondents agreed that these standards should be in line with the GHG targets set out in the Commission's 'Roadmap for moving to a low carbon economy in 2050' and the Transport White Paper .

Finally, in case of a 'do nothing' option the comitology provisions in the car Regulation cannot be brought into line with the Lisbon Treaty.

In view of the arguments outlined above this option is discarded from further analysis.

4.3. Confirmation of feasibility of the 2020 target for LCVs

The option considered in this section is whether or not the feasibility of the vans 2020 target can be confirmed.

Article 13(1) of the van Regulation requires confirmation of the feasibility of the 2020 van target on the basis of an updated impact assessment. This is assessed from the point of view of the baseline emissions and absolute reduction required to meet the target, the costs of achieving it and the leadtime available to manufacturers to prepare for compliance. These three aspects are discussed below.

(a) Distance to target

The 2010 emissions data indicates that the gap to the 2020 target reduced significantly as compared to the situation in 2007 without a major technological change. Average CO2 emissions in 2010 are reduced relative to 2007 for all van segments although the level of reduction differed between classes (see Table 5).

Table 5 Comparison of 2007 and 2010 data for all van classes

|| Petrol || Diesel || Average

I || II || III || I || II || III

2010 mass || 1117 || 1455 || 1846 || 1173 || 1497 || 1966 || 1641

2010 CO2 emissions (gCO2/km) || 138 || 168 || 240 || 121 || 161 || 223 || 181.4

2010 sales || 28,837 || 9,771 || 1,972 || 189,195 || 352,993 || 477,577 || 1,062,090

Share of sales || 1.72% || 0.91% || 0.19% || 17.81% || 33.24% || 44.97% || 100%

2007 mass || 1110 || 1455 || 1958 || 1191 || 1556 || 1975 || 1731

2007 CO2 emissions (gCO2/km) || 165 || 198 || 271 || 144 || 179 || 231 || 203

2007 sales || 20,992 || 6,590 || 3,761 || 287,710 || 429,805 || 998,287 || 1,747,145

Share of sales || 1.20% || 0.38% || 0.22% || 16.47% || 24.60% || 57.14% || 100%

Difference in emissions 2010 vs. 2007 (in gCO2/km) || -27 || -30 || -31 || -23 || -18 || -8 || -21

(b) The costs of achieving the target

The updated cost curves in the van study show greater reduction potential and lower costs compared to the previous analysis based on 2007 data (see Table 6).

Table 6 The reduction needed and cost of achieving 147 gCO2/km target for diesel vans

Diesel || Class I || Class II || Class III || Average

Maximum reduction possible (in gCO2/km) || 50.6 || 73.4 || 107.1 || 84.4

Reduction required to meet 147 gCO2/km (in gCO2/km) || 14.6 || 18.0 || 29.6 || 22.7

Reduction in emissions for 2020 as % of the 2010 baseline vehicle emissions || 12.06% || 11.30% || 13.33% || 12.54%

Cost of meeting the 2020 targets from the 2017 target (in €) || 330.1 || 382.8 || 565.2 || 456.1

(c) Time needed to comply with the target

The timeframe over which this reduction needs to occur (10 years from the date of adoption of Regulation (EU) 510/2011) is consistent with the time needed for the development of a new van which is considered to be around 7 years[50].

Conclusion

In view of these considerations it is concluded that the vans target of 147 gCO2/km is feasible. The remaining sections of this Impact Assessment will therefore focus on the assessment of modalities of implementing this level of the 2020 target for vans.

4.4. Policy options for the modalities of meeting the car and van targets

This section undertakes a preliminary assessment of the following policy options for each modality currently included in the Regulations as well as options for inclusion of the alternative modalities:

The limit value curve (section 4.4.1) || Other modalities in the Regulations (section 4.4.2) || Alternative modalities considered- not in the current Regulations (section 4.4.3)

Utility parameter || Excess emissions premia || Banking and borrowing

Shape of limit value curve || Eco-innovations || Mileage weighting

Slope of limit value curve || Derogations || Combining van and car targets

|| Phase-in || Vehicle based limits

|| Super credits ||

4.4.1. Policy options for the limit value curve

The utility parameter and the function describing the relationship between the utility parameter and CO2 emissions (setting the shape and slope) are the most important modalities as concluded in section 2.1 and define the limit value curve . This section analyses alternative policy options for each composite of the limit value curve.

Utility parameter

The options considered for this modality are: (1) Retention of the current utility parameter (2) Change of the utility parameter

Both Regulations currently use mass as the utility parameter. This parameter was extensively debated prior to adoption of the legislation, in particular for cars, and the Regulations request other parameters to be assessed. A large range of possible parameters have been considered.

Cars

Nine different possible utility parameters were assessed[51] which were: footprint, wheelbase, footprint times height, mass (used currently), payload, composite of seats expressed in volume and volume of boot space, a composite of number of seats and boot space, price, a composite of payload with seat and boot volume, a composite of footprint and mass in running order, a composite of payload with seat and boot volume, footprint and mass in running order. The preliminary assessment[52] of the various options discards all options other than mass and footprint.

Various assessments in the car study are performed using both mass and footprint as the utility parameter to enable a thorough comparison. It can be seen[53] that there is relatively little cost difference between the two parameters based upon size of vehicle, or fuel, with larger vehicles having slightly higher cost for footprint.

Only mass (option 1) and footprint (option 2) are retained for further analysis.

Vans

Three utility parameters are assessed[54]: mass (used currently), payload and footprint. A preliminarily assessment of their fit with fleet CO2 emissions, their suitability for further analysis and other practical aspects, concludes that all are suitable proxies of vehicle utility.

However, the analysis subsequently discards payload despite its good correlation with fleet CO2 emissions (although less representative for vehicles above 1900 kg) and its close link to the utility of a commercial vehicle. The main reason underlying this decision is that payload is a parameter derived from the maximum technically permissible vehicle laden mass, i.e. the maximum the loaded vehicle can weigh. This is declared by the manufacturer rather than measured and could therefore be manipulated. In addition, the CO2 impact of vehicle modifications to increase payload could be relatively small creating a potential perverse incentive.

In view of the arguments above, only mass (option 1) and footprint (option 2) are retained for further analysis.

Shape of the limit value curve

The options considered for this modality are: (1) Retention of the linear limit value curve (2) Shift to an alternative limit value curve (flat, non-linear, curved)

The shape of the limit value curve affects the distribution of effort between different vehicles depending on their position on the curve. The existing Regulations are based on a linear function (option 1). The linear function can be truncated at either top or bottom or both (as in the US) to ensure that manufacturers of smaller vehicles need to make less reductions or to ensure that manufacturers of larger vehicles have to make more effort. A curved function achieves a similar objective but avoids the gaming problems associated with a sudden change in slope of the function.

Cars

A range of relevant, conceivable limit value curve shapes are assessed[55]. Four useful functions are identified: flat, linear, truncated linear and curved, and compared[56]. It is shown that the linear function (option 1) has the lowest compliance cost per vehicle and that total compliance costs are lower. The curved shape (variant of option 2) approaches the costs associated with the linear function as the CO2 target is reduced. Since the analysis shows that most options are more expensive and that there is no clear benefit from a change, option 2 is discarded and option 1 is retained.

Vans

Drawing on the car analysis, only linear (option 1) and non-linear (variant of option 2) limit value curve shapes are assessed for vans [57].

For mass, a linear function (option 1) fits the scatter of CO2 values of the van fleet well and seems appropriate. Since the current van limit value curve is linear this option would avoid change. For footprint two different trend lines are observed in the scatter of CO2 emissions suggesting a non-linear correlation[58]. This is the effect of CO2 emissions levelling off above about 7m2 which is largely due to the testing procedure[59]. As a result a linear footprint function is judged inappropriate and a non-linear footprint function (option 2) is assessed (see Annex 7.15 for explanation of non-linear function).

During consultations stakeholders did not express a clear preference for any alternative shape of the limit value curve for cars or vans. The automotive manufacturers favoured the current scheme.

Option 1 for mass and option 2 for footprint are retained for further analysis.

Slope of limit value curve

The options considered for this modality are: (1) Retention of the current slopes of the limit value curves: 60% for cars, 100% for vans (2) Shift to different slopes from the range 60% to140%

The slope of the limit value curve (see Annex 7.11 for more detailed explanation) affects the distribution of effort between vehicles depending on their position on the curve. Because of this differential effect, changing the slope alters the amount of effort required from different manufacturers and impacts on the overall cost of meeting the target. The slope also affects the possibility for perverse incentives – steeper slopes increase the risk.

The studies[60] provide detailed assessments of the implications of changing the slope of the curve with mass or footprint as the parameter. The analysis in the car study was performed in comparison to the average slope of the 2009 fleet, which is taken as 100%. The range from 60 to 140% slope was analysed. In absolute terms, slopes in the range from 0.0296 to 0.0691 for mass and 17.6 to 41.1 for footprint have been considered. It is important to recognise that the choice of slope is ultimately a decision on an appropriate sharing of burden amongst manufacturers whilst still delivering the overall target for the EU fleet of new cars. This choice of slope can as equally be derived from and related to data from the 2006 fleet, 2009 fleet or an average of the two. [61]

The van study analysis was performed in comparison to the average slope of the 2010 fleet, which is taken as 100%. The range from 60 to 140% for mass[62] and footprint[63] and linear and non-linear function respectively was analysed.

During consultations stakeholders did not express a clear preference for any alternative slope of the limit value curve for cars or vans. The automotive manufacturers favoured the current scheme.

Cars

The percentage new car price increase as a result of the target is higher for small than large cars. A slope below 100% would be more socially equitable since this slightly reduces the small car percentage price increase and the converse for larger cars. However, even at 60% slope this makes only a few percentage points difference compared to a 100% share.

When the Regulation was adopted a slope below a certain level was needed to avoid incentivising mass increases. The 100% line for 2009, depicting the actual distribution of fleet in that year, already has a lower slope than that required in the current Regulation meaning that any slope below this 2009 baseline will avoid this incentive.

Slope has a distributional impact between manufacturers, depending on their sales mix. For slopes below 100%, costs increase for 10 manufacturers and decrease for 10. Manufacturers are conversely affected for slopes above 100%.

In view of these considerations both options are retained for further analysis. However, option 2 will consider only slopes in the 60 to100% range.

Vans

The percentage price increase for meeting the 2020 target is shown to be higher for larger vans in the study. However, this does not mean it is more expensive to reduce emissions from larger vehicles. The effect is due to the cost model optimising the reduction level across manufacturers' fleets. The results suggest larger vans have more reduction potential and therefore OEMs will seek a larger contribution from these to meet their overall targets.

Mass-based function

To avoid perverse incentives, it is desirable for the slope to be no steeper than in the current Regulation. The 100% slope derived from 2010 sales is only slightly steeper than that currently in use. The relative price increase (and additional manufacturer cost) is distributed most evenly over manufacturers around 100% slope. The average costs for meeting the 147 gCO2/km target are lowest at 80% slope but the cost difference is negligible. In view of these factors the van study recommends a slope in the range 80-100%.

Footprint-based function

Although differences are very small, the lowest overall average additional manufacturer costs for footprint occur at the 110% slope (see Table 10). The distribution of additional cost per manufacturer is most even around the 100% slope.

Since changes to vehicle footprint are much easier to implement in vans than cars, perverse incentives to adjust footprint are more important for vans. This is especially important for vans with low footprint, as the non-linear limit function is relatively steep at this part of the footprint range. Extension of footprint may lead to more loading area and extra space, which when used effectively may be beneficial. However, if done to increase the CO2 target it could lead to increasing average footprint and non-compliance with the overall target. In order to avoid this perverse incentive a lower slope seems more desirable for vans. However, a lower slope increases the difference in cost distribution between manufacturer groups that sell typical vans representing the majority of the market, in contrast to those selling pick-ups or all-terrain vehicles.

Both options are retained for further analysis. However, option 2 will consider only slopes in the 80 to 100% range.

4.4.2. Policy options for other modalities in the Regulations

Excess emissions premia

The options considered for this modality are: (1) No change to the current level of the excess emissions premium (2) Adjustments to the current level of the excess emissions premium

The excess emissions premia (EEP) are to ensure that manufacturers comply with their CO2 reduction obligation. The level at which the premia are set needs to be high enough to ensure that manufacturers undertake the necessary technical innovations to ensure compliance rather than just pay EEP. They were originally set at the level of the upper range of marginal cost of compliance with 130 gCO2/km for mainstream car manufacturers. In reality it is likely that the marginal cost to manufacturers to comply with that target will be substantially lower.

Cars

For cars, the EEP was set to €95 per gCO2/km, but to allow manufacturers time to adjust to the new regulatory scheme, the first 3 gCO2/km above the target would receive a lower EEP (increasing from €5 to €25 per gCO2/km) in the period 2012-2018.

The analysis shows maximum marginal costs for different manufacturers[64], based upon cost scenario 1[65] (see Figure 7), with the average marginal cost of reaching 95 gCO2/km being €91 per gCO2/km, which is around the level of the current EEP (option 1). Marginal costs will be lower assuming that the middle cost curves (for more explanation see Annex 7.13) are likely to be more realistic.

For most manufacturers, marginal costs are similar to or below the €95 per gCO2/km level currently in place. For Spyker and Chrysler, costs are only substantially above the level if footprint is used as the utility parameter. Tata, Subaru, Suzuki, Porsche, Hyundai, Mazda and Mitsubishi have marginal costs quite substantially above the current premium level but most of these are currently covered by niche derogations.

Figure 7 Marginal costs per manufacturer for reaching the average of 95 gCO2/km (based on cost scenario 1)

Option 2 would be to update the EEP to reflect likely upper marginal costs of compliance with the 2020 targets. According to the cars study, if this logic was followed, the EEP might need to be increased to €130-150 for mass as a parameter and possibly higher for footprint. This would increase the probability of meeting the target. Porsche would still have costs above these levels.

EEP needs to be paid by a manufacturer (group) per gCO2/km of emissions exceeding the target times the number of cars registered. A premium that is too low runs the risk of being an attractive alternative for not reducing emissions, which undermines the environmental objective. A premium that is set too high may also be inappropriate as the objective of the EEP – apart from providing an incentive for manufacturers to comply - is to provide a ‘safety valve’. Another consideration is the fact that manufacturers cannot fully control the exact composition of their sales. In case of large unexpected shifts in consumer demand, the penalty is a buy-out option for complying with the Regulation.

In view of the above, and based on the likelihood that for some manufacturers, average marginal costs of compliance will be below €95 per gCO2/km it is not considered necessary to change the level of the EEP, especially for a mass-based limit value curve. Therefore, option 2 is discarded from further analysis.

Vans

For vans the EEP in the Commission's proposal[66] was set at the level of the upper range of the marginal cost of compliance which was around €120 per gCO2/km for the target of 175 gCO2/km. However, in co-decision the level of EEP was lowered to equal that of cars (€95 per gCO2/km) with a similar introductory regime for the first 3 gCO2/km above the target in the period 2014-2018.

The maximum marginal cost for different manufacturers[67] has been analysed based upon a new methodology and a more adequate database. It can be seen (Figure 8 and Figure 9) that the marginal costs of meeting the 2020 van target for both mass and footprint-based functions is slightly below €40 per gCO2/km if Tata[68] is excluded, quite substantially lower than had originally been estimated.

Figure 8 Marginal costs per manufacturer for reaching the average 147 gCO2/km (mass as utility parameter)

Figure 9 Marginal costs per manufacturer for reaching the average 147 gCO2/km (footprint as utility parameter)

For certain van and car classes a regulatory overlap exists where some large cars can potentially be type-approved as light commercial vehicles and benefit from a more lenient target which is expected to be cheaper to meet. If the van EEP is lowered (option 2) this incentive would be further strengthened. In view of this, option 2 is discarded. Retaining the current EEP level (option 1) provides a strong compliance incentive and ensures continued alignment with the EEP for cars.

Derogation scheme

The options considered for this modality are: (1) Stopping the derogation scheme (2) Continuation of the scheme (3) Update of the niche derogation scheme

Option 1 is not seen as a practical solution. As concluded in the previous car impact assessment, manufacturers selling a relatively small number of vehicles with a limited and specialised portfolio may find it very challenging and costly to meet the overall targets set via the limit value curve. In addition, the manufacturers covered by the derogation tend to sell vehicles which are driven shorter distances than cars sold on the mass market. The overall contribution in terms of CO2 emissions of cars sold by small-volume manufacturers is estimated to be below 0.01%. Therefore option 2 is preferred over option 1.

The niche category has a fixed target of 25% reduction from the 2007 average emissions of each niche manufacturer. Option 3 considers certain updates to the scheme. The baseline in Article 11(4)b of the car Regulation could be updated to ensure a comparable level of effort for niche manufacturers compared to the main fleet. This would imply approximately 27% reduction compared to 2015 or a 45% reduction compared to 2007 for the same level of reduction as larger manufacturers. Analysis shows that manufacturers in this segment are technically able to continue making CO2 reductions beyond 2015.

It should be reconsidered whether manufacturers of up to 300,000 cars per year should have a differential treatment in terms of CO2 reduction obligation beyond 2015. This can create unfair competitive distortions in markets where they compete. For example Honda and Suzuki which are both major global manufacturers currently sell around 175,000 cars per year in the EU and therefore fall under this derogation. In addition, there is a possibility that new entrant manufacturers from outside the EU[69] might gain a competitive advantage through use of this derogation. Option 3 could therefore be considered further.

There are several aspects of the derogations procedure that have been identified as meriting further evaluation in view of simplification, these are discussed further in section 4.4.4.

Eco-innovations

The options considered for this modality are: (1) Phase-out of eco-innovations (2) Prolongation of eco-innovations

The purpose of including eco-innovations in the legislation was to ensure that manufacturers could also receive credit for innovations that reduce CO2 emissions during vehicle operation even when these are not measured in the normal vehicle test procedure. Article 13(3) of the car Regulation and Article 13(6) of the van Regulation require that once a new vehicle test procedure has been introduced eco-innovations should no longer be approved (option 1).

Ideally the new test procedure will require operation closer to that experienced in real world conditions including accessories, thus ensuring that reported emissions are more realistic and avoiding the need for eco-innovations. A new test procedure is under development, however its introduction cannot be expected to completely eliminate the possibility that innovations not measured in the test procedure can be implemented. In fact, unless the new test procedure requires a more realistic approach to the operation of various vehicle accessories and equipment, much of the energy using elements will not play any role in determining vehicle CO2 emissions. In view of this, improvement to these elements would not bring any credit to the manufacturer.

An option to consider is to prolong the possibility for manufacturers to propose eco-innovations under the scheme currently in place (option 2). Implementation of this would be straightforward and the nature of the scheme means that manufacturers would still only be able to claim credit for elements that would not otherwise be counted in the test procedure.

Since manufacturers will not develop such innovations and propose them as eco-innovations if it is not cheaper to do this than to introduce other improvements which are measured in the test procedure it follows that eco-innovation measures should bring CO2 benefits at lower cost than alternatives available to the manufacturer. It can be concluded therefore that eco-innovations will not be proposed by car and van manufacturers unless they are an efficient route to reduce CO2 emissions. The design of the measure ensures that eco-innovations are novel and therefore it can be concluded that this modality promotes innovation. It can therefore be concluded that the concept of eco-innovations is both efficient in that approved innovations will reduce CO2 emissions and effective in that their cost should be lower than alternative options. This view is also supported by the automotive industry, including the producers of automotive components. Therefore, option 2 could be more appropriate than option 1.

Phase-in

The options considered for this modality are: (1) No phase-in of the 2020 target (2) Inclusion of phase-in of the 2020 target over the period 2017 - 2020 or 2020 - 2023

The short-term cars and vans targets are currently phased-in over a period of 4 years. It was argued that this was necessary to give manufacturers time to adapt their product portfolio. For vans, an additional argument was the economic crisis which hit the sector in 2009 and 2010.

Option 2 would involve a phasing-in of the 2020 target. This might be carried out over a period of 3 years, comparable to the previous targets. Two variants are considered: a) the phase-in occurs over the period 2017-2020; b) the phase-in occurs over the period 2020-23. Based on the preliminary assessment shown in Annex 7.14 option 2 is discarded for both cars and vans.

Super-credits

The options considered for this modality are: (1) No prolongation of super-credits (2) Prolongation of super-credits (3) Modification of super-credits

The Regulations are based upon CO2 emissions from the vehicle and ignore those from other parts of the energy supply chain. Therefore certain types of vehicles, essentially using substantial proportion of hydrogen or electricity for their propulsion during the test procedure will be measured as having very low emissions[70]. The Regulations incorporate provisions that count vehicles with emissions below 50 gCO2/km a multiple number of times for the period up to 2016 for cars and 2018 for vans. It was argued that this multiplier would provide a strong incentive for vehicles meeting this criterion to be marketed. Option 2 and 3 would introduce multipliers for low emission vehicles up to 2020 for cars and vans.

Based on the preliminary assessment shown in Annex 7.14 options 2 and 3 are discarded for both cars and vans because they increase CO2 emissions, reduce the stringency of the target below that politically agreed, reduce the cost-effectiveness of the Regulations and do not respect the principle of technological neutrality. It is however also clear that the magnitude of these negative impacts can be somewhat limited by the use of low multipliers and a threshold on the number of vehicles which could benefit from super-credits.

4.4.3. Alternative modalities considered

Options for additional modalities considered in this section: (1) Banking and borrowing (2) Combining car and van targets (3) Mileage weighting (4) Vehicle based limits

In addition to the existing modalities, a further range of modalities has been assessed to consider whether they merit incorporation in the Regulations for 2020.

Based upon the preliminary assessment shown in Annex 7.14 it is concluded that these options should be discarded for both cars and vans.

4.4.4. Simplification and reduction of administrative burden

Options for simplification of the current Regulations considered in this section include: (1) Reduction of the number of modalities (2) Simplification of the implementing measures (3) Simplification of rules for SMEs and micro-SMEs (4) Simplification of the derogation procedure to reduce the administrative burden

Simplification is assessed from a number of angles. Option 1 is based on the conclusion that the number of modalities should be kept as small as practicable to minimise the complexity of the legislation. This suggests a presumption against proposing modalities for inclusion in the Regulation. This logic is consistent with the analysis which led to the majority of the options considered for modalities, including the alternative approaches, being discarded.

Many aspects of the implementation of the Regulations have been achieved through secondary legislation and these are not affected by the modalities implemented for 2020. These contain their own review provisions and possible simplifications (option 2) can be considered when those take place. Accordingly simplification possibilities for these are not considered in this Impact Assessment.

The potential for simplifying rules for SMEs and micro-SMEs should be considered (option 3). There are many of these companies in the component supply sector that will benefit indirectly through the opportunity to develop new technology and components. However, since they are only indirectly impacted, there is no potential for simplification in relation to them. The only SMEs that could be impacted directly would be SMEs producing a very limited number of vehicles. These by their size would fall under the scope of the small volume derogations in both Regulations. It could be considered to establish a de minimis threshold for the registration of cars and vans below which manufacturers are exempt from the requirements of the Regulation. An alternative to a de minimis registration threshold could be to exempt manufacturers that are SMEs.

It may be preferable to reduce the administrative burden the small volume application and assessment process is likely to cause for the Commission and manufacturers for the period from 2015 onwards (option 4). The possible improvements include c