TABLE OF CONTENTS

1........ Procedural issues and consultation of interested parties................. 3

1.1........ Organisation and timing............................................................................................... 3

1.2........ Consultation and expertise........................................................................................... 3

1.3........ Results of the consultation of the Impact Assessment Board...................................... 4

2........ Problem definition............................................................................ 5

2.1........ General context............................................................................................................. 5

2.2........ Description of the main drivers of HDV CO2 emissions............................................. 6

2.3........ Expected trends under no policy change assumptions suggest a stabilisation of CO2 emissions 9

2.4........ The scope for HDV improved fuel efficiency and reduced CO2 emissions.............. 13

2.5........ Market barriers to cost effective technology uptake.................................................. 15

2.6........ Voluntary unilateral commitments may help but are insufficient to significantly curb emissions 18

2.7........ International experience in measuring HDV emissions and setting standards........... 18

2.8........ Who is affected and how?.......................................................................................... 18

2.9........ Does the Union have the right to act?........................................................................ 19

3........ Objectives........................................................................................ 20

3.1........ General objectives....................................................................................................... 20

3.2........ Policy objectives......................................................................................................... 20

3.3........ Operational objectives................................................................................................ 21

3.4........ Consistency with horizontal objectives of the European Union................................. 21

3.5........ Trade-offs and synergies between sustainability goals............................................... 21

4........ Policy options.................................................................................. 22

4.1........ Option 1 (short- and medium-term): Improve knowledge, comparability and accountability of HDV CO2 emissions..................................................................................................................... 22

4.2........ Option 2 (long-term): Include Road Transport CO2 emissions in the EU Emissions Trading Scheme 23

4.3........ Option 3 (long-term): Introduce legislation setting mandatory HDV CO2 emission ceilings 24

5........ Impact analysis of policy options................................................... 25

5.1........ Option 1 assessment: Improve knowledge, comparability and accountability of HDV CO2 emissions 26

5.2........ Option 2 assessment: Include Road Transport CO2 emissions in the EU Emissions Trading Scheme 28

5.3........ Option 3 assessment: Introduce legislation setting mandatory HDV CO2 emission ceilings 32

6........ Comparing the options................................................................... 42

6.1........ Comparing the options in terms of effectiveness in reducing fuel consumption and CO2 emissions 42

6.2........ Comparing the options in terms of efficiency............................................................ 42

6.3........ Summary of intervention logic: policy mix................................................................. 42

6.4........ Contribution of the options to the objectives............................................................. 43

6.5........ Impacts for SMEs, including micro-enterprises.......................................................... 45

6.6........ Comparing the options in terms of coherence with EU objectives............................. 45

6.7........ Concluding remarks.................................................................................................... 47

7........ Monitoring and evaluation............................................................ 48

Annex 1 : results of the public consultation.............................................................................. 50

Annex 2 : stakeholder meetings................................................................................................ 68

Annex 3 : Transport White Paper Actions................................................................................ 78

Annex 4 : modelling framework............................................................................................... 80

Annex 5 : HDV fleet segmentation.......................................................................................... 92

Annex 6 : statistical data........................................................................................................... 94

Annex 7 : Simulation tool development................................................................................. 101

Annex 8 : Option 3, setting emission limits: quantitative assessment..................................... 106

Annex 9 : International Comparison....................................................................................... 109

Annex 10 : Competitiveness Assessment............................................................................... 112

Annex 11 : HDV CO2 emission abatement potential and cost curves per vehicle category.. 128

Annex 12 : Indicative assessment of administrative costs under option 3.ii......................... 138

Annex 13 : Methodology........................................................................................................ 140

Acronyms and definitions

ACEA Association des Constructeurs Européens Automobiles (the European Association of Automotive Manufacturers)

Carbon footprinting Method or scheme to assess the carbon content (footprint) of a product or service.

CH4 Methane. By-product of conventional fuel engines' combustion that has a higher global warming potential than CO2 (25 fold over 100 year horizon). Conventional fuel engines however emit only very small quantities of methane.

CNG Compressed Natural Gas

CO2 Carbon dioxide. The main gas with global warming effect emitted by conventional fuel engines. The combustion of 1 litre of diesel fuel emits about 2.65 kg CO2.

ETS Emissions Trading Scheme. The EU emissions trading scheme (carbon market on which tons of CO2 are being traded among participating entities) does not currently include road, waterways and maritime transport emissions (aviation emissions have been included as of 1.1.2012).

ETD Energy Taxation Directive (2003/96/EC). The Commission proposed in 2011 a revision of the ETD (COM(2011) 169/3) with the aim of rebalancing fuel prices and including a carbon price in fuel taxation.

Euro VI HDV exhaust gas and PM emission standards (Regulation (EC) 595/2009). Euro VI – and previous generations of Euro standards - have been adopted on grounds of environmental public health policy considerations and are not meant to address emissions with global warming effects.

GHG Greenhouse gases: gases that have a global warming effect.

GWP Global Warming Potential. The intensity of global warming effect of a gas, usually measured as a ratio of its GWP compared to the GWP of CO2 over a defined time horizon (e.g. 100 years).

HDV Heavy-Duty Vehicle, i.e. trucks, coaches and buses (vehicles of more than 3.5 tons).

ITS Intelligent Transport Systems facilitating vehicle fleet management with the support of IT and e-connections, including satellite transmission.

LDV Light-Duty Vehicle, i.e. cars and vans.

LPG Liquefied Petroleum Gas is a by-product of the hydrocarbon fuel chain. Its use in transport increases resource efficiency.

N2O Nitrous Oxide. By-product gas of fuel combustion with a high GWP (298 fold that of CO2 over 100 year horizon). Conventional fuel engines however emit only very small quantities of N2O.

OEM Original Equipment Manufacturer: the main truck and bus manufacturers of complete vehicles, tractors and chassis/cabin unfinished vehicles

PM Particulate matters, which constitute an important pollutant emitted by diesel fuel engines.

TPMS Tyre Pressure Monitorting Systems. TPMS are mandatory for cars, but not vans and HDVs

Tailpipe emissions (see below TTW emissions)

TTW emissions "Tank-to-wheel" –or tailpipe- emissions that occur throughtout the drive cycle of vehicles.

WTW emissions "Well-to-wheel" emissions = TTW + upstream "well-to-tank" emissions attached to the fuel production

Introduction

1. Road transport contributes some 19% to the EU's total emissions ("tank-to-wheel" emissions[1]) of carbon dioxide (CO2), the main greenhouse gas. Producing the fuel consumed by road transport ("well-to-tank" emissions)[2] adds about a further 14% to these emissions, bringing them to 22.8% of total EU emissions. Greenhouse gas emissions from road transport increased by 29% during the period 1990 to 2007 but have since fallen on the back of high oil prices, increased efficiency of passenger cars and slower growth in mobility (by 6% between 2007 and 2011). Heavy-Duty Vehicle (HDV) CO2 emissions represent about one quarter[3] of road transport CO2 emissions. This is some 5% of total EU greenhouse gas (GHG) emissions. In view of regularly increasing freight volumes in the EU (except in 2008-2009 due to the economic crisis), these emissions have been rising in spite of some improvements in vehicle fuel consumption and CO2 performance.

2. In order to tackle road transport emissions, the European Commission has implemented a strategy on Light-Duty Vehicles (LDVs) with an objective of limiting average CO2 emissions. Regulations (EC) 443/2009 and (EU) 510/2011 set out mandatory CO2 emission standards for the new passenger car and light commercial vehicle fleets respectively. It was however not considered possible to apply identical CO2 emission rules to HDVs, as those introduced for LDVs, in view of (i) HDVs’ characteristics, i.e. being a wide range of vehicles customised to end-users' needs, and (ii) the absence of a common measurement methodology for these emissions. Hence there is a lack of knowledge on exact HDV CO2 emissions.

3. The main drivers of HDV CO2 emissions are overall transport demand which is linked to economic activity, the modal split for freight and passenger transport between road, rail, air and waterways, the fuel carbon content, technological change influencing vehicle performance, and the modus operandi of the HDV fleet. Over the long-term freight transport is expected to continue to grow and emissions to contribute an increasing share of transport and overall GHG emissions. The 2011 Roadmap to a Single European Transport Area[4] ("the Transport White Paper") has set a long term objective of overall EU transport GHG emissions reductions of about 60% in 2050 (vs 1990 their level). Without action HDV CO2 emissions are expected to remain about 36% above their 1990 level in 2050, which is incompatible with the overall reduction objective. Consequently they need to be addressed and curbed.

4. Furthermore, Japan, the US and Canada have already legislated and China is considering action on how to measure and curb HDV CO2 emissions. Measuring and curbing HDV fuel consumption and CO2 emission may have significant industrial consequences and the EU needs to act in order to keep its HDV manufacturing industry in the lead. In this context EU HDV manufacturers are eager to obtain more predictability on the future policy requirements applying to EU HDV CO2 emissions.

5. In June 2007 the Council invited the Commission to "to develop and implement policy instruments and measures to reduce greenhouse gas emissions from those [HDV] vehicles"[5]. The Commission announced in its April 2010 Communication on "A European strategy on clean and energy efficient vehicles"[6] - and subsequently confirmed in the Transport White Paper - that it would propose a strategy targeting fuel consumption and CO2 emissions from HDVs.

6. The present Impact Assessment underpins this strategy and to this effect examines the possible policy options for addressing EU HDV CO2 emissions from both passenger and freight transport. Before possible legislative action considered in the present Impact Assessment can be implemented, more specific, focussed Impact Assessments would be carried out in due course supporting each legislative proposal.

1. Procedural issues and consultation of interested parties

1.1. Organisation and timing

7. The present Impact Assessment work was launched in September 2011. It was elaborated by DG Climate Action in collaboration with the Secretariat General and DGs ENTR, MOVE, ENER, ENV, RTD, TAXUD and JRC.

8. The draft Impact Assessment report was discussed with members of the Inter-Service Group on CO2 emissions on 1 October 2012 and 4 December 2012. A first version was sent to the Impact Assessment Board on 21 December 2012. Following a discussion in the Board on 30 January 2013 and a request from the Board, a revised version was submitted to the Board on […March 2013].

1.2. Consultation and expertise

External expertise

9. A study by Faber and Maunsell in 2008, "Reducing Greenhouse Gas Emissions from Heavy Duty Vehicles: the Role of the European Commission Policy Instrument Recommendations" examined the road transport industry GHG emissions and policy options to address these emissions[7].

10. This study was followed in 2011 by a report from AEA and Ricardo "Reduction and Testing of GHG Emissions from Heavy-Duty Vehicles- Lot 1: Strategy". This report examined the main HDV market characteristics in the EU, technologies available to reduce HDV emissions, and the likely uptake of these technologies in three different scenarios. It also reviewed some of the main policy options that could address these emissions[8].

11. In December 2011 TIAX, in a report commissioned and financed by the International Council for Clean Transportation (the ICCT), "European Union Greenhouse Gas Reduction Potential for Heavy-Duty Vehicles", reviewed the AEA/Ricardo estimates in the above report on the potential for HDV CO2 emission abatement and costs associated to the main technological improvements expected to be available until 2030, and proposed revised estimates on the potential for each of eight categories of HDVs and as a whole.[9]

12. A study on Marginal abatement cost curves for Heavy Duty Vehicles[10] was carried out by CE Delft for the Commission in the second quarter of 2012. CE Delft reviewed the above mentioned AEA-Ricardo and TIAX emission abatement and cost estimates, and estimated cost curves, both from an end-user perspective, and societal perspective.

13. Another study by CE Delft on Market Barriers to Increased Efficiency in the European On-road Freight Sector[11] carried out for the ICCT was completed in October 2012, and its findings were discussed in a workshop on 15 October 2012 in Brussels.

Stakeholder meetings

14. A first stakeholder meeting was held on 22 February 2012 to discuss the potential and ways for reducing HDV CO2 emissions as well as to sound out participants on their favoured policy options for curbing emissions. A second stakeholder meeting took place on 3 July 2012 to discuss the outcome of the public consultation (see below), progress with the development of a simulation tool to measure HDV CO2 emissions and emission abatement cost curves prepared by CE Delft. Policy options of the present Impact Assessment were presented by the Commission and discussed with stakeholders on this occasion (for more details see annex 2).

On-line public consultation

15. An on-line public consultation on road vehicle emissions was carried out between 19 September and 9 December 2011 (12 weeks)[12]. A total of 3,233 replies were received which includes 137 stakeholder organisations. As regards HDVs particularly, stakeholders and citizens overwhelmingly supported the need for a strategy for reducing HDV greenhouse gas emissions. While most citizens agreed that additional regulation, as opposed to non-regulatory measures, was needed for this purpose, stakeholder organisations and enterprises agreed (46%) or partly agreed (36%) that such regulation was needed. Respondents overwhelmingly considered that if the Commission proposes a HDV greenhouse gas reduction strategy, it should cover all HDVs (see annex 1).

1.3. Results of the consultation of the Impact Assessment Board

16. The Impact Assessment was first discussed in the Impact Assessment Board on 30 January 2013. The Board asked for the submission of a revised version with clarifications on emission drivers (see revised section 2.2), the need for action (see revised introduction and whole section 2) and market barriers to the uptake of innovation improving vehicle efficiency (see revised section 2.5). It requested measurable and time-related objectives (see revised objectives section 3.2 with timeline and indicators) and an intervention logic based on identified underlying drivers of CO2 emissions (see "problem tree" end of section 4 and new section 6.3 on intervention logic). The Board requested options to be focussed on policy choices with a clarified sequencing (see revised section 4). It suggested further clarifications on options' impacts, notably social and economic impacts (see revised section 5), including administrative costs (see indicative assessment under 5.1 and new annex 12). In line with Board requests, DG CLIMA subsequently re-submitted the present revised version. The Board on 17 April 2013 approved this Impact Assessment, suggesting further clarifications on market barriers, the current need for a strategy, objectives, as well as a clear identification of short and long term options. Such clarifications have been introduced in the text.

2. Problem definition

2.1. General context

2011 Low Carbon Economy and Transport Roadmap objectives

17. To avoid the most dangerous impacts, the EU has a stated objective of limiting global climate change to a temperature increase of 2ºC above pre-industrial levels. The Copenhagen Accord[13] included a reference to this objective. This was further confirmed within the United Nations Framework Convention on Climate Change (UNFCCC) in the decision in the 16th Session of the Conference of the Parties to the UNFCCC[14]. In order to have a likely chance to limit long term global average temperature increase to 2°C or less compared to pre-industrial levels, global emissions need to peak by 2020 and be reduced by at least 50% globally by 2050 compared to 1990.

18. The EU has established a binding legal framework[15] to reduce greenhouse gas (GHG) emissions. This Climate and Energy Package sets out for the EU binding reduction targets for 2020 and includes a fully-fledged set of policies to deliver this. The Council has approved[16] the EU target of 80-95% by 2050 compared to 1990 in the context of reductions that are necessary, according to the IPCC[17], by developed countries as a group, with the aim of keeping average global temperature rise below 2° as compared to pre-industrial levels. The European Commission 'Roadmap for moving to a competitive low carbon economy in 2050'[18] (hereinafter 'the Roadmap') looked beyond the 2020 objectives and set out a plan to meet the 2050 long-term target.

19. In March 2011 the Commission also adopted the 'Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system' (hereinafter the 'Transport White Paper')[19] which outlines the main challenges facing transport, including scarcity of oil in future decades, volatility of oil prices and the need to drastically reduce GHG emissions. It sets out a future transport strategy within a frame of achieving a 60% reduction in transport GHG emissions by 2050 (compared to 1990).

2.2. Description of the main drivers of HDV CO2 emissions

20. HDVs are defined as freight vehicles of more than 3.5 tonnes (trucks)[20] or passenger transport vehicles (buses, coaches)[21] of more than 8 seats. The AEA-Ricardo report[22] estimated the EU truck fleet at around 6.5 million vehicles in 2008. The HDV fleet is heterogeneous with very dissimilar vehicles that have different uses and drive cycles. It can be segmented into six categories of trucks (see more details in annex 5 table 1) and two categories of passenger vehicles: buses and coaches[23]. Most fleet operators are SMEs and even micro-enterprises, with 81% of the truck fleet owned by enterprises having less than 10 trucks (see Annex 6).

21. Contrary to cars and vans' emissions that were measured and monitored under existing type-approval legislation even before the recent introduction of CO2 emission limits, HDV CO2 emissions are not measured and recorded. The market lacks transparency in this respect and this knowledge gap (see section 2.5) is a bottleneck that needs to be addressed. HDV CO2 emissions are not subject to EU legislation other than the future measurement –as of 1.1. 2014 - of CO2 emissions from engines under Regulation (EC) No 595/2009 (Euro VI). One should further note that each tightening of exhaust gas and particulate matters (PM) standards triggers losses in fuel consumption and CO2 efficiency that tend to neutralise energy efficiency improvements on new HDV models (also see section 3.5 below).

HDV CO2 emissions' main drivers

22. The main drivers of HDV CO2 emissions are (a) transport demand which is linked to economic activity, (b) modal split among road, rail, air and waterways, (c) the fuel carbon content, (d) the uptake of technological change influencing vehicle performance and (e) the modus operandi of HDV fleets that influences fuel consumption and CO2 emissions. Since 1995 HDV transport has grown due to a combination of moderate GDP growth, modal shift with an ever increasing relative share of road transport, rather stable vehicle fuel consumption - HDV fuel and CO2 performance only slightly improved over this period - and limited decarbonisation of fuel. This has led to increased emissions. Historical series do not allow for a precise calculation of fuel consumption and CO2 emissions associated with this increase; from 1990 to 2010 HDV CO2 emissions are estimated to have grown by some 36%[24]. The 2008-2009 crisis interrupted the steady growth in road freight transport and the sector has not yet fully recovered from this sharp drop.

23. (a) Overall transport demand has steadily increased over the recent decades, at a pace that was until recently –before the 2008-2009 crisis- more rapid than GDP growth, mainly due to the large increase in freight transport, the main source of emissions. Versus its 2000 level freight transport for inland modes had grown in 2008 by 19% in the EU, GDP by 16% and the population by only 3% [25]. While the relationship between transport activity and GDP trends is not irrevocable and may slowly change over time (see next section), this macro-economic driver of CO2 emissions is beyond the scope of the present sector specific strategy.

24. (b) Modal share and shift. Road freight transport, the main component, has had the most steady growth and increasingly high relative share among the main transport modes. From 1995 to 2009 road freight volumes increased by 31%, with the modal market share (in volume) of road freight in total freight transport (including maritime transport) increasing from 42% to 47%. Conversely HDV passenger transport (bus, coaches) activity remained almost constant over the 1995-2009 period (+3% in volume), around a volume of 500 billion kilometres[26]. A breakdown of the evolution of the transport modes' relative share is provided in Annex 6 (tables 7 and 8). EU policies aim at re-balancing transport to less carbon intensive modes, in particular rail. Modal share and shift has been addressed by the Marco Polo programme to support inter-modality. The revised Union guidelines for the development of the trans-European transport network[27] foresee clear climate change mitigation criteria in the programming of EU funding for new infrastructure. These policies are expected to result in a slow reversal of the trend that led to an increasing share of road transport. The Transport White Paper has further foreseen a number of actions[28] that will influence modal shares, notably through the development of multimodal transport. While options in the present Impact Assessment may also have indirect modal shift effects, the primary purpose of an HDV CO2 emissions strategy will not be addressing modal shift.

25. (c) Fuel carbon content. The fuel carbon content is another factor influencing HDV CO2 emissions. Diesel fuel remains the main fuel used in road transport, with a share estimated[29] around 64%, a proportion that is even significantly higher in the case of HDVs. Low carbon fuels (mainly bioethanol, biodiesel, LPG and CNG) have a limited penetration of some 6% altogether (2010) in road transport: EU existing legislation[30] favours the use of renewable energy in transport and has set quantitative targets to this effect that are currently being reviewed[31]. The recent "Clean Power for Transport" Commission initiative and the revised TEN-T guidelines, supported by the Connecting Europe Facility, further support the development of alternative fuel infrastructure[32],[33],[34]. In 2011 the Commission proposed[35] a revision of the "Energy Taxation Directive"[36] that would restructure the current energy tax system. The proposed revision is: (i) to rebalance the charge between different fuels, including renewable energies, in an objective manner (based on energy content and CO2 emissions); and (ii) provides a framework for CO2 taxation in the internal market, putting a price on CO2 emissions which are not covered in the Emissions Trading Scheme.

26. (d) Vehicle performance. One specific challenge lies with the fact that, according to data from industry, individual new HDV fuel consumption and CO2 emissions performance, after a steady improvement until the mid-1990s, stabilised and did not materially improve further in the last decade. This may be due to a number of reasons: the need for new models to comply with increasingly stringent exhaust gas emission standards that trigger energy efficiency losses (see section 3.5 on trade-offs below), but also market barriers to the penetration of innovation due the business model of the HDV transport sector (see section 2.5 below). Thus, in spite of fuel representing a significant share of HDV transport operating costs (20 to 30%), this did not translate in recent years into reduced fuel consumption and CO2 emissions. This remains an area with considerable scope for further action. Given the slow rate of renewal of the HDV fleet (with an average lifetime superior to 11 years), actions to improve new vehicle fuel consumption and emissions will inevitably have delayed impacts on the whole HDV fleet emissions. A number of EU policies already support improved vehicle energy efficiency, in particular: - EU R&D programmes geared at improving HDV fuel efficiency and reducing CO2 emissions. Under the 7th Framework Programme improving HDV fuel efficiency and reducing CO2 emissions was included in the "Green Car Initiative". Support to clean and efficient vehicles is expected to figure in the proposed "Horizon 2020 - Framework Programme for Research and Innovation"[37]. - Directive 2009/33/EC[38] on the promotion of clean and efficient road transport vehicles requires public administrations and public undertakings purchasing road transport vehicles to take into consideration operational lifetime energy and environmental impacts. - The type approval legislation[39] on weights and dimensions recently introduced an allowance (50 cm) for aerodynamic devices fixed at the rear of new trucks/trailers. In line with this, the Commission has recently proposed[40] a revision of Directive 96/53/EC on weights and dimensions of vehicles in international traffic that goes further by proposing a new set of allowances that should support solutions to improve the aerodynamics of HDV.

27. (e) Operation of the HDV fleet. A number of factors in the operation of the HDV fleet can influence fuel consumption and CO2 emissions: the maintenance of vehicles, driver performance that can be improved with training, capacity utilisation that relies a series of factors that can be micro-economic (quality of management, use of IT tools) but also regulatory with constraints put on HDV transport by cabotage limitations as foreseen under Regulation 1072/2009/EC. Action has already been taken to address a number of these factors and will need to be continued: - Improved logistics and fleet management. The recent Directive 2010/40/EU on the deployment of Intelligent Transport Systems (ITS) will contribute to accelerating the development and deployment of ITS in the field of road transport and for interfaces with other modes of transport[41]. - While not including carbon pricing, EU road user charging legislation contributes to improving transport efficiency and lowering fuel consumption and CO2 emissions. The new European framework law[42] approved in 2011 (Directive 2011/76/EU which is a revision of the Eurovignette Directive of 1999) aims at reducing pollution from road freight transport and making traffic flow smoother by levying tolls. The revised Eurovignette Directive will have to be transposed by October 2013 into national legislation and start thereof producing its effects.

2.3. Expected trends under no policy change assumptions suggest a stabilisation of CO2 emissions

Baseline scenario assumptions

28. Under the business-as-usual or baseline scenario of the Commission PRIMES-TREMOVE model (hereunder referred to as "baseline"), finalised early 2012, based on no policy change assumptions, the EU population is expected to slowly grow until 2030, and remain broadly stable between 2030 and 2050. GDP growth, after a post crisis resumption, is expected to slowly decrease from some 2.2% in the present decade down to 1.45% in 2040-2050, in line with the 2009 Ageing Report assumptions. Energy import price assumptions, based on the world energy PROMETHEUS model, anticipate regular increases of oil prices from USD 85.2 per barrel oil equivalent (boe) in 2010 to USD 127.6 / boe in 2050 (in 2010 prices).

29. HDV fuel efficiency is assumed to improve by close to 1% annually over the period 2015-2030: this is a reversal versus latest fuel efficiency trends that have been influenced by the regulatory introduction of several generations of new 'Euro' exhaust gas pollutant standards, leading to some fuel efficiency losses (see below section 3.5 on trade-offs) and an overall standstill of HDV fuel consumption performance in the recent years. In the assumed absence of new and more stringent exhaust gas pollutant standards (the baseline scenario is prepared on a no-policy change basis) a resumption of regular vehicle fuel efficiency improvements appears realistic, even without policy actions to curb fuel consumption and CO2 emissions.

30. As the Commission PRIMES-TREMOVE model is a modelling tool that is widely used by Commission services in policy planning and impact assessment exercises, with details publicly available (see links in annex 4), the present Impact Assessment will not present the detailed model's characteristics.

31. Existing policies have been embedded in the baseline scenario. As foreseen in the Transport White Paper, a number of policy reviews and new initiatives shall reinforce the current transport policy framework but have not been quantified in the baseline as their impacts are currently being assessed and cannot be pre-empted: (i) the Transport White Paper also identifies the "elimination of the remaining restrictions on cabotage" as a means of making road transport more efficient and more competitive, including by increasing loading factors of vehicles; (ii) A review of road user charging legislation aims to promote a more systematic use of distance related road charging reflecting infrastructure and external costs based on the polluter-pays and user-pays principles; (iii) an E-freight initiative; (iv) A carbon foot-printing initiative is under preparation to support improved transparency and end-user information on the CO2 impact of freight and passenger transport; - (v) A recast of the driving licence directive in 2012 included eco-driving requirements for truck drivers' examinations and further efforts are planned to implement these provisions; and (vi) The Transport White Paper also announced a strategy for near "zero-emission urban logistics" providing guidelines to better monitor and manage urban freight flows. In December 2013 the Commission put forward specific recommendations for coordinated action between all levels of government and between the public and the private sector in urban logistics area, urban access regulation area, deployment of intelligent transport system (ITS) solutions and urban road safety area.

32. While the primary objectives of these actions are varied (see more detailed account of these legislative reviews or initiatives under Annex 3) they shall directly or indirectly also contribute addressing climate change objectives[43].

Baseline scenario main results

Figure 1 : Energy use (*) of heavy duty vehicles in baseline scenario

33. Total transport activity is projected to continue to grow in the next 40 years. Even though some decreases were observed recently as a consequence of the economic crisis, the recovery is reflected by transport activity returning to its long-term positive trends. However a certain degree of decoupling can be observed in the baseline model results vs. GDP trends, with road transport growing at slower rates. This is in line with recent trends observed in some Member States[44]. In term of modes, notwithstanding the EU policy to promote less carbon intensive modes such as rail transport, road transport is overall expected to maintain its dominant role in both passenger and freight transport within the EU, with a rather moderate shift of relative percentage shares from road to rail in the case of freight and a more pronounced one from road to air as regards passenger transport (see annex 4 – Table 5).

Figure 2 : HDV CO2 emissions (*) in baseline scenario

Source: European Commission. (*) tailpipe = "tank-to-wheel" energy use and emissions (i.e. excluding upstream "well-to-tank" emissions)

34. As regards HDVs, three factors are anticipated to moderate the modelled accounted growth of CO2 emissions that has been observed in the past: - the above mentioned decoupling between road transport activity rates and GDP; - HDV efficiency improvements; - and increased use of bio-fuels[45] with the full implementation of Directives 2009/28/EC[46] which foresees that the share of energy from renewable sources in the transport sector must amount to at least 10 % of final energy consumption in the sector by 2020. This model-based analysis was however carried out before the recent review[47] in October 2012 by the Commission of the EU bio-fuels policy that led to a proposed limitation to 5% for food-based bio-fuels. As a result, taking into account the latter an increase in CO2 emissions by few percentage points versus the modelling results may be expected.

35. As a result: - the use of energy by HDV transport is expected to grow only marginally in view of HDV efficiency improvements over the period 2010-2030 (Figure 1); - and CO2 emissions would remain broadly constant over the programming period assuming an increased share of bio-fuels in the EU, also as a result of a full implementation of Directives 2009/28/EC and 2009/30/EC (Figure 2).

36. While this reversal of previous growth trends may contribute to curbing HDV CO2 emissions, this baseline scenario should be seen against the desired contribution of transport to reducing EU CO2 emissions. The 2011 Transport White Paper objective set an overall reduction of EU transport emissions of 60% by 2050 versus 1990 levels. As regards specific modes including road and HDVs in particular no quantitative policy objective was set. While detailed official historical statistics of CO2 emissions from HDVs within the road transport sector are not available, estimates suggest that between 1990 and 2010 the CO2 emissions of heavy duty vehicles increased by around 36%. Against this background, one can roughly estimate CO2 emission baseline levels with respect to 1990: in both, 2030 and 2050, at around +35% (tailpipe emissions, i.e. "tank-to-wheel") of their 1990 level.

37. This implies that under the baseline –no policy change- scenario HDV transport overall would not contribute to curbing transport CO2 emissions[48] and that its CO2 emissions would remain significantly above 1990 emission levels. The main conclusion of this modelling exercise is that the baseline scenario cannot be considered sustainable in view of EU policies to curb GHG emissions, and of the Transport White Paper's sector-specific objectives.

38. Sensitivity analysis conducted on the Primes-Tremove baseline (see annex 4), while confirming that long term simulation results are sensitive to modelling assumptions, does not put into question this above core conclusion.

Opportunity losses in case action is not taken to curb EU HDV CO2 emissions

39. The EU automotive industry currently has a leading position on the HDV market. The major European manufacturers account for over 40% of total global production[49]. While the EU-based production of HDVs represents a much lower share of world production (some 12%-14% depending on the year), the worldwide signalling role of EU standards is considerable. This was demonstrated in the case of EU exhaust gas emissions and PM standards that have been adopted by numerous large emerging economies, notably China, India, Russia, and Indonesia.

40. European manufacturers have an interest in remaining in a leading position as regards HDV CO2 emissions measurement, and possibly thereafter standards, to increase market transparency and to lead in terms of energy efficiency. They have therefore engaged in an ambitious co-operative exercise with the Commission on the development of a simulation tool, VECTO, to determine HDV emissions (see annex 7). If standards were eventually to be introduced, manufacturers would need to plan R&D for the next generations of vehicles complying with new requirements. Should such standards have a similar world-wide impact, as in the case of exhaust gases and PM, European manufacturers could benefit from considerable economies of scale and first mover advantage.

41. Without EU action, a number of opportunities for curbing HDV CO2 emissions would be wasted, and the current leadership of the EU automotive industry in the HDV market could be affected. While EU initiatives have already been taken or set out in a number of areas such as vehicle design, management of transport operations, the internalisation of external costs, fuels and purchase decisions[50], a comprehensive EU strategy to curb HDV CO2 emissions is needed.

2.4. The scope for HDV improved fuel efficiency and reduced CO2 emissions

HDV technical improvements leading to lower fuel consumption and CO2 emissions

42. Two recent studies have provided useful insight to assess the scope for curbing HDV CO2 emissions in Europe. The AEA-Ricardo report assessed possible future emissions under three scenarios: - a "business-as-usual" scenario, to a large extent based on the 2010 TREMOVE model baseline (with no policy change), with however an important deviation. While the 2010 Commission TREMOVE baseline assumes a "natural" rate of new HDVs' fuel efficiency improvement of 1% per year, AEA-Ricardo's "business-as-usual" scenario, in view of recent developments, reduced this annual improvement to a lower value of around 0.5%; - a "cost effective" scenario with technology payback of about two years; - a challenging scenario that assumes a higher degree of incentivisation to adopt new fuel efficient technologies.

43. Under the "business-as-usual" scenario, it was assumed that emissions would continue increasing from 2010 to 2030 (by 15%) in spite of some progress in vehicle efficiency, mainly due to increased traffic and HDV fleet. Against this "business-as-usual" scenario the AEA-Ricardo report found that emissions could potentially be reduced by 6.2% in the "cost-effective" scenario and 14.5% under the "challenging" scenario (i.e. bringing them only slightly below 2010 levels). This study however did not examine a number of means to cut emissions such as fossil fuel savings, weights and dimensions adjustments, and the rolling out of ITS technologies.

44. The 2011 TIAX study reviewed the findings of the AEA-Ricardo study along the eight vehicle categories HDVs of the AEA-Ricardo study. As the latter, it assessed a large spectrum of possible technological improvements, with: - fuel consumption and CO2 emissions benefits associated to each technology; - and the incremental investment costs required case-by-case. Technical improvements in a number of areas can contribute to improved fuel consumption and reduced CO2 emissions: aerodynamics; light-weighting; tyres and wheels; transmission and driveline; engine; hybridisation; and management.

Applied to new vehicles, new state-of-the-art technologies would by 2030 allow for substantial benefits in percentage terms compared to the estimated performance of "baseline" vehicles defined as those due to be commercialised in the EU as of 2014 and meeting Euro VI standards. These benefits would broadly range between 30% and 50% for new vehicles, depending on the vehicle category (See Figure 1 in annex 11). The benefits of their roll-out for the whole fleet would be slower to materialise but still substantial, between 25% and 28% by 2030 (see Table 1 in annex 11, TIAX assessed reductions were broadly in line with the ones assessed by AEA-Ricardo).

45. The above assessment concludes that, in spite of an expected HDV fleet growth in the EU of close to 30% over the period 2010-2030, emission levels could be substantially reduced by 2030, with CO2 emissions cut by 22% (versus business-as-usual levels, as defined in the Lot1 report) if only technologies with a payback period of a maximum of 3 years are introduced in the HDV fleet[51]. Without this 3-year payback constraint fuel consumption reduction and emission cuts would potentially be larger, estimated at some 28% below business-as-usual levels.

Improved fleet operation leading to reduced HDV fuel consumption and CO2 emission

46. Technological improvements are not the only ones that can lead to reduced HDV fuel consumption and CO2 emissions. Other factors to be taken into consideration mainly relate to the operation of HDVs such as fleet maintenance, driving performance, capacity utilisation/optimisation. According to the International Road Transport Union (IRU) HDV fuel consumption can be reduced by 30% by 2030 due to improved HDV performance (10%), fleet management with the support of ITS tools (10%) and drivers' improved training and performance management (10%). While the first of these figures does not match with more ambitious HDV abatement potential assessed by AEA-Ricardo and TIAX, these IRU objectives tend to confirm a specific potential that lies with HDV operation. Such factors would complement EU initiatives in support of more energy efficient fleet operation that have been embedded in the baseline scenario.

Cost benefit analysis

47. Based on cost estimates from TIAX[52], a cost benefit analysis was carried out by CE Delft to examine the economic sustainability of technical improvements that can improve HDV performance. CE Delft produced two types of marginal abatement cost curves, from an end-user perspective (economic sustainability of technical improvements leading to fuel savings and reduced emissions) and from a societal perspective (eliminating from the latter tax distributional effects that play an important role given the high degree of taxation of fuel). Results are summarised in table 2 in Annex 11, with the detailed cost curves for each category also attached in Annex 11.

48. These results confirm a considerable discrepancy of potential for CO2 abatement according to vehicle categories: according to this analysis urban and municipal delivery, as well as construction vehicles, and also buses, which have the common feature of low-speed drive cycles with a high proportion of "stops and starts" can be equipped in a cost effective way with hybrid technologies. Long haul vehicles that have the highest annual mileage could as well, even though hybrid would at the present stage not be cost effective for them, benefit from a combination of technologies to improve aerodynamic and rolling resistance, as well as the best state-of-art diesel engine improvements. Sensitivity tests carried out suggest that these results are relatively robust: due to the shape of the cost curves breakeven levels do not vary materially with different assumptions e.g. on the rate of return or even oil price developments. Conversely results would change significantly if CE Delft assumptions taken from the TIAX report on the magnitude of emission abatements and related costs change significantly.

49. One should further take note of the recent experience with cars, for which cost curves were estimated prior to the introduction of the EU Regulation on CO2 emission limits in 2009, and recently (2012) reviewed: initial cost estimates turned out in the latter review to have been over-estimated, with a number of costs falling sharply once products and technologies mature with industrial mass series and increased competition[53]. This suggests significantly higher cost effective emission abatements.

50. Due to the shape of cost curves, benefits estimated from an "end-user" perspective or societal one are broadly similar: only very few technical upgrades would not be worth investing in from a societal perspective while they are profitable from an end-user (the fleet operators) perspective. This leads to the important conclusion that the incentive structure for end-users is broadly also the one to take into consideration from a societal perspective.

Scope for further policy action

51. Comments made by OEMs suggest that the above abatement values may have been overestimated, notably due to several factors: the baseline to take into consideration (Euro VI HDVs) may actually perform better than assumed in these analysis; combining several technology packages is complex and may not result in abatement benefits simply by adding them up; and as regards conventional diesel engines, the scope for reduced emissions would be lower than assumed as there is a performance limit that cannot be surpassed.

52. The exact amount of emission reductions that could be targeted for HDVs cannot be set at this stage : - the exact values of HDV fuel consumption and CO2 emissions remain to be assessed in a way that is agreed with stakeholders, and the on-going project of establishing the VECTO simulation tool is expected to address this gap; - a further review would be needed screening the degree of maturity of techniques and, for those technical upgrades that are still under development, the timeline necessary for rolling them over on the market. Once a track record of actual emissions is available for new HDVs registered on the EU market (as foreseen under option 1.ii), the potential for emission abatements should be re-assessed and revised cost-curves re-established, with the benefit of knowledge gained by the time on latest technology developments and the evolution of production costs.

53. At this stage, the above studies and analysis lead to the conclusion that there exists a considerable potential for curbing new HDV CO2 emissions with technical upgrades on vehicles, which can even be further topped up with improved driving and fleet maintenance and management. While more shall be needed over the long term, the magnitude of estimated emission abatements by 2030 appears broadly consistent with the Transport White Paper quantitative objectives set for 2050. This points to existing market barriers to the uptake of a number of promising technologies.

2.5. Market barriers to cost effective technology uptake

54. Possible reasons for the lack of uptake by HDV freight transport of all state-of-the-art cost effective technologies are complex and linked to the interaction of different business models of the main actors, OEMs and HDV fleet operators, but also of other actors such as component manufacturers, body and trailer manufacturers, shippers and financing companies (banks, leasing companies). The AEA-Ricardo report already pointed to a three-year amortisation of investment costs by transport operators, which is significantly below the average lifetime of vehicles (around 11 years for trucks, 15 years for buses) and limits the uptake of innovation: this may be due to the difficulty of long-term planning in micro-enterprises and rapid renewal of the large enterprises' fleets.

55. Market barriers have been investigated in a recent study by CE Delft[54]. The study's findings[55] suggest that : - European companies are aware of innovations that can deliver significant fuel savings and CO2 emissions reductions (table 2 below); however few respondents to CE Delft's enquiry believed that these technologies were cost effective; - OEMs, while offering fuel saving technologies as options, do not in many cases offer them as standard on basic vehicles (table 1); - only a minority of manufacturers offer systematic training which could reduce fuel consumption and emissions (table 1); - European HDV operators do not appear as pro-active in improving the technical fuel-efficiency of their new trucks as they are in improving the operational fuel-efficiency of their existing fleet through various measures such as tyre control, axle alignment or effective fuel consumption monitoring. For instance, full skirts on the side of the body/trailer, easy to install at low cost, are not purchased in more than 70% of cases; and tyre pressure monitoring systems (TPMS), although easily accessible on the market at low cost, are not being installed in a majority of cases;

Table 1. The offer of fuel saving technologies by OEMs and body builders.

Table 2. Overview of transport companies’ awareness and implementation of different fuel-saving technologies

- in spite of fuel efficiency being ranked first among purchase criteria by transport companies when acquiring a new truck, the lack of uptake of fuel saving technologies is linked to the truck purchase process where hardly any transport company uses available data to evaluate technologies or compare trucks. This is made more difficult by the absence of a commonly agreed methodology to measure fuel consumption; - financial constraints may play an important role as well, with a large share of truck purchasing companies having recourse to borrowing and leasing. Lending institutions were reported as not taking fuel efficiency into account when providing loans for the purchase of new trucks, a situation that implies split incentives; - split incentives exist whenever decision making on HDV purchase is separated from the benefits of fuel-saving technologies. One such split-incentive example is when shippers purchase and make investment decisions regarding fuel-saving technologies on trailers (e.g., tyre and aerodynamic features), but transport companies that own the tractors and operate the trailers would receive the potential benefits. Another split-incentive example is when transport companies operate under an open book contract, under which they can bill the shipper for the actual fuel consumption. However, few companies operate exclusively with open book contracts.

56. The most obvious findings of this study will have to be addressed in the policy responses, with a clear priority given to the most important market barriers, notably the inability of HDV transport operators to precisely assess fuel saving and CO2 reduction effects of various technical upgrades already offered – in spite of being well aware of the existence these upgrades - and to compare the various HDV manufacturers' offers in this respect, most likely due to the absence of a commonly agreed methodology to measure fuel consumption and emissions.

57. Questions related to market barriers will be further investigated, notably bearing in mind the lack of response of SMEs and micro-enterprises which represent the largest share of the transport sector (see Annex 6, table 10) to the CE Delft enquiry that led to these results.

2.6. Voluntary unilateral commitments may help but are insufficient to significantly curb emissions

58. Transport operators, and, more broadly, actors in the logistics chain can influence fuel consumption by assessing the footprint of transport and taking action to reduce it by various means such as driver training, quality control of vehicles, fleet use and vehicle load optimisation with improved IT management tools. A number of schemes have been established at a national level or Europe-wide, such as for instance the Green Freight Europe[56] scheme. These initiatives can contribute to reducing transport fuel consumption further, on top of savings possible with vehicle technology. The International Transport Union has set objectives of reducing significantly fuel consumption and CO2 emissions by 2030 by some 20% with such means. The Commission announced support in the Transport White Paper to transport foot-printing (see annex 3). Such reductions, even though appreciable, remain far from the ambitious 2050 targets set by the Transport White Paper and, even if achieved, would have to be topped up by other means.

59. HDV manufacturers have also made some announcements and notably pledged in 2008[57] to reduce new truck CO2 emissions by 20% by 2020. This undertaking was not monitored in the absence of a commonly agreed measurement methodology. It signals efforts to be made over the medium term, without binding obligation. Past similar undertakings from car manufacturers have failed in reaching significant car emission abatements. Basing an EU HDV C02 emission strategy on such declarations would be hazardous.

2.7. International experience in measuring HDV emissions and setting standards

60. Japan introduced in 2007 a fuel consumption rule for HDVs based on best vehicle performance. The US introduced legislation on HDV CO2 emissions in 2011, followed by Canada. China also recently made first steps in this direction (see annex 9). The US (and Canadian) target engine and chassis-cabin CO2 emissions, implemented via simplified performance values and manufacturers' declarations. The US Environment Protection Agency intends more ambitious legislation, focussing on the measurement of whole vehicle emissions, which would converge with the approach followed by the Commission’s proposed VECTO tool.

2.8. Who is affected and how?

61. Major stakeholder groups affected include the general population, freight and passenger transport operators, logistics companies, HDV manufacturers, automotive component suppliers and fuel suppliers.

62. The EU population is increasingly affected by climate change through the increased climate variability and more frequent extreme weather events, and their related impacts. Reduced CO2 emissions from HDV transport would thus benefit the overall population.

63. Buyers of HDVs, be it companies for their own use, logistics operators or transport operators of freight and passengers services are affected as CO2 emissions are strictly proportional to fuel consumption that represents a high share of their operating costs.

64. Vehicle manufacturers would be directly affected by the obligation to comply with a new legislative framework to monitor or reduce CO2 emissions.

65. Component suppliers would also be affected by increasing demand for advanced fuel saving technologies and are expected to benefit from this higher demand.

66. Fuel suppliers would also be affected by policies to lower HDV CO2 emissions as they are likely to see lower demand for transport fuels in the future as a result of reduced HDV fuel consumption and CO2 emissions.

67. All end-users of freight transport, i.e. industry and trade sectors in the economy, and eventually consumers, would benefit from lower fuel consumption in transport provided overall transport costs, including the cost of HDVs, does not increase more than the related decrease in (fuel) operating costs. In the same way, all passenger clients from bus and coach transport services would benefit from lower bus and coach fuel consumption provided the overall operating cost of passenger transport, including amortisation of HDV equipment cost, is reduced.

68. Finally Member States, in their capacity of tax authorities, would be affected by lower fuel consumption as their excise and VAT tax revenues on fuel would decrease. Conversely they would benefit from VAT collected on higher value HDVs.

2.9. Does the Union have the right to act?

69. Legal basis

The EU has already acted in this area when it adopted Regulations (EC) 443/2009 and (EU) 510/2011. These Regulations were based upon the Environment chapter of the Treaty and in particular Article 175 (i.e. 192 TFEU). In the same way, the EU treaty provides the legal basis for acting on HDV fuel consumption and CO2 emissions. 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 as well as distortion of competition among transport operators based in different Member States.

70. Subsidiarity: test of necessity and EU added value

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. The absence of action at the European level could result in a series of national schemes to reduce CO2 emissions of HDVs. This would be of particular disadvantage to vehicle manufacturers and component suppliers as, while the HDV market is currently Europe-wide, differing ambition levels and design parameters would require a wide range of technology options and vehicle configurations, diminishing the economies of scale. Un-harmonised action across the EU would increase the cost of compliance by manufacturers that may hold differing shares of the vehicle market in different Member States and would therefore be differently impacted by national legislation. Such market fragmentation would also affect consumers who would not benefit from lower costs and economies of scale that an EU wide policy would deliver.

71. Proportionality analysis

According to EU climate and energy legislation[58], all sectors of the EU economy should contribute to achieving GHG emission reductions, including HDV road transport which is currently not subject to legislation regulating its GHG emissions. Particular attention is being further given in the present Impact Assessment to proportionality aspects of each possible means of policy intervention, that are assessed for each option when examining compliance with the policy objective of efficiency (see below section 3.2 and relevant sections of the options' assessment).

3. Objectives

3.1. General objectives

72. The Treaty foresees that environmental protection must be built into all policy areas and action to reduce climate change is specifically foreseen within the Treaty as an environmental objective. The transport sector is the second largest GHG emitting sector in the EU. In view of these factors, further action is needed and since HDVs account for a significant share of transport emissions and unlike cars and vans are not yet subject to regulation. The general objective of this initiative is to contribute to meeting climate goals by reducing CO2 emissions in the HDV sector, in line with the objectives of the Roadmap and the Transport White Paper.

3.2. Policy objectives

73. Specific objectives of the various policy options to be assessed include:

74. Objective 1 "effectiveness" in curbing emissions : effectively contributing to reducing HDV fuel consumption and CO2 emissions in the EU in a significant way in view of the overall objective to reduce transport GHG emissions by 60% in 2050 (compared to their 1990 level); and contributing to reducing economy-wide CO2 emissions by a certain date, the latter being relevant in assessing instruments which have a scope beyond the HDV sector, such as the ETS; - the relevant quantitative indicators for this policy objective will be (i) HDV fuel consumption and (ii) CO2 emissions; - the timeline for this objective is a medium- and long-term one as a number of preliminary short-term steps are required to address the identified knowledge gap.

75. Objective 2 "efficiency": in a cost effective and proportionate way for stakeholders and society contributing to reducing EU HDV fuel consumption and CO2 emissions in the EU; - the relevant quantitative indicators for this policy objective will be (i) administrative costs for the EU and Member States' administrations; (ii) costs and benefits for the HDV manufacturing industry; and (iii) costs and benefits for HDV fleet operators; - the timeline for this objective is a short-, medium- and long-term one, that should be assessed ex-ante before issuing legislation and evaluated ex-post following the introduction of relevant legislation.

76. Objective 3 "predictability": providing EU industry, transport operators, public sector and consumers with a clear and coherent vision on the policy framework and likely regulatory developments as regards HDV CO2 emissions, thereby facilitating decision making and investment planning; - indicators: this objective can only be monitored by thorough contact with the relevant stakeholders; - the timeline for this objective is permanent : a strategy can upfront contribute to a more predictable regulatory environment, that will progressively be clarified as action is taken.

3.3. Operational objectives

77. The above objectives can only be assessed through a precise understanding of the GHG emissions from the HDV transport sector. However, these emissions are not currently monitored. Therefore, introducing requirements for monitoring, reporting and verification of GHG emissions from the HDV freight and passenger transport sector is an operational objective that must be achieved by the policy options under consideration. Operational objectives will thus consist in : - monitoring, reporting and verifying EU-wide CO2 emissions of new HDVs; - for the longer-term, beyond 2020, setting a quantitative constraint on CO2 emissions from HDV transport to achieve emission reductions. The latter operational objective is a long-term one as it can only be achieved with the support of long term policy instruments that are being considered in the present Impact Assessment.

3.4. Consistency with horizontal objectives of the European Union

78. The above objectives are consistent with the low carbon economy objectives of the Council of the European Union and the European Parliament[59] and more particularly objectives pursued under : - the European Strategy on Clean and Efficient Vehicles (COM(2010)186); - the Roadmap for Moving to a Competitive Low Carbon Economy (COM(2011)112); - the White Paper on a Roadmap to a Single European Transport Area (COM(2011)144); - the Energy Roadmap 2050 (COM(2011)885)[60]; - and, overall, the EU 2020 Strategy on a Smart, Sustainable and Inclusive Growth[61].

3.5. Trade-offs and synergies between sustainability goals

79. Synergies. Synergies between the objective of reducing HDV CO2 emissions and the objectives of a sustainable energy and transport policy pursued under the above mentioned policy initiatives are strong: reducing HDV CO2 emissions will at the same time reduce energy consumption, contribute to reduce energy dependency, curb the environment footprint of road transport and make it more sustainable over the long term. It will also shift added value to the manufacturing sector and contribute to growth in the EU. It will contribute to the establishment a more sustainable growth model in the EU.

80. Trade-offs. Conversely there are specific trade-offs between on the one hand the objective of reducing HDV CO2 emissions and, on the other hand, environmental and public health objectives pursued with the reduction of exhaust gas emissions and particulate matter under type approval regulations Euro V and more recently Euro VI (coming into force on 1.1.2014)[62]. The introduction of such standards in the 1990s and their regular revision over the recent years led to losses in fuel efficiency and CO2 emissions performance, in such a way that it interrupted the previous trend of improved vehicle fuel and CO2 performance, which as a result has broadly stagnated over the last 15 years. The report by AEA and Ricardo Consultants[63] estimated that the foreseen upgrade from Euro V to Euro VI emission standards as of 2014 would – if not compensated by additional technical improvements as this has been regularly the case when previous standards were adopted- result in an increase of fuel consumption and CO2 emission by some 3%.

4. Policy options

Baseline: no policy change, implement already existing or already proposed policy actions that will contribute curbing CO2 emissions

81. The main baseline assumptions and features have been described in section 2.3 above (including embedded policies that were identified in section 2.2) and in more detail in Annex 4 on the modelling framework.

Methodology

82. The main methodological aspects of the present assessment are presented in annex 12.

Discarded option: additional tax on fuel for HDV Transport.

83. The current Commission proposal on a revised Energy Taxation Directive, which, as indicated above, is part of the baseline scenario, is the current reference. It foresees the inclusion of carbon pricing in the fuel excise duties. As the proposal is still under discussion, an alternative involving additional taxes for specific sectors seems unlikely in the short term.

4.1. Option 1 (short-term): Improve knowledge, comparability and accountability of HDV CO2 emissions

(i) Determination of HDV engine-only fuel consumption and CO2 emissions

84. From 1 January 2014 all new HDVs will be subject to the measurement of engine CO2 emissions under the Euro VI Regulation. Those emission values would be relevant for identifying the engine performance in terms of fuel consumption and CO2 emissions but would not be indicative of the performance of the complete vehicle. The data could hence be certified and reported. This option would require (i) an adaptation (through comitology) of the relevant type approval legislation to include information on CO2 values for certification, and (ii) the adoption of a Decision (ordinary legislative procedure) on the reporting of engine CO2 emissions. The authorities in charge of implementing this option would be registration and type approval authorities in Member States.

(ii) Determination of HDV full vehicle fuel consumption and CO2 emissions

85. The absence of baseline on actual HDV CO2 emissions is an impediment to further possible policy actions: HDV fuel consumption and CO2 emissions are currently not recorded. For this reason the Commission is establishing a simulation tool ("VECTO", see annex 7) customised to measuring HDV fuel consumption and CO2 emissions. A test phase starting in autumn 2012 is expected to be completed in May 2014.

86. Upon the completion of this simulation tool, this option consists in the certification of HDV (whole vehicle) fuel consumption and CO2 emissions as calculated by the simulation tool, with the necessary proofs and checks, and the reporting of those emissions from new vehicles entering into service. Certification is expected to increase end-user information and awareness, facilitate comparability and stimulate competition among manufacturers in meeting best state-of-the-art performance standards. This action requires (i) an adaptation (through comitology) of the relevant type approval legislation to include the methodology for determining whole vehicle CO2 emissions for the purposes of certification of new vehicles by Member States, and (ii) the adoption of a new Decision (ordinary legislative procedure) on the reporting of HDV CO2 emissions. The authorities in charge of implementing this option would be registration and type approval authorities in Member States.

87. Actions foreseen under option 1 are primarily meant to address vehicle performance (driver d/ identified in section 2.2) and the "knowledge" gap market barrier that has been identified. The main addressees of these actions are vehicle manufacturers.

4.2. Option 2 (medium- to long-term): Include Road Transport CO2 emissions in the EU Emissions Trading Scheme

88. The EU ETS is a cap-and-trade scheme established in 2005 for a range of industrial activities. Under such a scheme, emissions are capped. To meet this cap, economic actors with favourable cost reduction options are financially incentivised to implement them, while economic actors with unfavourable cost reduction options for their CO2 emissions prefer to buy emissions allowances on the market, thus becoming net buyers on the market. The EU ETS was recently (as of 1.1.2012) extended to cover aviation CO2 emissions. It could also conceivably be extended to new sectors. This option requires an amendment of Directive 2003/87/EC establishing the ETS.

89. It should be noted that the CO2 component of energy taxation under the proposed Energy Taxation Directive would not be levied for installations under EU ETS. Including road transport in the EU ETS would therefore be an alternative to taxing the CO2 emissions under the Energy Taxation Directive. It should be pointed out, that the inclusion of the transport sector in the EU ETS is an alternative to the proposal for the revision of the Energy Taxation Directive which is currently under discussion and which extends CO2 taxation to sectors not covered by the EU ETS.

90. The Impact Assessment carried out for the revision of the ETS directive[64] considered different methods to include road transport in the EU ETS. Under a 'downstream' approach, individual owners of vehicles would be liable for compliance. Under an 'upstream' approach fuel suppliers would be defined as participants under the EU ETS. The above mentioned Impact Assessment concluded that it was too early to take a decision on these options. It seemed likely, however, that the upstream approach would be administratively less complex and have considerably lower transaction costs, as including some 1 million HDV transport operators EU-wide, most of which are micro-enterprises (see Annex 6, table 10) with a fleet of less than 10 vehicles, would be a real challenge. Under an upstream approach it would be challenging to specifically include the HDV sector, rather than the road transport sector as a whole, as fuel suppliers cannot at present monitor to whom the fuel is sold: targeting HDV consumption only, without other vehicles being included, would raise compliance issues with considerable risks of fraud.

91. In the recent Report on the state of the carbon market in 2012 [COM(2012)652 final], the expansion of the scope of ETS to other sectors is one of six (non-exhaustive) structural measures identified by the Commission, which could solve the structural supply-demand imbalance in the carbon market. It is therefore one of several options for ETS under consideration and development, and could impact policy making for HDVs in the longer term.

92. Provisionally, this Impact Assessment will take the upstream inclusion of the entire road transport sector into EU ETS as the option to be considered. As with the other options, the effectiveness, efficiency and predictability of this option will be assessed, however not only from the perspective of the HDV sector itself, but also from an overall climate policy perspective. Considering the links it creates with other sectors, further studies would however be required to fully assess, in a quantitative way, the possible design and modus operandi of this option.

93. Inclusion within the ETS would contribute addressing emission drivers (c) on the carbon content of fuels and indirectly also (e) on the operation of HDV fleets that were identified in section 2.2. The main addressees of this option would be fuel suppliers (directly) and HDV operators (indirectly).

4.3. Option 3 (medium- to long-term): Introduce legislation setting mandatory HDV CO2 emission ceilings

94. Setting CO2 emissions ceilings or fuel consumption targets has been the EU chosen approach on cars and vans. A pre-requisite to such an option is the possibility to measure, certify and report emissions: this implies that Option 1 is a prerequisite to Option 3.

(i) Option 3.i: set performance ceilings on engine-only CO2 emissions of new registered vehicles

95. Following the full entry into force of the Euro VI Regulation in January 2014, HDV engine emissions are being measured[65]. Subject to the prior establishment of a reporting scheme, engine CO2 emission standards would be introduced in the following years. This option requires the adoption of an EU Regulation under ordinary legislative procedure.

(ii) Option 3.ii : set performance ceilings on HDV whole vehicle CO2 emissions of new registered vehicles

96. To reap the full benefits of available technologies a regulatory approach establishing emission standards/ceilings could, in the same way as for cars and vans, accelerate the roll out of more energy efficient HDVs on the market, that would emit less CO2. This option requires the adoption of an EU Regulation under ordinary legislative procedure. Prior to this, the simulation tool under development will have to become fully operational, and option 1.ii be implemented.

97. Option 3 addresses the uptake of technological innovation to increase vehicle performance (driver (d) of HDV emissions identified in section 2.2). It is expected to provide a strong response to existing market barriers. First, in complement with option 1, by further increasing awareness and enhancing transparency and comparability among new models, thereby addressing the identified knowledge gap. And second, by setting emission limits that become industry performance targets, addressing core residual rigidities in the uptake technological change leading to energy savings. The main addressees of this action are vehicle manufacturers.

5. Impact analysis of policy options

98. The baseline scenario has been assessed (see section 2.3) and considered unsustainable in view of the EU policy objectives to curb emissions in general and more specifically in the transport sector. Other options will be assessed against this baseline.

99. Option 1 can only address short-term transparency and knowledge needs while options 2 and 3 are key medium- and long-term components of a comprehensive strategy. Given long-term policy goals, these must be considered as well. However a full assessment of option 2 is only possible once the current Carbon Market Report consultation of stakeholders, and a series of studies, is completed. Option 3 can only be realised upon the successful implementation of option 1. While an assessment of its potential impacts has been carried out, a full re-assessment of this option is necessary before deciding whether to introduce emission limits.

5.1. Option 1 assessment: Improve knowledge, comparability and accountability of HDV CO2 emissions

Option 1(i) Determination of HDV engine-only fuel consumption and CO2 emissions

100. Following the entry into force in 2014 of the Euro VI Regulation, engine CO2 emission values will be measured and can hence be collected and monitored. This option is limited in scope: engines are only one component of the vehicle, and engine-only emissions recorded with the agreed test cycles under the Euro VI Regulation only partly reflect full vehicle on-road emissions.

101. In terms of effectiveness, this option, while raising awareness of engine performance –provided the necessary methodology[66] can be established for this-, is not expected to directly and materially affect vehicle performance beyond the engine itself. It will thus not capture the bulk of HDV CO2 emissions. It could indirectly play a role in establishing a track-record enabling manufacturers to compare all HDV engines' performance in relation to their respective power, thereby stimulating competition to align production on best performing engines. Increased transparency and competition may translate into a few percentage points fuel efficiency and CO2 savings.

102. In terms of efficiency, this option will have a low marginal (additional) cost. The additional costs involved are: (i) administrative costs related to establishing a methodology and amending the relevant type-approval Regulation; (ii) administrative costs of reporting the measured emissions at national level, and (iii) administrative costs related to the adoption and implementation of an EU reporting legislation.

103. As regards predictability of the regulatory environment affecting stakeholders' decision making, this option is expected to provide guidance, and could be a first step part of a broader package, already signalling the importance of cuts in CO2 emissions to the HDV industry.

104. Economic[67], and social impacts of this option are negligible.

105. Only negligible environmental impacts (related to other exhaust gases and particulate matters regulated under Euro VI) can be expected as fuel consumption would not be materially affected. Even assuming slightly lower fuel consumption (and CO2 emissions), HDV manufacturers may optimize engines in such a way that lower fuel consumption and CO2 emissions may not lead to significant overachievements to existing thresholds in air pollutants (as set under Euro VI), as there is no linear relationship between engine fuel consumption and air pollutant emissions.

106. Provided the necessary methodology is established beforehand, there have been no identified risks associated to the implementation of this option.

Option 1(ii) Determination of HDV whole vehicle fuel consumption and CO2 emissions

107. Contrary to experience in the case of cars and vans, there is no agreed method of recording HDV CO2 emissions: each country having considered an HDV rule thus needs to base itself either on dynamometer measures, simulation tools, real driving condition tests, manufacturers' declarations or default values. Given that real driving condition tests are not an option for all registered vehicles –this would be too cumbersome and costly- methods pursued so far are a combination of the other means.

108. While simulation appears the most promising avenue, there is currently no open public simulation tool able to reliably measure whole vehicle HDV CO2 emissions. OEMs have a number of such tools, that are however calibrated and designed according to their specific needs, and provide non comparable results. The EU VECTO simulation tool under development aims at addressing this gap and providing a reliable measurement of HDV CO2 emissions, that could be made available not only within the EU, but in other countries as well. This would open the possibility of international cooperation and even possibly facilitate regulatory convergence. In order to enhance consumer information and awareness the option considered may also entail a form of labelling.

109. Effectiveness. Effectiveness of this option in curbing HDV fuel consumption and CO2 emissions is expected to be real even though limited: this action would establish a reliable track record of whole HDV emissions, independent from each manufacturer's measurement, providing reliability and transparency to the market as to real vehicle performances. This would be expected to increase awareness among fleet operators on the most cost effective vehicles to operate, and influence decision making in purchasing new HDVs. While a precise quantification of this action's effect over time (this would apply only to new vehicles and only progressively affect the whole HDV fleet) on HDV fuel consumption and emissions in the EU is not possible (there is no reliable methodology for such an assessment), its impact is however not expected to be considerable in curbing HDV CO2 emissions in view of the Transport White Paper's objectives. Emissions may only be reduced by a maximum of a few percentage points.

110. Efficiency. The costs involved would be: administrative costs incurred in preparing and adopting the legislation; VECTO development and operation (costs supported by the Commission); registration and reporting costs for national authorities, as well as monitoring cost of the Commission; and for HDV OEM manufacturers, preparing and submitting HDV technical data for the assessment and registration of HDV CO2 performance. An indicative assessment was carried out (see annex 12), except for the last category (costs for the OEM manufacturers). This assessment suggests that administrative costs : - for Member States' type approval authorities would be limited and possibly comprised between €130.000 and €650.000, under the assumption that OEMs would register vehicles by series with homogeneous characteristics (and not individually); part or the totality of these costs would be charged to OEMs by type approval authorities; - for the Commission, costs are related to preparing the legislation, monitoring[68] developments, and the development and operation of the VECTO tool, and would possibly be comprised between around € 0.7 million annually. A more complete assessment of costs –including for OEMs- will only be carried out at a later stage. Such an assessment would also need to take into consideration the cost of proofs and checks of the certification procedure to be carried out. Overall in view of its expected limited costs this option would meet the efficiency objective.

111. Predictability. While this option would be insufficient to provide strong guidance to stakeholders in decision making and investment decisions, it is a preliminary step to option 3. As such it would contribute establishing a predictable regulatory environment.

112. Economic and social impacts. This option is not expected to trigger material economic impacts, beyond those already listed above. A more transparent HDV market would contribute to an improved level playing field among HDV manufacturers and transport operators. While this option would create a few jobs linked to the preparation / submission of data by manufacturers, and the implementation of the simulation tool and reporting on HDV emissions at national and European levels, no further material social impacts of this option have been identified.

113. Only negligible environmental[69] impacts (related to other exhaust gases and PMs already regulated under Euro VI) can be expected. While the relationship between total non-CO2 pollutant emissions and energy consumption may not be linear since pollutant emissions per kwh may vary, it seems reasonable to assume that pollutant emissions will slightly decrease. Quantitative estimates cannot be provided at this stage.

114. Risks to this option are related to the setting up of the VECTO simulation tool. While the current development of this tool is progressing satisfactorily, success cannot yet be fully guaranteed. A failure to finalise the simulation tool would jeopardize the implementation of this option.

Stakeholders views on option 1

115. The establishment of the VECTO simulation tool to measure HDV CO2 emissions is supported by ACEA, its members, and component manufacturers. ACEA established a technical working group that provided input in the development of the tool, e.g. on the definition of vehicle categories and driving cycles that need to be agreed to measure emissions. In the two stakeholder consultation meetings that took place in February and July 2012, stakeholders generally supported sub-option 1 (ii). One engine manufacturer was however also in favour of sub-option (i) on the measurement of engine-only emissions.

5.2. Option 2 assessment: Include Road Transport CO2 emissions in the EU Emissions Trading Scheme

116. As indicated above (section 4.2), the assumption in the present Impact Assessment is that HDV transport would be integrated into the EU ETS with road transport as a whole. This would take place upstream, with fuel suppliers defined as participating entities within the ETS. Fuel suppliers' related costs –i.e. purchasing emission allowances on the ETS carbon market that are required to meet the ETS policy cap- would be contingent upon the level of the policy cap and the carbon price, and expected to be passed through to HDV operators (and in the same way, to light-duty vehicles' users) in the fuel price.

Effectiveness

117. While an option based on mandatory limits aims to improve the technical CO2 efficiency of new HDV vehicles, this measure takes a broader perspective. It also incentivises operational CO2 improvements in the HDV sector, as well as potential shifts towards low carbon fuels and modes. This measure would therefore be consistent with potential energy system changes such as the move towards alternative fuels (whether it is electricity, gas, second generation biofuels or hydrogen), and could therefore support the Clean Power for Transport Initiative (as described under the baseline). The reason is that a switch to such fuels would require incentives for the use of these fuels consistent with their carbon content. It is to be noted that an electrification of road transport leads to the inclusion of electric vehicles in EU ETS by default.

118. As inclusion in the EU-ETS is a cross-sectoral measure, affecting the distribution of effort between sectors, as well as modal and fuel shift, a full assessment would need to consider this broader perspective. Given the long-term nature of these processes, and the link with other parameters such as fuel prices, overall climate ambition, technological developments and infrastructure requirements, long term scenarios would be required to analyse in detail the expected effects. These issues are beyond the scope of the present analysis.

119. The EU-ETS extension to road transport would be effective in reducing economy-wide CO2 emissions. As the regulator has control over the total number of allowances and as compliance is enforced through Monitoring, Reporting and Verification (MRV) and strict penalties, the effectiveness of meeting the cap on emissions for all sectors covered by the system over a prescribed period of time is largely guaranteed under a cap-and-trade scheme such as the EU ETS, taking into account flexibilities allowed under the system (e.g. banking). This reduction is highly certain and immune to rebound effects. Would a rebound effect occur within one sector, the sector in question would have to buy allowances on the market, thus contributing to reductions elsewhere.

120. The effectiveness of the ETS would be more limited in terms of incentivising the CO2 efficiency of new HDV vehicles, as foreseen under option 3. The reason for this is two-fold: - first as the system allows more flexibility as to in which sectors and by which means emission reductions are to be achieved, other and cheaper options may be available; - secondly, a market based instrument such as the ETS is less well suited to address specific market barriers, such as those described in the problem definition : market barriers may prevent the price signal to have a material effect on technological or operational improvements.

121. Additional non-market instruments, from improving the quality and dissemination of data and knowledge, to standard setting, could therefore still be needed.

122. For the HDV sector, cost abatement curves for technical measures calculated with fuel savings alone (see Annex 10) and fuel savings topped up with a carbon price virtually coincide as long as carbon prices are low. Under such circumstances, including road transport in the ETS (indirectly via fuel suppliers) would provide a limited incentive to invest in technical measures to improve vehicle technologies and would most likely not trigger any sizeable reduced HDV fuel consumption in view of low fuel use price elasticities[70]. Such a development would prevent the HDV sector from fully contributing to the Transport White Paper's objectives, although a shift to lower carbon fuels (such as gas) might still occur.

Efficiency

123. The technical feasibility of the inclusion of road transport in the EU ETS was already considered in the 2008 Impact Assessment accompanying the proposed revision of the ETS Directive 2003/87/EC, which concluded that this would potentially be technically feasible. In the case of upstream integration through participation of fuel suppliers, administrative burdens would probably be limited, as monitoring could be based on the already mandatory monitoring of fuel trades for energy taxation[71]. A full assessment of the modalities under which transport could be included in EU ETS is however beyond the scope of this impact assessment.

124. A market instrument will in principle incentivise all possible abatement options, including yet unknown technical measures, behavioural and operational changes. The wide range of abatement options considered across sectors covered by the ETS should lead to a more efficient outcome. The allocation within ETS sectors of emission abatement efforts along the most efficient cost structure, with costs minimised and investments realised in those sectors with the most favourable marginal abatement costs ensures a high level cost effectiveness and efficiency of this instrument.

125. Furthermore, a level playing field is established among participants to ETS: all emitters of CO2 face the same market carbon price, irrespective of sector or fuel used. There would in this respect be no difference in the carbon price faced by (electric) freight rail, aviation and HDV road transport.

126. In so far as revenues from the ETS are used to support climate policy goals, within or outside the HDV sector, further abatement, or a lowering of abatement costs, are both possible. To give a single example, recent research using endogenous technology models has shown[72] that combining support for research and development with a market incentive will improve dynamic efficiency compared to the market incentive alone, by lowering the long term costs of abatement. In addition, previous impact assessments have shown positive macro-economic effects in terms of jobs and growth of revenue recycling, for instance by lowering labour costs.

127. The above does neither prejudge, nor prevent, a possible unilateral inclusion of a number of transport operators in the ETS pursuant to Article 24 of the ETS Directive (2003/87/EC) which is possible any time, e.g. the inclusion of some of the largest transport operators in Member States applying pursuant to Article 24 provisions.

Predictability

128. One the recognised advantages of a cap-and-trade scheme consists in ensuring some predictability as to the quantity of emissions that will be allowed overall. The (indirect) inclusion of HDV transport in the EU ETS would, for those liable, contribute to a high degree of predictability on the quantitative effort that needs to be made in contributing to curbing EU CO2 emissions. In this sense, predictability provided by this option is very high and the emissions reduction (or the "cap") set by legislation will be reached, with no chance of overshooting, for instance due to rebound effects. In addition, the definition of the cap on a long term basis and the carbon price creates the necessary transparency for market operators to make informed decisions. Nevertheless, fuel suppliers made accountable, and indirectly HDV operators, will be faced with uncertainties in the price inherent to markets that may make it more difficult for them to respond to potential price signals. In this sense this option includes a degree of uncertainty.

Economic, social, and environmental impacts

129. Economic impacts of this option are to a large extent contingent upon the evolution of the carbon price. A full analysis of the economic impacts of ETS expansion to the transport sector is beyond the scope of this impact assessment. Depending on the modalities by which it is implemented, it would generate costs to sectors where the abatement potential is low, benefits to other economic actors within the carbon market –unless market barriers prevent such benefits to be grasped-, and a decline in fuel imports. Effects on modal shift and fuel switch are likely.

130. The manner in which the revenues of ETS are generated and used has a large influence on the economic impacts. Using the revenues to lower tax rates on labour could have large social benefits for employment. This has been most recently analysed in the accompanying Member state results (SWD(2012) 5 final) of the Analysis of options to move beyond 20% greenhouse gas emission reductions and assessing the risk of carbon leakage COM(2010)265 final.

131. Implementing this option would likely generate opportunity costs for HDV fleet operators, if market barriers to the uptake of less carbon intensive technologies within the sector are not removed.

132. Inclusion of the transport sector in the EU ETS will have an effect on carbon prices, though the size and direction of this effect depends on the modalities of its inclusion. Some researchers have argued that too stringent caps on transport would risk raising carbon prices by a large amount, due to low elasticities in the sector. Others dispute this conclusion[73] and argue carbon prices could even drop under certain circumstances.

133. Any future analysis of the distribution of economic effects due to the inclusion of transport in the ETS shall require assumptions about the generation and use of revenues from ETS. It is clear however, that those revenues could be used to reach distributional goals or mitigate some of the effects of ETS inclusion.

134. Given assumptions on the use of revenues, further analysis would at the very least need to take into account: a) effects linked to actual investments possibly taking place to improve performance (also see assessment of option 3 below); b) effects linked to the cross sectoral trade of emission allowances within the ETS; and c) effects linked to reduced fuel consumption, for the state, the transport sector, oil companies and balance of payments d) effects linked to modal shift.

135. Overall potential social impacts of the inclusion of transport CO2 emissions in the EU ETS are expected to be minimal. The ETS would replace the carbon taxation in the proposed Energy Taxation Directive (the revised draft directive would only apply to non-ETS sectors) which is included in the baseline. The effects on the price of transport, which generate the above social impacts, are therefore muted by the fact that a different source of carbon pricing would be removed. Some job creations would be related to the use of revenues, and others attached cross-sectoral reallocations of value with sectors from which ETS allowances would be purchased by fuel suppliers.

136. Environmental (other than CO2 emissions) impacts, beyond the achievement of overall CO2 objectives, would be related to the sectors where abatement takes place, modal shifts and fuel switches.

Risks to this option

137. Further analysis and research is needed to investigate the feasibility of this option, related risks, and modalities under which a scope expansion of the ETS to the whole road transport sector could be carried out.

Stakeholders views on option 2

138. In the 3 July 2012 stakeholder meeting, HDV industry and transport services stakeholders generally argued that it was important to widen the analysis and conduct further studies into the possible benefits of joining the ETS scheme. One NGO suggested rejecting this option, noting that a previous consultation that took place in a Member State reached such a conclusion.

5.3. Option 3 assessment: Introduce legislation setting mandatory HDV CO2 emission ceilings

139. While the EU has only regulated HDV exhaust pollutant emissions so far, Japan (2007), the US (2011) and more recently Canada (2012) have introduced rules to curb HDV fuel consumption or CO2 emissions in various ways. Setting such rules for HDVs may facilitate regulatory convergence over the long term.

Option 3(i): set performance ceilings on engine-only CO2 emissions of new registered vehicles

140. This option should be seen as the continuation of option 1(i) which considers the certification and reporting of engine-only emissions that, as of 1.1.2014, will start being measured as foreseen in the Euro VI Regulation. Once a baseline is established with reference values over a significant period, limits on engine CO2 emissions could be established with appropriate metrics (as a function of the engine power). This would require the adoption of a new Regulation through the ordinary legislative procedure. Altogether this process will require several years before standards can actually be established.

Effectiveness

141. The effectiveness of this option in curbing fuel consumption and CO2 emissions is proportionate to the potential of economically achievable CO2 emission cuts in HDV (mostly diesel) engines. The latter potential is related to this option's rather limited scope, since HDV CO2 emissions are not only a function of engine, but also transmission, auxiliaries, rolling resistance, and aerodynamics. One risk associated with this option is linked to its focus on conventional fuel engines only that may become increasingly irrelevant and limited in scope with the progressive penetration of hybrid technologies.

142. The CE Delft study on abatement cost curves estimated the potential for reduced engine emissions. This suggests that on average about a third of the technical savings feasible to reduce whole vehicle emissions would be achievable at the level of the engine (see table 1, Annex 8). These estimates may however not fully materialise: - while the reported negative marginal cost estimates are averages on technology packages, some single independent components within these packages may have positive marginal abatement costs, which would imply that they would not be included, and hence that the level of economically sustainable increased engine performance and reduced CO2 emissions would be lower than assumed; - the combination of several technologies may not allow for a strict addition (through incremental multiplication of percentages gained) of individual abatement rates: interactions in a system such as a full vehicle or an engine may not allow for this. OEMs further argued in bilateral contacts with the Commission that thermal efficiency limits (of a rate of some 52% thermal efficiency vs. some 43-45% cu