EUROPEAN COMMISSION Brussels, 8.11.2017 SWD(2017) 650 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Regulation of the European Parliament and of the Council setting emission performance standards for new passenger cars and for new light commercial vehicles as part of the Union's integrated approach to reduce CO2 emissions from light-duty vehicles and amending Regulation (EC) No 715/2007 (recast) {COM(2017) 676 final}

{SWD(2017) 651 final}



FCEV Fuel Cell Electric Vehicle FCM Fuel Consumption Measurement GDP Gross Domestic Product GHG Greenhouse gas(es) HDV Heavy-Duty Vehicles, i.e. lorries, buses and coaches (vehicles of more than 3.5 tons) HEV Hybrid Electric Vehicle (not including PHEV) ICEV Internal Combustion Engine Vehicle IEA International Energy Agency LCA Life-Cycle Assessment LCV Light Commercial Vehicle(s): van(s) LDV Light-Duty Vehicle(s), i.e. passenger cars and vans LPG Liquified Petroleum Gas LNG Liquefied Natural Gas MAC Mobile Air Conditioning NEDC New European Driving Cycle NGO Non-Governmental Organisation NOx Nitrogen oxides (nitric oxide (NO) and nitrogen dioxide (NO2)) O&M Operation and Maintenance OECD Organisation for Economic Co-operation and Development OBD On-Board Diagnostics

PHEV Plug-in Hybrid Electric Vehicle PM Particulate matter REEV Range Extended Electric Vehicle (sub-group of PHEV) SAM Scientific Advice Mechanism TLC CO2 Target Level for passenger Cars (policy option) TLV CO2 Target Level for Vans (policy option) TTW emissions "Tank-to-wheel" emissions: emissions from the vehicle tailpipe that occur during the drive cycle of vehicles. WLTP Worldwide Harmonised Light Vehicles Test Procedure WTT emissions "Well-to-tank" emissions: emission occurring during fuel (incl. electricity, hydrogen) production and transport WTW emissions "Well-to-wheel" emissions: sum of TTW and WTT emissions 1introduction 1.1Policy context In his State of the Union Address 2017 President Juncker put it very clearly: while the car industry is a key sector for Europe making world-class products, EU manufacturers will need to invest in the clean cars of the future in order to maintain their strong position. In addition, President Juncker stated "I want Europe to be the leader when it comes to the fight against climate change" and announced that "the Commission will shortly present proposals to reduce the carbon emissions of our transport sector". The automotive industry is crucial for Europe's prosperity, providing jobs for 12 million people in manufacturing, sales, maintenance and transport and accounting for 4% of the EU's GDP, including in sectors such as steel, aluminium, plastics, chemicals, textiles and ICT. The EU is among the world's biggest producers of motor vehicles and demonstrates technological leadership in this sector. EU industry, in general, and the automotive sector, in particular, are currently facing major transformations. Digitalization and automation are transforming traditional manufacturing proceses. Innovation in electrified power trains, autonomous driving and connected vehicles constitute major challenges which may fundamentally transform the sector. Furthermore, following the Paris Agreement, the world has committed to move towards a low-carbon economy. Many countries are now implementing policies for low-carbon transport, including vehicle standards, often in combination with measures to improve air quality. These developments represent an opportunity for the EU automotive sector to continue to innovate and adapt in order to ensure it remains a technological leader. The EU 2030 framework for climate and energy includes a target of an at least 40% cut in domestic EU greenhouse gas (GHG) emissions compared to 1990 levels. The emission reductions in the Emissions Trading System (ETS) and non-ETS sectors amount to at least 43% and 30% by 2030 compared to 2005, respectively. The Commission has recently proposed 2030 GHG emission reduction targets for Member States under the Effort Sharing Regulation (covering the non-ETS sectors, including road transport) as well as a revised Energy Efficiency Directive. CO2 standards for light-duty vehicles will help to meet the overall goals set out therein. In addition to that, daily experience on traffic jams, the crisis over diesel cars emissions and the adoption of policy measures at local level to discorage car use in urban areas, have contributed to making EU consumers more aware of the impact of road transport on health and air quality. These developments take place globally since nowadays automotive industries are increasingly integrated in global value chains. Global automotive markets are expanding faster than ever before, notably in emerging markets such as India and China. The latter, in particular, is taking full advantage of the changing automotive landscape and according to a recent report by the International International Energy Agency , in 2016 it became the country with the highest share of electric vehicles. In addition, EU sales of passenger cars relative to global sales have decreased from 34% before the crisis (2008/2009) to 20% today. This means that EU industry will have to consider not only increasing exporting volumes but also adapting to changing demands which will require more focus on innovation to retain competitiveness.

Until now, the ambitious emission reduction standards in place in Europe have represented a fundamental tool to push for innovation and investments in low carbon technologies. But today, the EU is no longer the clear leader in this race, with the US, Japan, South Korea and China moving ahead very quickly. As highlighted in the recently adopted Renewed Industrial Policy Strategy, a modern and competitive automotive industry is key for the EU economy. However, for the sector to maintain its technological leadership and thrive in global markets, it will have to accelerate the transition towards more sustainable technologies and new business models. Only this will ensure that Europe will have the most competitive, innovative and sustainable industry of the 2030 and beyond. The Commission's Communication 'Europe on the Move: An agenda for a socially fair transition towards clean, competitive and connected mobility for all' makes clear that we want to make sure that the best low-emission, connected and automated mobility solutions, equipment and vehicles will be developed, offered and manufactured in Europe and that we have in place the most modern infrastructure to support them. The Communication identifies that profound changes in how we enjoy mobility are underway and that the EU must be a leader in shaping this change at a global level, building on the key progress already made. This Communication builds on the earlier Commission's European Strategy for Low-Emission mobility, published in July 2016, which set out an overall vision built on three pillars: (i) moving towards zero-emission vehicles; (ii) low emission alternative energy for transport; (iii) efficiency of the transport system. The figure below presents an overview of the interlinkages between the various initiatives of the mobility package proposed by the Commission as well as other related EU climate, energy and transport related initiatives. By pursuing an integrated approach looking both at the demand and supply side and by establishing an enabling environment and a clear vision and robust regulatory framework, the EU can create an environment that provides EU industry with the certainty and clarity needed to innovate and remain competitive for the future.



This builds on policies proposed or already implemented at national, regional and city level in the EU. Many Member States have set objectives to increase the share of zero and low emission vehicles, including both battery electric vehicles and plug-in hybrids, by 2020. However, while some Member States have made good progress in achieving their objectives, the majority of Member States has made rather slow progress. Even if the objectives were to be reached, the share of electric vehicles would remain low in the EU in relation to total vehicle registrations. Furthermore, three Member States, representing 35% of total new car registrations in the EU in 2016, have announced plans to phase out CO2 emitting cars (see Table 1 ). At the same time, many cities in the EU have implemented regulations which limit the access of certain vehicles to urban areas. Most restrictions are within the scope of so-called Low Emission Zones which either limit the city entry of the most polluting vehicles or, in some cases, impose higher fees for such vehicles if they enter the zone. Recently some cities have even announced plans to ban diesel and/or petrol cars (see Table 1 ). Geographical coverage Announcements Member States France End the sale of new CO2 emitting cars by 2040 Netherlands End the sale of new CO2 emitting cars by 2030 United Kingdom End the sale of all new conventional petrol and diesel cars and vans by 2040 Cities Paris (France) Ban of diesel cars from 2024 and petrol cars from 2030 Madrid (Spain) and Athens (Greece) Ban of diesel cars from 2025 Oxford (UK) Ban of all non-electric vehicles in the city centre by 2035 A policy framework that further stimulates the accelerated uptake of zero- and low-emission vehicles would complement the on-going efforts to address air quality problems and would be well aligned with on-going action at city, regional, and national level. Zero-emission vehicles do not only reduce CO2 emissions from road transport but deliver also in terms of air pollutant and noise emission free transport. 1.2Legal context The EU has in place two Regulations setting CO2 targets for new passenger cars and vans, respectively, which are based upon Article 192 of the TFEU (Environment chapter): ·Regulation (EC) No 443/2009 setting a fleet-wide average target for new passenger cars of 130 g CO2/km from 2015 and 95g CO2/km from 2021, and ·Regulation (EU) No 510/2011 setting a fleet-wide average target for new light commercial vehicles of 175 g CO2/km from 2017 and 147 gCO2/km from 2020. These regulations have been amended in 2014 through Regulation (EU) No 333/2014 and Regulation (EU) No 254/2014 in order to define the modalities for implementing the 2020/2021 targets.

Both Regulations request the Commission to carry out a review by the end of 2015, and to report on it to the Council and the European Parliament, accompanied, if appropriate, by a proposal to amend the Regulations for the period beyond 2020. The abovementioned emission targets have been set on the basis of the New European Driving Cycle (NEDC) test cycle. From 1 September 2017 on, a new regulatory test procedure, the World Harmonised Light Vehicles Test Procedure (WLTP), developed in the context of the UNECE, has been introduced under the type approval legislation for determining the emissions of CO2 and the new targets will need to take this into account. Furthermore, consumer information on the fuel consumption and CO2 emission of new passenger cars under Directive 1999/94/EC should be based on WLTP as of 1 January 2019. 1.3Evaluation of the implementation An extensive evaluation of the existing Regulations was carried out as part of REFIT. This was completed in April 2015 and the final report of the consultants has been published . The evaluation report assessed the Regulations against the objectives set in the original legislation, which included providing for a high level of environmental protection in the EU and contributing to reaching the EU's climate change targets, reducing oil consumption and thus improving the EU’s energy security of supply, fostering innovation and the competitiveness of the European automotive industry and encouraging research into fuel efficiency technologies. It concluded that the Regulations were still relevant, broadly coherent, and had generated significant emissions savings, while being more cost effective than originally anticipated for meeting the targets set. They also generated significant EU added value that could not have been achieved to the same extent through national measures. As regards impacts on competitiveness and innovation, the impacts of the Regulations were found to be generally positive. Box 1 summarises the key outcomes in relation to the main evaluation criteria. Box 1: Key conclusions of the report on the evaluation of Regulations (EC) No 443/2009 and (EU) No 510/2011 ('the Regulations') Relevance oThe Regulations are still valid and will remain so for the period beyond 2020, as: oall sectors need to contribute to the fight against climate change, othe CO2 performance of new vehicles needs to improve at a faster rate, oroad transport needs to use less oil (to improve the security of energy supply), and oCO2 reductions must be delivered cost-effectively without undermining either sustainable mobility or the competitiveness of the automotive industry. Effectiveness oThe Regulations have been more successful in reducing CO2 than previous voluntary agreements with industry (annual improvement rate of 3.4-4.8 gCO2/km versus 1.1-1.9 gCO2/km). oThe passenger car CO2 Regulation is likely to have accounted for 65-85% of the reductions in tailpipe emissions achieved following its introduction. For light commercial vehicles (LCVs), the Regulation had an important role in speeding up emissions reductions. oImpacts on competitiveness and innovation appear generally positive with no signs of competitive distortion. oThe evaluation report highlighted the following weaknesses: oThe NEDC test cycle does not adequately reflect real-world emissions and there is an increasing discrepancy between test cycle and real-world emissions performance which has eroded the benefits of the Regulations. oThe Regulations do not consider emissions due to the production of fuels or associated with vehicle production and disposal. oSome design elements (modalities) of the Regulations are likely to have had an impact on the efficiency of the Regulations. In particular, the use of mass as the utility parameter penalises the mass reduction as an emissions abatement option. Efficiency oThe Regulations have generated net economic benefits to society. oCosts to manufacturers have been much lower than originally anticipated as emissions abatement technologies have, in general, proved less costly than expected. For passenger cars, the ex-post average unit costs for meeting the target of 130gCO2/km are estimated at €183 per car, while estimates prior to the introduction of the Regulation ranged from €430-984 per car. For LCVs the ex-post estimate to meet the 175gCO2/km was €115 per vehicle, compared with an ex ante estimate of €1,037 per vehicle. oLifetime fuel expenditure savings exceed upfront manufacturing costs, but have been lower than anticipated, primarily because of the increasing divergence between test cycle and real world emissions performance. Coherence oThe Regulations are largely coherent internally and with each other. oModalities potentially weakening the Regulations, albeit with limited impacts, are the derogation for niche manufacturers, super-credits and the phase-in period (cars). EU added value oThe harmonisation of the market is the most crucial aspect of EU added-value and it is unlikely that uncoordinated action would have been as efficient. The Regulations ensure common requirements, thus minimising costs for manufacturers, and provide regulatory certainty. The evaluation report included some recommendations that would ensure the Regulations remain relevant, coherent, effective and efficient, including: ·With respect to relevance, a potential additional need to be considered for the post 2020 legislation is that road transport needs to use less energy. Hence, energy efficiency would become a more important metric as the LDV fleet moves to a more diverse mix of powertrains ·Concerning effectiveness, the most significant weakness identified was the current (NEDC) test cycle causing an increasing discrepancy between real-world and test cycle emissions, which has eroded a significant portion of the originally expected benefits of the Regulations. This will be largely addressed by the development of WLTP. In addition, sufficient checks are recommended to ensure that the new test does not in future years become subject to the same problems experienced with the NEDC. ·While the lack of consideration of the lifecycle and embedded emissions of vehicles was seen as a relatively minor issue, it was expected to become more significant as the proportion of electric vehicles increases. ·As regards additional incentives to develop low CO2 emission vehicles, it should be considered whether such mechanism is needed and, if so, to choose one that does not potentially weaken the target. ·A need to look at how to improve the ex-ante assessment of costs to manufacturers as the costs assumed prior to the introduction of the current Regulations were much higher than has been the case in reality. These recommendations are addressed when presenting the policy options in Section 5.

2WHAT IS THE PROBLEM AND WHY IS IT A PROBLEM? Figure 1 sets out the drivers, problems and objectives that are relevant for the revision of CO2 standards for cars and vans. While the revision will clearly contribute to all three policy objectives, it should also be clear that it does not aim to address all of the problems and drivers mentioned to the same extent. For this, complementary proposals and flanking measures will be taken, some of are scheduled to be part of the same package of mobility related initiatives. This concerns in particular the EU Action Plan on the Alternative Fuels Infrastructure Directive (limited infrastructure), the proposal for a revised Clean Vehicles Directive 2009/33/EC, as well as the proposal for a revised Directive on road charging ("Eurovignette"). The Commission is also preparing a proposal for setting CO2 standards for heavy-duty vehicles, which would further help to tackle CO2 emissions in the road transport sector. Beside this, there are a number of areas where complementary Member State or local action would help to tackle the drivers and problems, e.g. through tax measures (in order to help lowering upfront costs, especially for zero- and low-emission vehicles), and measures promoting modal shift (i.e. lowering road transport activity.

A key driver to be addressed by this impact assessment is the lack of stringency of the existing CO2 standards for the period beyond 2021 and the related uncertainty over future standards. Other drivers are addressed to a different degree in the policy options set out in Section 5. Clarifying the policy framework beyond 2021 will help reducing manufacturers' uncertainty over costs and future investment decisions as well as tackling certain market failures. Creating a market demand for more efficient vehicles will also help to reduce upfront costs. In addition, the 'emissions gap' will be addressed. By contrast, limited infrastructure and increasing transport activity are not directly tackled by the options considered in this impact assessment. 2.1What is the nature of the problem? What is the size of the problem? An overview of the problems and drivers is presented in Figure 2 .

2.1.1Problem 1: Insufficient uptake of the most efficient vehicles, including low and zero emission vehicles, to meet Paris Agreement commitments and to improve air quality, notably in urban areas The evaluation of the CO2 Regulations showed that the CO2 standards have stimulated the uptake of more efficient vehicle technologies, but it also highlighted that the CO2 performance of new vehicles needs to improve at a faster rate in order to achieve the Union's climate goals of at least 40% emissions reduction, as committed under the Paris Agreement, in a cost-effective way. As confirmed in the European Strategy for Low-Emission Mobility, greenhouse gas emissions from transport will need to be at least 60% lower than in 1990 and be firmly on the path towards zero. With current trends in new vehicles' CO2 emissions, this cannot be achieved. More specifically, the uptake of LEV and ZEV is still very slow. In 2016, battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV) represented only 1.1% of the new EU car fleet (for BEV the share was only 0.41%). Road transport was responsible for 22% of EU GHG emissions in 2015 with a steady increase since 1990 when the share was 13%. GHG emissions from cars and vans accounted for 73% of road transport emissions in 2015; this share has remained more or less constant since 1990. Figure 3 shows that CO2 emissions from cars and light commercial vehicles in 2015 were still 19% higher than in 1990, despite the decrease observed between 2007 and 2013. While the increase in the share of transport emissions of EU GHG emission may be due to the emissions reduction in other sectors, the evolution of GHG emissions from cars and vans shows a steady increase since 1990 with the exception of the period between 2007 and 2013 when emissions were reduced. Figure 3: GHG emissions from cars and vans (1990-2015) While the transport sector has considerably reduced its emissions of air pollutants in the EU over the last decades, it is the largest contributor to NOx emissions (46% in total NOx emissions in the EU in 2014). Of the total emitted NOx from road transport, around 80% comes from diesel powered vehicles. In addition, the transport sector makes an important contribution to the concentration of particulate matter in the atmosphere (13% for PM10 and 15% for PM2.5). EU air quality legislation sets limit and target values for the concentration of a range of harmful air pollutants in ambient air in order to limit the exposure of citizens. Today, the limit values for NO2 are being exceeded in over 130 cities across 23 Member States and the Commission has initiated legal action against 12 Member States. The public debate on the announcement of possible "diesel bans" in some major cities has significantly affected the share of diesel vehicles in new car registrations. For instance, in March 2017 a 5-year low in new diesel car registrations was recorded in France, Germany, Spain, and the UK. These Member States represent together almost 60% of new car registrations in the EU. In the EU as a whole the share of diesel in new car registrations decreased from a peak of 53% in 2014 to 49% in 2016. At the same time the share of new petrol cars increased from 44% in 2014 to 47%. While urban access restrictions contribute to a shift from diesel to petrol with benefits in terms of lower air pollutant emissions, so far they have not triggered a significant increase in low- and zero-emission vehicles. Although new registrations of battery electric and plug-in hybrid vehicles increased by 46% by July 2017 compared to the same period in 2016, their share in total car registrations in the EU remains low at 1.2% of which 46% were battery electric vehicles. A policy framework that further stimulates the accelerated uptake of zero- and low-emission vehicles would therefore complement the on-going efforts to address air quality problems and would be well aligned with on-going action at urban, regional, and national level. Zero-emission vehicles do not only deliver benefits in terms of air pollutant and noise emission free transport but also contribute to the reduction of CO2 emissions from road transport. 2.1.2Problem 2: Consumers miss out on possible fuel savings

In understanding potential fuel savings for consumers, including initial and subsequent vehicle purchasers it is important to understand that the current average lifetime of a car is around 15 years with several ownership changes. Consumers have benefitted from net savings over a vehicle's lifetime, although relatively few consumers consider fuel consumption when purchasing a new car. So far the increases in the purchase prices of more efficient vehicles, as a result of the CO2 standards, have been significantly lower than the fuel savings over the vehicle's lifetime. According to the evaluation of the CO2 Regulations the additional purchase cost of a new car in 2013 was €183 higher compared with a 2006 vehicle due to measures to meet the CO2 standards. At the same time (discounted) fuel savings, as a result of the CO2 standards, were €1,336 for petrol cars and €981 for diesel cars over the vehicle's lifetime. Lifetime fuel expenditure savings have been lower than anticipated, primarily because of the increasing divergence between test cycle and real world emissions performance. However, even if this gap were to be reduced significantly by the introduction of the WLTP test cycle and additional governance measures (see section 5.5), there remains an important unused cost savings potential. If this potential were to be exploited through more stringent CO2 standards, consumers could benefit from even higher fuel savings. The savings are however spread differently across the vehicle's lifetime. An analysis of second hand car and van markets and implications for the cost effectiveness and social equity of light-duty vehicles CO2 regulations shows that subsequent owners of a vehicle, who on average belong to lower income groups, proportionally benefit more from fuels saving than first vehicle owners. The initial cost for the more efficient vehicle is borne by the first owner. This depends however strongly on the initial price premium for the more efficient vehicle. 2.1.3Problem 3: Risk of losing the EU's competitive advantage due to insufficient innovation in low- emission automotive technologies over the long term The EU automotive sector is crucial to the EU economy, including in terms of the number of direct and indirect jobs it provides. It faces global competition in terms of sales to other markets and, increasingly, from non-EU manufacturers within the EU market. The import of motor vehicles to the EU has increased from 2.5 million vehicles in 2010 to 3.4 million motor vehicles in 2016, worth € 45.7 billion. The competitiveness of industry is also related to its capacity to innovate. Looking at the relationship between the regulatory standards and industrial innovation, the Evaluation study found that EU fuel efficiency standards for new cars and vans have proven to be a strong driver for innovation and efficiency in automotive technology. These targets allowed the EU manufacturers to have a first mover competitive advantage which has been especially important as the EU automotive industry exported more than 6 million vehicles in 2016, worth €135 billion. However, as shown in Figure 4 , different fuel standards have progressively been implemented around the world, in countries including China, USA, South Korea, Mexico, Brazil and India. These international targets, moving over time towards the levels set in the EU, and coupled with the commitments made on climate change targets under the 2015 Paris Agreement, demonstrate the international demand for efficient vehicles. Figure 4: Historical fleet CO2 emissions performance and current standards (gCO2/km normalized to NEDC) for passenger cars (ICCT, 2017) Major non-EU car markets have considered or are about to introduce more ambitious policies including measures to reduce pollutant emissions. In particular, in view of increasing the deployment of zero- and low emission vehicles, ambitious policies have been developed or recently adopted in car markets that are of particular importance for the EU car industry. In the US, the Californian "ZEV" standards to support the market deployment of battery electric, plug-in hybrid, and fuel cell vehicles have also been adopted by nine other States (29% of all new cars sold in the U.S. are sold in these 10 States) (see Box 2 for more details). Eight US States have signed a memorandum of understanding committing to coordinated action to ensure that by 2025 at least 3.3 million pure battery electric vehicles, plug-in hybrid electric vehicles and hydrogen fuel cell electric vehicles are on their roads. In China, new mandatory "new energy vehicle" (NEV) requirements will apply to car manufacturers as from 2019 covering battery electric, plug-in hybrid, and fuel cell vehicles (see Box 3 for more details). The requirements are applicable to all manufacturers with an annual production or import volume of 30,000 or more conventional fuel passenger cars. Over the last decade China has become the key car market with 24 million new car registrations, meaning that every third new vehicle is now being sold in China. European car manufacturers have been successful in reaching out to this new market. More than 20% of new passenger cars sold in China were from European car manufacturers/joint ventures operating in China. One third of global sales by German manufacturers, i.e. around 15 million vehicles, took place in China: 39% for the VW Group and 22% for the BMW Group and Mercedes Benz Cars. Similarly, China is the most important car market for the PSA Group with more than 600,000 vehicles sold. A recent analysis of seven global automotive lead markets concludes that China is now in the "pole position" and will dominate the increasing market for electrified powertrains for the foreseeable future due to the importance of the Chinese market and a favourable regulatory framework. While Japan alone accounts for 40% of EV related patents, the EU automotive industry is the global leader in automotive patents in general. At the same time patents data show that parts of the European car industry have a strong technological potential in LEV/ZEV which are however not sufficiently reflected in new products offered on the European market. This indicates that the EU industry risks losing its technological leadership and lagging behind these global trends. 2.2What are the main drivers? 2.2.1Driver 1: Consumers value upfront costs over lifetime costs There are a number of market failures and barriers which cause end-users to not necessarily purchase the most efficient new vehicles available on the market, even where this would be their optimal choice from an economic perspective, i.e. when the fuel economy benefit outweighs the additional costs for a more efficient vehicle. When purchasing a new car, end-users tend to undervalue future fuel savings as a result of which it may not appear attractive to pay more for a more efficient vehicle. This is for instance empirically evidenced by the results of the evaluation of the CO2 Regulations, which show that fuel savings are significantly higher than the additional purchase cost of a new car (see Section 1.3). Despite existing fuel taxes, these clear financial benefits were apparently not reaped by the market, but required specific regulation to tap into such economic benefits.

Furthermore, even if the new vehicle purchasers do take account of fuel savings, it would only be rational for them to consider fuel savings for the period in which they intend to own the vehicle. As vehicles have an average lifetime of about 15 years with 4 owners, only a part of the reductions would be experienced by the initial purchaser. In addition, a wide range of factors and elements other than fuel economy may dominate the purchase decision of a new car. Purchasers of new cars have skewed preferences away from fuel economy and towards factors such as comfort and power. Another reason for the apparently economically suboptimal uptake of more efficient vehicles therefore lies on the production side. In a highly competitive automotive market, manufacturers may be hesitant to invest heavily in more efficient powertrains, knowing that competitors may have different commercial strategies (focusing on other vehicle attributes such as higher engine capacity, more comfort, etc.) that could be commercially more successful. This is in particular the case if consumers pay little attention to total cost of ownership. A regulatory framework on CO2 emissions for all new vehicles takes away the competitive risk that a manufacturer would be facing when focusing innovation efforts on fuel efficiency, while others do not. Different purchase dynamics may apply for leased vehicles which have a share of around 30% of new registrations in the EU, with most of them being company cars. Leasing could in principle increase the attractiveness of lower CO2 vehicles, on the one hand by enabling instant payback on fuel saving ‘investments’, and on the other by helping operators optimise vehicle choice by enabling them to better take into account the costs and benefits associated with lower CO2 vehicles in the context of CO2-based national vehicle taxation schemes. However, the extent to which these factors affect the uptake of lower CO2 vehicles in practice could not be quantified due to a current lack of evidence. 2.2.2Driver 2: Consumers' concerns regarding zero emission vehicles (ZEV) Beyond the issue of undervaluing future benefits from fuel savings, the limited market uptake of ZEV is strongly influenced by additional factors. ZEV (battery EV and fuel cell EV) are still faced with much higher upfront costs as compared to conventional vehicles. Consumers are also concerned about other issues regarding ZEV. As demonstrated in research, a major barrier is consumer resistance to new technologies that are considered alien or unproved. As other barriers perceived by the consumers, the study mentioned battery range, charging infrastructure, reliability, safety. Furthermore, the perceived limited comfort and style were seen as limiting the attractiveness of available ZEV models. A key barrier is 'range anxiety', i.e. the perception that the battery capacity is limited and recharging infrastructure is insufficient to ensure recharging 'on time' and at the necessary recharging speed in particular for long-distance trips. This is underlined by the fact that the electric range for the most sold battery electric vehicles in the EU is currently between 150 and 250 km. Despite important progress and sufficient coverage in most Member States given the low uptake of ZEV so far, the infrastructure for recharging ZEV is insufficient in many Member States in particular in view of the expected uptake of ZEVs by 2020 and beyond. The Commission's Communication, 'Europe on the Move: An agenda for a socially fair transition towards clean, competitive and connected mobility for all' underlines that the deployment of a network of recharging points covering evenly the whole EU road network, is a key enabling condition for zero-emission mobility. The Action Plan on the Alternative Fuels Infrastructure Directive sets out concrete measures for achieving necessary deployment rates. Experience from other regions shows that with an increase in the number of electric vehicles sold investments in the necessary infrastructure increases as well. Besides, reinforced support for research and development of batteries will be provided by Horizon 2020 in the context of the new working programme 2018-2020. Another concern among consumers is linked to the resale value of ZEV given expected further technical improvements in particular on the battery's performance (range, lifetime, costs). At the same, the market for ZEV is developing rapidly. New technologies and business models may help to overcome some of the barriers discussed above. For example, new ZEV in the compact car segment are offered in Europe with ranges of up to 380 km. Some ZEV are offered with a lease contract for the battery which lowers upfront costs and can address possible consumer concerns related to the battery technology. In this context, it should be noted that consumer research in the US and Germany showed that a large share of prospective new vehicle buyers (29% in the US, 44% in Germany) would consider purchasing a battery electric vehicle (BEV) or a plug-in hybrid electric vehicle (PHEV), which indicates a substantial latent demand for such vehicles. However, it was also found that half of all consumers are not yet familiar with electric vehicles. The researchers conclude that there is an opportunity for manufacturers to quickly increase the number of potential buyers by offering more tailored EVs and deploying new business models . A JRC study covering six EU Member States concluded in 2012 that on average around 40% of the car drivers surveyed would consider buying an electric car when changing their current vehicle. 2.2.3Driver 3: EU standards do not provide enough incentive for further efficiency improvements and for the deployment of low and zero emission vehicles for the period beyond 2021, leading to uncertainty over future policy The current Regulations for cars and vans set targets of 95 g CO2/km for 2021 and 147 g CO2/km for 2020 respectively. In the absence of new legislation, these targets will remain at their present levels. As the current targets can be largely met by improving conventional vehicles, they do not provide sufficient incentive to invest in and in particular market alternative powertrains, in particular ZEV. As a consequence there is insufficient uptake of LEVs and ZEVs in the EU as a result of which the necessary GHG emission reductions in the road transport sector cannot be achieved. Given persisting market failures (see Driver 1) under these conditions manufacturers are not likely to develop, produce and offer more efficient vehicles for the EU market at sufficient scale. The EU automotive industry therefore risks losing leadership in low-emission technologies for road transport. As long as the automotive industry, including manufacturers and suppliers, does not know what will happen to targets beyond 2020/2021 and whether any additional requirements will be put in place, they do not have the regulatory certainty required to invest with confidence for the EU market. Without clarity on the long-term regulatory framework companies cannot take long-term investment decisions in order to meet future market demands and optimise compliance costs. 2.2.4Driver 4: Effectiveness of standards is reduced by growing 'emissions gap' There is evidence of an increasing divergence between average test and real world CO2 emissions. Recent studies estimate the divergence is up to around 40% . A number of factors have been identified to explain the divergence including the deployment of CO2 reducing technologies delivering more savings under test conditions than on the road, the optimisation of the test procedure as well as the increased deployment of energy using devices which are not taken into account when a vehicle is tested for its certified CO2 emissions. For example, air conditioning systems are not included when a vehicle is tested for its certified CO2 emissions but are widely installed and used, thus leading to higher real world emissions. This increasing divergence means that the actual CO2 savings achieved are considerably less than those suggested by the test performance. Since manufacturers' compliance with their specific emissions target is assessed on the basis of the CO2 emissions as certified during the official test cycle, the 'emissions gap' undermines the effectiveness of the CO2 performance standards. In addition, the 'emissions gap' has undermined consumers' trust in the potential CO2/fuel savings of new vehicles which in turn may have affected consumers' willingness to buy the most efficient vehicles. 2.2.5Driver 5: Road transport activity is increasing EU transport activity is expected to continue growing under current trends and adopted policies, albeit at a slower pace than in the past. Despite profound shifts in mobility being underway, such as shared mobility services and easier shifts between modes, passenger traffic growth is still projected to increase 23% by 2030 (1% per year) and 42% by 2050 (0.9% per year) relative to 2010. Road transport would maintain its dominant role within the EU. Passenger cars and vans would still contribute 70% of passenger traffic by 2030 and about two thirds by 2050, despite growing at lower pace relative to other modes due to slowdown in car ownership increase.

While this increased activity is reflective of economic growth, it brings with it negative impacts in terms of GHG emissions and air quality impacts, if no additional measures are taken. It remains to be seen to what extent other developments such as autonomous driving may affect road transport activity. 2.3Who is affected and how? The users of vehicles, both individuals and businesses, are affected because they face the cost of the energy required to propel the vehicles. Reducing the vehicle's CO2 emissions will reduce the energy required and result in a cost saving to the user. The use of technology to reduce in-use GHG emissions has a cost which is expected to be passed on to the vehicle purchaser. Citizens, especially those living in urban areas with high concentrations of pollutants, will benefit from better air quality and less associated health problems due to reduced air pollutant emissions, in particular when the uptake of zero-emission vehicles increases. CO2 standards require vehicle manufacturers to reduce CO2 emissions as a result of which they will have to introduce technical CO2 reduction measures. In the short-term, this is likely to result in increased production costs and could affect the structure of their product portfolios. However, demand for low- and zero-emission CO2 vehicles is expected to increase throughout the world as climate change and air quality policies develop and other countries introduce similar or even more ambitious standards, manufacturers have an opportunity to gain first mover advantage and the potential to sell advanced low CO2 vehicles in other markets. Suppliers of components and materials from which vehicles are constructed will be affected by changing demands on them. Component suppliers have a key role in researching and developing technologies and marketing them to vehicle manufacturers. Requirements leading to the uptake of additional technologies or materials (e.g. aluminium, plastics, advanced construction materials) may create extra business activity for them. While often overlooked, EU employment in the component supply industry is as large as in the vehicle manufacturing industry. Suppliers of fuels are affected by reduced energy demand leading to less utilisation of existing infrastructure. If demand shifts to vehicles supplied with alternative energy sources, this may potentially increase the need for other types of infrastructure and create new business opportunities and challenges for electricity supply companies and network operators. There may also be impacts for example in the need for or type of vehicle servicing. There will also be lower maintenance requirements for battery electric vehicles. The production and maintenance of vehicles with an electrified powertrain will pose important challenges to the workforce in the automotive sector including manufacturers and component suppliers as well as repair and maintenance businesses. The workforce will need additional and/or different skills to deal with new components and manufacturing processes. Other users of fuel and oil-related products (e.g. chemical industry, heating) are expected to benefit from lower prices if demand from the transport sector decreases. Sectors other than transport that emit GHGs will avoid demands to further reduce emissions to compensate for increased transport emissions. In so far as these sectors are exposed to competition, this will be important for their competitiveness. 3WHY SHOULD THE EU ACT? 3.1The EU's right to act The Environment chapter of the Treaty, in particular Article 191 and Article 192 of TFEU, give the EU the right to act in order to guarantee a high level of environmental protection. As mentioned in Section 1.1, based on Article 192 TFEU, the EU has already acted in the area of vehicle emissions, including adopting Regulations (EC) 443/2009 and (EU) 510/2011 which set limits for CO2 emissions from cars and vans, and with implementing legislation on monitoring and reporting of data (Commission Regulation (EU) No 1014/2010 (cars) and Commission Implementing Regulation 2012/293/EU (vans)). 3.2What would happen without EU action? EU fuel efficiency standards for new cars and vans have proven to be a strong driver for innovation and efficiency in automotive technology. These targets allowed EU manufacturers to have a first mover advantage and to increase exports globally. Without further action in this field, it will be difficult for the EU automotive sector to retain its leading role in global markets as developing innovation and cutting-edge technologies is the only way to maintain and strengthen European competitiveness. With all major markets with the exception of China and India projected to stall in the future, it will be important for the EU to maintain or increase the share of high-quality and high-technology vehicles on third markets, notably in those markets that are likely to grow fast. (source GEAR 2030) Besides, without further EU action in this field it is likely there would be little additional substantial CO2 reduction from new light-duty vehicles. There may be certain expectations that in view of the current CO2 requirements and expected regulatory action in this field in third countries to which European vehicles are exported, the fuel efficiency improvement of vehicles may continue somewhat beyond this rate. However, as seen in the EU in the period between 1995 and 2006 for cars, in the absence of the mandatory CO2 standard this progress is likely to be offset at least to some degree by the increase in power, size or comfort of new cars. Some reduction in emissions from the overall fleet of light-duty vehicles would still be expected beyond 2021 due to the continuing renewal of the existing fleet with newer cars and vans meeting the 2020/21 CO2 standards. However, transport activity would continue to increase and the overall CO2 reductions would not be sufficient to reach the targets set by the European Council in the 2030 Climate and Energy Package or contribute sufficiently to the goals of the Paris Agreement. 3.3Analysis of subsidiarity and added value of EU action EU action is justified in view of both the cross-border impact of climate change and the need to safeguard single markets in vehicles.

Without EU level action there would be a risk of a range of national schemes to reduce light duty vehicle CO2 emissions. If this were to happen it would result in differing ambition levels and design parameters which would require a range of technology options and vehicle configurations, diminishing economies of scale. Since manufacturers hold differing shares of the vehicle market in different Member States they would therefore be differentially impacted by various national legislations potentially causing competitive distortions. There is even a risk that national legislation might be tailored to suit local industry. This poor coordination of requirements between countries, even if all Member States were to establish regulatory requirements for new vehicle CO2 emissions, would raise compliance costs for manufacturers as well as weaken the incentive to design fuel efficient cars and LCVs because of the fragmentation of the European market. It is unlikely that Member States acting individually would set targets in an equally consistent manner as shown by the widely differing tax treatment of new cars across the EU. This means that greater benefits will be achieved for the same cost from coordinated EU action than would be achieved from differing levels of Member State action. With action only at Member State level we would not benefit from the lower costs which would arise as a result of the economies of scale that an EU wide policy delivers. The EU light vehicle market is currently around 16 million vehicles per year. The largest Member State market is around 3 million vehicles per year. On their own, individual Member States would represent too small a market to achieve the same level of results and therefore an EU wide approach is needed to drive industry level changes. The additional costs which would arise from the lack of common standards and common technical solutions or vehicle configurations would be incurred by both component suppliers and vehicle manufacturers. However, they ultimately would be passed on to consumers who would face higher vehicle costs for the same level of greenhouse gas reduction without coordinated EU action. The automotive industry requires as much regulatory certainty as possible if it is to make the large capital investments necessary to maximise the fuel economy of new vehicles, and even more so for shifting to new primary energy sources. Standards provide this certainty over a long planning horizon and they could not be implemented with the same effectiveness and certainty at Member State level.

4OBJECTIVES General policy objective The general policy objective is to contribute to the achievement of the EU's commitments under the Paris Agreement (based on Article 192 TFEU) and to strengthen the competitiveness of EU automotive industry. Specific objectives 1.Contribute to the achievement of the EU's commitments under the Paris Agreement by reducing CO2 emissions from cars and vans cost-effectively; 2.Reduce fuel consumption costs for consumers; 3.Strengthen the competitiveness of EU automotive industry and stimulate employment. These three specific objectives are on equal footing. The first one concerns the climate objective of the Paris Agreement. Further efforts are necessary for all Member States to meet their 2030 targets under the Effort Sharing Regulation. With road transport causing one third of non-ETS emissions and emissions increasing in the last few years, reducing CO2 emissions from cars and vans is of key importance. Implementing the Paris Agreement requires the decarbonisation of the economy including of road transport. The Low-Emission Mobility Strategy has confirmed the ambition of reducing GHG emissions from transport by at least 60% by 2050, as initially set out in the 2011 Low-Carbon Economy Roadmap and Transport White Paper. This cannot happen without a very high deployment of zero- and low-emission vehicles. Analysis has shown that by 2050, electrically chargeable vehicles need to represent about 68-72% of all light duty vehicles on the roads. This requires a significantly increasing uptake of zero- and low-emission vehicles already in 2030 as the new vehicles of 2030 will remain on the road until the mid-2040s. The second specific objective is related to the consumer angle of the CO2 standards, aiming to create benefits for car and van users through the sales of more efficient vehicles. The third specific objective relates to innovation, competitiveness (including fair competition amongst EU manufacturers) and employment. While the EU automotive sector has been very successful in advanced internal combustion engine vehicles world-wide, it will need to adapt to the ongoing global transitions in the area of mobility and transport in order to maintain its technological leadership.

By providing a clear regulatory signal and predictability for industry to develop and invest in zero- and low-emission vehicles and fuel-efficient technologies, this initiative aims to foster innovation and strengthen EU industry's competitiveness in a fast changing global automotive landscape, without distorting the competition between EU manufacturers. In addition to the three abovementioned specific objectives, the revision of the CO2 standards for cars and vans are expected to lead to two main co-benefits: improvements in air quality and increased energy security.



5WHAT ARE THE VARIOUS OPTIONS TO ACHIEVE THE OBJECTIVES? This Section describes the options identified to address the problems listed in Section 3 and to achieve the objectives defined in Section 4. It sets out the rationale for their selection, as well as the reasons for discarding certain options upfront, taking into account the evaluation study, the public consultation, additional stakeholder input; as well as several internal and external study reports. The options cover a number of elements, some of which are already part of the current Regulations. The options are grouped into five categories: (I)CO2 emission targets (level, timing, metric); (II)the distribution of effort amongst manufacturers; (III)incentives for low- and zero-emission vehicles; (IV)elements for cost-effective implementation; (V)governance related issues The following tables show how the policy options, grouped into the five key policy areas, relate to the problems and objectives Key policy areas Problem 1: Insufficient uptake of the most efficient vehicles, including low and zero emission vehicles, to meet Paris Agreement commitments and to improve air quality, notably in urban areas Problem 2:

Consumers miss out on possible fuel savings (market failures) Problem 3:

Risk of losing the EU's competitive advantage due to insufficient innovation in low- emission automotive technologies over the long term Emission targets ✓ ✓ ✓ Distribution of effort ✓ ZEV/ LEV incentives ✓ ✓ ✓ Elements for cost-effective implementation ✓ Governance ✓ ✓



Table 3: Policy options and objectives Key policy areas PARIS AGREEMENT:

Contribute to the achievement of the EU's commitments under the Paris Agreement Reduce by reducing CO2 emissions from cars and vans cost-effectively CONSUMERS:

Reduce fuel consumption costs for consumers COMPETITIVENESS:

Strengthen the competitiveness of EU automotive industry and stimulate employment Emission targets ✓ ✓ ✓ Distribution of effort ✓ ZEV/ LEV incentives ✓ ✓ ✓ Elements for cost-effective implementation ✓ ✓ Governance ✓ ✓ 5.1Emission targets (level, timing and metric) The currently applicable Regulations (EC) No 443/2009 ("Cars Regulation") and (EU) No 510/2011 ("Vans Regulation") set a fleet-wide target of 95 g CO2/km (from 2021, with a phase-in from 2020) and 147 g CO2/km (from 2020), respectively, for the emissions of newly registered vehicles. These targets are based on the NEDC test procedure. Compared to the targets set previously, they represent an average annual reduction of 5.1% for cars (from the 2015 target of 130 g CO2/km) and of 5.6% for vans (from the 2017 target of 175 g CO2/km). The introduction of the new test procedure WLTP, in September 2017, is expected to bring the tailpipe CO2 emissions from cars and vans determined during type approval closer to the real world emissions. The WLTP will be fully applicable to all new cars and vans from September 2019 (see also Section 5.5).

WLTP is likely to result in increased CO2 emissions for most vehicles but the increase will not be evenly distributed between different manufacturers. Due to this non-linear relationship between the CO2 emission test results from the NEDC and WLTP test-procedures, it is impossible to determine one single factor to correlate NEDC into WLTP CO2 emission values. A correlation procedure will therefore be performed at the level of individual manufacturer. Based on the correlation procedures and the methodology adopted for translating the individual manufacturer targets from NEDC to WLTP values, WLTP-based manufacturer targets will apply from 2021 onwards. Those targets will be confirmed by the Commission and published in October 2022. More information on the transition from NEDC to WLTP is given in Annex 5. 5.1.1CO2 emission target level (TL) The likely increase in WLTP CO2 emission values (compared to NEDC) has been taken into account for the purposes of the analytical work underlying this impact assessment (see Annex 4.6). Since the exact specific WLTP emission target values for 2021 can only be determined in 2022 (as described above), the new emission targets should be defined not as absolute values but in relative terms. The starting point for this are the 2021 EU-wide fleet average WLTP emission targets (i.e. the weighted average of the manufacturers' specific emissions targets for 2021). The new targets can be expressed either as a percentage reduction of those 2021 EU-wide fleet targets or as an average annual reduction rate over a given period. The options in this section for the new EU-wide fleet average target levels ("TLC" for cars and "TLV" for vans) are defining the target trajectory over the period 2021-2030, without prejudging the target years. Options as regards the timing of the targets are set out in Section 5.1.2. 5.1.1.1CO2 target level for passenger cars (TLC) ·Option TLC0: Change nothing (baseline) This option represents the status quo, meaning that the CO2 target level set in the current Regulation is maintained after 2021 (WLTP equivalent of 95 g CO2/km as EU-wide fleet average). ·The other options for defining the EU-wide fleet CO2 target level for passenger cars are summarised in the below table. Option Decrease of WLTP CO2 target level (2021-2030) Average annual reduction rate of WLTP CO2 target level (2021-2030) TLC10 10% 1.2% TLC20 20% 2.4% TLC25 25% 3.2% TLC30 30% 3.9% TLC40 40% 5.5% TLC_EP40 40% 5.5%

(8.0% for 2021-2025 and

3.5% for 2025-2030) TLC_EP50 50% 7.4% Option TLC_EP40 differs from option TLC40 by defining a non-linear target trajectory. This covers the strictest end of the 2025 target range referred to in the Statement by the Commission in 2014 in the context of the negotiations on the Cars Regulation . This also holds true for option TLC_EP50, which defines a 2030 target that is 50% lower than the 2021 target. 5.1.1.2CO2 target level for vans (TLV) ·Option TLV 0: Change nothing (baseline) This option represents the status quo, meaning that the CO2 target level set in the current Regulation is maintained after 2021 (WLTP equivalent of 147 g CO2/km NEDC as EU-wide fleet average). ·The other options for defining the EU-wide fleet CO2 target level for light commercial vehicles are summarised in the below table. Option Decrease of WLTP CO2 target level (2021-2030) Average annual reduction rate of WLTP CO2 target level (2021-2030) TLV10 10% 1.2% TLV20 20% 2.4% TLV25 25% 3.1% TLV30 30% 3.9% TLV40 40% 5.5% TLV_EP40 36% 4.4%

(8.1% for 2021-2025 and

2.2% for 2025-2030) TLV_EP50 50% 7.4%

(8.1% for 2021-2025 and

6.9% for 2025-2030) Options TLV_EP40 and TLV_EP50 are defining a non-linear target trajectory, covering the strictest end of the 2025 target range referred to in the Statement by the Commission in 2014 in the context of the negotiations on the Vans Regulation. For 2025, both options cover a WLTP target equivalent to 105 g CO2/km NEDC, while in 2030 the targets are 36%, respectively 50%, lower than the 2021 targets.

5.1.2Timing of the CO2 targets (TT) The following options will be considered for defining the year(s) for which new targets are set. These options apply both for passenger cars (in relation to options TLC) and for light commercial vehicles (in relation to options TLV). ·Option TT 1: The new EU-wide fleet CO2 targets start to apply in 2030. This means that the (WLTP equivalent of the) CO2 target levels set in the Cars and Vans Regulations would continue to apply until the year 2029. ·Option TT 2: New EU-wide fleet CO2 targets start to apply in 2025 and will continue to apply until 2029, and stricter EU-wide fleet CO2 targets start to apply from 2030 on. Under this option, the new EU-wide fleet targets for 2025 and 2030 are calculated according to the annual average reduction rates set out in Section 5.1.1. ·Option TT 3: New EU-wide fleet CO2 targets are defined for each of the years 2022-2030. Under this option, new annual EU-wide fleet CO2 targets are calculated according to the annual average reduction rates set out in Section 5.1.1 These options include a mid-term review to assess the effectiveness of the policy. 5.1.3Metric for expressing the targets The CO2 targets set in the Cars and Vans Regulations relate to the tailpipe emissions of newly registered vehicles, applying the so-called Tank-to-Wheel approach (TTW). The targets are expressed in g CO2 /km and apply for the sales-weighted average emissions of the EU-wide fleet. For calculating the average, each newly registered vehicle is counted equally. Using a TTW metric allows focusing on vehicle efficiency, which has proven to be an effective way of triggering the uptake of vehicle technology and starting a shift towards alternative powertrains. However, the overall GHG emission impact of using (new) vehicles is also affected by the type of fuel/energy used to propel the vehicle, as different energy types differ in the amount of CO2 emissions generated during their production, the so-called Well-To-Tank (WTT) emissions. The sum of the TTW emissions and the WTT emissions is referred to as the Well-To-Wheels (WTW) emissions. Furthermore, there are also CO2 emissions associated with vehicle manufacturing (including the mining, processing and manufacturing of materials and components), maintenance and disposal. These are referred to as "embedded" CO2 emissions. For determining those emissions, information is needed concerning the different phases of a vehicle's life cycle and tools such as life-cycle assessment (LCA) are often used for this purpose. The g CO2/km metric allows comparing the emission performance of vehicles on a unit distance basis, but this does not reflect the total emissions of a vehicle over its lifetime. Vehicles with a higher lifetime mileage may contribute more to total CO2 emissions compared to vehicles that are used less intensively, even where the latter perform worse against the g CO2/km targets. The evaluation study noted that the effectiveness of the Cars and Vans Regulations might have been reduced because some of the emission reductions achieved in terms of tailpipe CO2 emissions may have been accompanied by increased emissions elsewhere. During the public consultation, some stakeholders also suggested to switch to other metric types to express the targets, in particular by using one of the approaches mentioned hereafter. Well-to-Wheel (WTW) based metric In the public consultation, stakeholders representing the fuels industry as well as some component suppliers suggested a change from the TTW metric to a WTW based metric, which takes into consideration the sum of the TTW and WTT emissions in the CO2 target levels. By contrast, consumer organisations, car manufacturers and stakeholders from the power sector did not support such a change. Public authorities had mixed views.

Metric taking into account embedded emissions In the public consultation, most car manufacturers were against changing to this approach, whereas other stakeholder groups had diverging views. Metric based on mileage weighting During the public consultation, the question whether average mileage by fuel and vehicle segment should be taken into account when establishing targets received very mixed replies from stakeholders. A number of environmental and transport NGOs, some research institutions, and all respondents from the petroleum sector were in favour of doing so. By contrast, one NGO and the majority of car manufacturers were against this option. Most consumer organisations were neutral on the issue, whereas public authorities expressed split views. In the light of the above and the views expressed during the public consultation, the following options will be considered for defining the metric of the EU-wide fleet CO2 targets. These options apply both for passenger cars and for light commercial vehicles. ·Option TM_TTW: change nothing, TTW approach This option maintains the current metric for setting the targets, i.e. targets expressed in g CO2/km based on a TTW approach and applying for the sales-weighted average EU-wide fleet emissions. ·Option TM_WTW: WTW approach Under this option, the target would be expressed in g CO2/km based on a WTW approach and would apply for the sales-weighted average EU-wide fleet emissions. ·Option TM_EMB: metric covering embedded emissions Under this option, the target would be expressed in g CO2/km covering both WTW and embedded emissions and it would apply for the sales-weighted average EU-wide fleet emissions. ·Option TM_MIL: metric based on mileage weighting Under this option, the target would be set in relation to the mileage-weighted average EU-wide fleet emissions. It could either be expressed in g CO2/km or in different units reflecting the difference in lifetime mileage between vehicle groups. 5.2Distribution of effort (DOE) The Cars and Vans Regulations use a limit value line to define the specific emission targets for individual manufacturers, starting from the EU-wide fleet targets. This linear curve defines the relation between the CO2 emissions and a "utility parameter" (currently: vehicle mass in running order). On this line, the EU-wide fleet target value corresponds with the average mass of the new vehicles in the fleet (M0). The slope of the line is the key factor in distributing the EU-wide fleet target as it determines to what extent vehicles (manufacturers) with a higher/lower (average) mass will be allowed/required to have higher/lower CO2 emissions than the EU-wide fleet average. The steeper the slope, the larger the difference in specific emission targets between manufacturers with "heavy" and "light" vehicles. In order to avoid that the EU-wide fleet targets would be altered due to an autonomous change in the average mass of the fleet, the M0 values are readjusted every three years to align them with the average mass of the new fleet of the previous years. The choice of slope of the limit value line is merely a decision on how to share efforts amongst manufacturers and does not affect the overall emission target for the EU fleet of new vehicles. Other approaches (e.g. using another or no utility parameter, changing the slope of the line, using a non-linear curve) are possible for distributing the effort required from each manufacturer in meeting the EU-wide fleet target. The Cars and Vans Regulations explicitly request the Commission to review this modality. Most car manufacturers and consumer organisations responding to the online consultation were in favour of using a utility parameter to distribute the effort between different manufacturers. A relatively large number of stakeholders across different stakeholder groups were neutral on this question, and only a small number of stakeholders (from different groups) were against the use of a utility parameter. Views diverged on which utility parameter to use. All consumer organisations, some environmental and transport NGOs as well as stakeholders from the petroleum sector supported footprint, while most car manufacturers supported mass as utility parameter. Only two stakeholders referred explicitly to another parameter (loading capacity, in the case of light commercial vehicles).

The Association of European automobile manufacturers suggested a slightly different approach for cars and vans. While maintaining a single linear curve for cars with a mass-based utility parameter (i.c. WLTP test mass), for vans they proposed to switch to a curve consisting of two linear parts with different slopes, arguing that this would better take account of the large variety in design of light commercial vehicles. In view of this, the following options are being considered: ·Option DOE 0: Change nothing Under this option the linear limit value curves as defined in the current Regulations are maintained. The utility parameter applied is the mass in running order and the slope of the curves is 0.0333 (cars) and 0.096 (vans). The adjustment of the M0 value takes place every three years. ·Option DOE 1: mass based limit value curve with a slope representing an equal reduction effort for all manufacturers Under this option, the manufacturer specific emission targets would be derived from the EU-wide fleet target according to a limit value line with the mass of the vehicles as the utility parameter. The slope of the limit value line would be determined so that it results in an equal reduction effort for all manufacturers – starting from 2021 - according to the given utility value. Two variants will also be considered as part of the assessment, one using the WLTP test mass as utility parameter (instead of mass in running order) and one using a combination of two different slopes for vans (taking account of the vehicle characteristics within the lighter and heavier segments). ·Option DOE 2: footprint based limit value curve with a slope representing an equal reduction effort for all manufacturers Under this option, the specific emission targets would be derived from the EU-wide fleet target according to a limit value line using the vehicle footprint (i.e. wheelbase multiplied by track width) as the utility parameter. The approach for defining the slope would be the same as under option DOE 1, but using footprint data instead of mass data. For options DOE 1 and DOE 2, other sub-options (with different slopes) had initially been considered, but were not withheld as they would either lead to unwanted effects (in case of higher slopes) or are very close to the other options explored (esp. DOE 4 in case of lower slope). ·Option DOE 3: same target for all manufacturers ("uniform target") Under this option, the EU-wide fleet target would apply for each individual manufacturer and no utility parameter would be applied. As the specific emission targets under the current Regulations vary according to the average mass of the new vehicles registered by a manufacturer, the (percentage) emission reductions required to meet the future targets would be larger for manufacturers having a higher average vehicle mass than for those having lighter vehicles. ·Option DOE 4: equal reduction percentage for all manufacturers As in option DOE 3, no utility parameter would apply in this case. The same emission reduction percentage would be required for each manufacturer, taking its specific emissions target in 2021 as the starting point. Therefore, the future specific emission targets (in g/km) would differ amongst manufacturers, depending on their 2021 WLTP target. Under options DOE 3 and DOE 4, the future manufacturer specific emissions targets would not be affected by future changes in the average value of the utility parameter for that manufacturer's new vehicles (mass or footprint). 5.3ZEV/ LEV incentives 5.3.1Context The transition to low- and zero-emission mobility is subject to a number of policy discussions. At the informal meeting of the Environment and Transport Ministers in Amsterdam in April 2016, Member States supported this transition and underlined the opportunities it creates. The May 2017 Communication, 'Europe on the Move: An agenda for a socially fair transition towards clean, competitive and connected mobility for all' confirms that EU-wide carbon dioxide emissions standards are a strong driver for innovation and efficiency and will contribute to strengthening competitiveness and pave the way for zero and low-emission vehicles in a technology-neutral way. It also stated that options under review include specific targets for low and/or zero-emission vehicles. The Communication builds on the earlier Commission's European Strategy for Low-Emission mobility, published in July 2016, in which the Commission highlighted the important role of zero- and low-emission vehicles in delivering CO2 reductions, particularly in view of the longer-term decarbonisation objectives. Furthermore, the Commission stressed that accelerating the ongoing shift to low-emission mobility will offer major opportunities for the European automotive and other sectors to drive global standards and export their products. Fostering a domestic lead market for such vehicles is relevant from a competitive perspective, in order to create (1) economies of scale to drive down costs and (2) a competitive edge for European manufacturers and component suppliers.

The battery is a major cost component of a BEV with battery costs making up to 55% in the price of a mass manufactured BEV in 2016. According to external studies, a broad range of EV support policies applied worldwide is expected to contribute to a drastic reduction in cost of electric vehicles over the next decade as battery manufacturing gets cheaper. Those cost reductions are however highly reliant on mass manufacturing. Analysts argue that policy is therefore critical in this respect and fuel economy regulations will play an important role in driving the scale-up in EV manufacturing over the next 5-7 years. Figure 7 summarises information available up to 2016 on the costs and volumetric energy densities of batteries currently being researched, as well as the ranges of cost reductions that can be expected from the three main families of battery technologies: conventional lithium ion; advanced lithium ion, using an intermetallic anode (i.e. silicon alloy-composite); and technologies going beyond lithium ion (lithium metal, including lithium sulphur and lithium air). Figure 8 illustrates the evolution of Li-ion battery costs (in USD/kWh) in the past decade (showing a decrease of around 70% since 2010) and a forecast of their further evolution towards 2030, based on expected demand, . Source: OECD/IEA (2017) Global EV Outlook 2017 Figure 8: Evolution of Li-ion battery costs (USD/kWh) Source: Bloomberg New Energy Finance (2017) In addition, the narrowing cost gap between electric cars and ICEV may put pressure on governments to gradually revise their support measures, phasing out incentives in cases where BEVs and PHEVs actually rival ICEV costs. According to a report by OECD/IEA, other regulatory instruments (such as including fuel economy regulations and local measures, such as differentiated access to urban areas) will remain important in supporting the electric car uptake needed to meet the targets characterising a low-emission future. Regulatory incentives might thus be needed to help overcome the barriers to the market uptake of ZEVs and LEVs. The vehicles incentivised should have a significant potential contribution to reducing the CO2 emissions of the new car and van fleet. The types of vehicle most relevant in this respect are the following: ·Battery electric vehicles (BEV) and fuel cell electric vehicles (FCEV), both having zero tailpipe CO2 emissions and a limited market uptake so far. ·Plug-in hybrid electric vehicles (PHEV) with sufficiently low tailpipe CO2 emissions. In their replies to the public consultation, a majority of stakeholders across all stakeholder groups was in favour of some mechanism to encourage the deployment of LEV/ZEV, except for consumer organisations which were mostly neutral on whether and how LEVs/ZEVs should be incentivised. Environmental and transport NGOs were mostly in favour of a flexible mandate, differentiating between LEV and ZEV and allowing trading among manufacturers. European car manufacturers argued for considering broader policy issues such as grid management, infrastructure and taxation policy. The European Automobile Manufacturers Association (ACEA) is opposed to sales mandates for LEV/ZEV as it considers the market uptake to be mainly driven by public incentives, in particular fiscal measures, which would give car manufacturers limited control to meet such mandates. They also refer to experience in markets with existing mandates where customers are not willing to buy LEV/ZEV. Car manufacturers also point to the need to increase the number of publically available charging points which does not fall under their responsibility. At the same time, over the past few years, several major car manufacturers have been announcing their global ambitions for the sales of electric cars, which would result in a strongly increasing deployment of those vehicles in the following years. Table 4 summarises a number of those announcements. Manfacturer Announcement BMW 0.1 million electric car sales in 2017 and 15-25% of the BMW group’s sales by 2025 Chevrolet (GM) 30 thousand annual electric car sales by 2017 Chinese manufacturers* 4.52 million annual electric car sales by 2020 equivalent to around 20% of total expected production and sales in China. Daimler 0.1 million annual electric car sales by 2020; 15-25% of total sales (Mercedes and Smart) with electric powertrain by 2025 Ford 13 new EV models by 2020 Honda 66% of the 2030 sales to be electrified vehicles (including hybrids, PHEVs, BEVs and FCEVs) Renault-Nissan 1.5 million cumulative sales of electric cars by 2020; aspirational target of more than 20% of total sales to be equpped with electric powertrain by 2022 Tesla 0.5 million annual electric car sales by 2018 1 million annual electric car sales by 2020 Volkswagen 2-3 million annual electric car sales by 2025; 20-25% of VW Group's global sales to be "battery electric vehicles" by 2025 Volvo 1 million cumulative electric car sales by 2025 all new models will have an electric motor, including fully electric cars, plug-in hybrids and mild hybrids from 2019 *Note: Chinese manufacturers include BYD, BJEV-BAIC Changzhou factory, BJEV-BAIC Qingdao factory, JAC Motors, SAIC Motor, Great Wall Motor, GEELY Auto Yiwu factory, GEELY Auto Hangzhou factory, GEELY Auto Nanchong factory, Chery New Energy, Changan Automobile, GAC Group, Jiangling Motors, Lifan Auto, MIN AN Auto, Wanxiang Group, YUDO Auto, Chongqing Sokon Industrial Group, ZTE, National Electric Vehicle, LeSEE, NextEV, Chehejia, SINGULATO Motors, Ai Chi Yi Wei and WM Motor. Despite this willingness by manufacturers to strongly expand their offer of EVs, the IEA argues that at this stage of the electric car market deployment, policy support remains "indispensable for lowering barriers to adoption". In this context the IEA notes that mandates in combination with targets provide a clear signal to manufacturers and customers.

As a follow-up to the EMIS Inquiry Committee, the European Parliament in April 2017 called on the Commission to fully engage in and implement a low-emission mobility strategy and "to come forward with a draft regulation on CO2 standards for the car fleets coming onto the market from 2025 onwards, with the inclusion of Zero-Emission Vehicles (ZEV) and Ultra-Low Emission Vehicles (ULEV) mandates that impose a stepwise increasing share of zero- and ultra-low-emission vehicles in the total fleet with the aim of phasing out new CO2-emitting cars by 2035". A regulatory instrument to enhance the uptake of LEV has been established since the early 1990s in California with the "ZEV Regulation", which requires manufacturers to market a certain percent of vehicles with (near-)zero tailpipe emissions (see Box 2) . Similar mandates also apply in nine other States of the US . In September 2017, China adopted new energy vehicle (NEV) mandates (see Box 3) for the sales of electric cars, which, combined with government and local incentives for customers, manufacturers and the development of infrastructure, have seen a very strong growth in the past few years. Most recently, Quebec has adopted a ZEV mandate. In the light of this policy context, the Impact Assessment is considering several options described below. Box 2: California's ZEV programme California introduced a ZEV mandate already in 1990. It required manufacturers to progressively increase the sales volume of BEVs to 2% of new vehicle sales by 1998 and 10% by 2003. Given the early stage of development of electric vehicles at the time, the initial ZEV mandate turned out to be too ambitious and was subject to a number of modifications since then. The current ZEV Regulation requires vehicle manufacturers with an annual production of more than 4,500 vehicles to bring to and operate in California a certain percent of "ZEVs" (i.e. BEV, FCEV and PHEV; up to 2017, ZEV credits may also be obtained for "partial" ZEV (PZEV), such as clean hybrids and clean gasoline vehicles) . The ZEV Regulation has become incrementally more stringent and will continue to do so until 2025. From 2018 they include a minimum ZEV floor requirement for large manufacturers (i.e. annual production of more than 60,000 vehicles) above which manufacturers may use credits to meet their total ZEV requirement. The Californian "ZEV" standards have in the meantime been adopted by nine other States in the U.S. (29% of all new cars sold in the U.S. are sold in these 10 States). However, in 2016 the actual share of BEV, PHEV and FCEV in new car sales was only around 3% in California and less than 1% in the U.S. as a whole. In its recent Midterm Review CARB notes that costs for batteries (as well as other component costs) have fallen "dramatically" (largely due to reduced material costs, manufacturing improvements, and higher manufacturing volumes). Moreover, the number of PHEV and BEV models offered on the market is expected to increase from 25 today to more than 70 models over the next 5 model years. Since 2012 car manufacturers had been over-complying with the ZEV standards and accumulated ZEV credits in view of meeting future ZEV requirements. Box 3: China's NEV mandate In 2010 China introduced its new energy vehicle (NEV) programme setting a target of 1 million electric vehicles (including both light- and heavy-duty vehicles) by 2015. With the support of public incentives, sales of electric vehicles grew significantly in China in recent years with cumulative sales reaching nearly 1 million in 2016. On 28 September 2017, the Chinese Ministry of Industry and Information Technology (MIIT) published the final rule on passenger car fuel economy standards with an integrated mandate for NEVs which covers battery electric (BEV), plug-in hybrid (PHEV) and fuel cell vehicles (FCEV). The legislation sets mandatory NEV requirements as from 2019: 10% in 2019 and 12% in 2020; requirements for 2021 and beyond are yet to be determined by MIIT. The requirements are applicable to all manufacturers with annual production or import volume of 30,000 or more conventional-fuelled passenger cars. In order to meet the requirements, manufacturers can generate new energy vehicle scores by producing or importing NEVs. A company’s actual NEV score is calculated by summing up the products of annual manufacturing or import volume of each NEV and the per-vehicle NEV score. The per-vehicle score depends mainly on the electric range for BEV, whereas for PHEV and FCEV other factors are taken into account such as electric consumption. The highest score of 5 can be reached by BEV, whereas PHEV can reach a maximum score of 2. NEV requirements are therefore not equivalent to the market share of NEVs in China in 2019 and 2020. For instance, e.g. for meeting 10% NEV requirement in 2019 with BEVs only, a manufacturer would need a BEV share of 2% only. A company generates NEV credits if its actual NEV score is higher than its NEV requirement. It will face a NEV score deficit if its actual NEV score is below the target. If a manufacturer cannot reach its NEV target in 2019, it can still meet its NEV requirement in 2020. A positive NEV quota can be traded between manufacturers but cannot be carried over to following year(s) after 2019, except from 2019 to 2020. Manufacturers are allowed to use NEV credits towards compliance with existing fuel economy standards. 5.3.2Policy options ·Option LEV 0: Change nothing This option assumes that, apart from the fleet-wide CO2 emission targets, the legislation will not include provisions, which would specifically aim to increase the number of ZEV or LEV registered. The assessment of this option will therefore be based on the assessment of the TLC and TLV options For the other policy options for incentivising ZEV/LEV, three key elements are considered: (i) the definition of a low-emission vehicle, as this determines the scope of the incentive, and (ii) the type of incentive and (iii) the level of the LEV incentive. In addition, elements related to the implementation of the incentive need to be considered, such as compliance assessment (incl. the link with the CO2 target), differentiation between OEMs and between different types of LEV. 5.3.2.1LEV definition (LEVD) In order to identify which vehicles would qualify for the LEV incentive, it is necessary to define what constitutes a LEV. This requires consideration of the metric and threshold to be used. An option initially considered was to use the zero emission range of a vehicle (in km) for defining a LEV. However, this approach was not considered further, as the link of this metric with CO2 emissions is less outspoken, and only limited data is available to decide on an appropriate WLTP value. This view is also supported by the majority of stakeholders from different stakeholder groups which clearly preferred the use of CO2 emission performance as the criterion for defining LEV, with proposed thresholds ranging from 15g CO2/km to 50g CO2/km. Therefore, as regards the CO2 emission threshold, only the options for defining a LEV according to its tailpipe CO2 emissions will be further considered, as summarised in Table 5 . Table 5: Options considered for the LEV definition (LEVD) Option LEV definition LEVD_ZEV only vehicles with CO2 emissions of zero qualify as a LEV (LEV = ZEV) LEVD_25 (for cars) LEVD_40 (for vans) LEV are all vehicles with CO2 emissions of less than or equal to 25 g CO2/km (for cars) or 40 g CO2/km (for vans) LEVD_50 LEV are all vehicles with CO2 emissions of less than 50 g CO2/km (with counting of LEV on the basis of their CO2 emissions)

The higher threshold for vans under option LEVD_40 compared to cars (LEVD_25), is explained by their larger average mass compared to cars and by the uncertainty over the feasibility of bringing a sufficient number of PHEV vans with emissions below 25 g CO2/km to the market. For option LEVD_50, the 50 g CO2/km threshold is the same one as set in Article 5 of the Cars and Vans Regulations for vehicles to be eligible for generating super-credits. With the change from NEDC to WLTP, type approval emissions from PHEV with emissions around 50 g CO2/km are not expected to change significantly (see Annex 4.6). However, covering such a broad range of vehicles without any further distinction would not take account of the expected improvement in battery efficiency and the corresponding decrease of CO2 emissions from PHEV. Furthermore, the actual performance of PHEV on the road is strongly influenced by the type and duration of trips undertaken, external conditions (temperature) and consumer behaviour (charging, use of electric equipment). Therefore, a distinction is proposed under this option between ZEV and other LEV, by counting each LEV in relation to its CO2 emissions. While each ZEV would thus count as one vehicle, all other LEV would count as less than one vehicle, according to the following formula: . In this way, the incentive is targeted towards vehicles having near-zero emissions, which avoids over-incentivising PHEVs with a short electric range. 5.3.2.2 Type and level of incentive (LEVT) Additional regulatory tools for incentivising the uptake of ZEV/LEV currently used are mostly based on a ZEV/LEV sales mandate (e.g. California) and/or a crediting system, through increasing the weighting of a ZEV/LEV in the calculation of average emissions or providing emission credits based on the sales share of qualified vehicles. Under the current Cars and Vans Regulations, a "super-credit" modality has been established to incentivise manufacturers to produce vehicles emitting less than 50 g CO2/km. During a limited number of years, such vehicles may be counted as more than one vehicle for the purpose of calculating the average specific emissions of a manufacturer. For cars, super-credits applied between 2012 and 2015 in relation to the 130 g CO2/km target and will again apply (with lower multipliers) between 2020 and 2022 in relation to the 95 g CO2/km target (with a cap of 7.5 g CO2/km per manufacturer over the three years). For vans, super-credits only apply between 2014 and 2017 in relation to the 175 g/km target (for a maximum of 25,000 vans over that period). However, as already highlighted in the impact assessment underlying the 2012 proposals for amending the Cars and Vans Regulations, a super-credit system has significant drawbacks as it reduces the stringency of the CO2 target and thus the effectiveness of the Regulations in reducing CO2 emissions. The increase of CO2 emissions depends inter alia on the multiplier used and the number of eligible vehicles. For example, with a multiplier of 3.5 (which was applicable in the Cars Regulation in 2012-2013 and in the Vans Regulation in 2014-2015), CO2 emissions could increase by 3% to 15% depending on the proportion of vehicles qualifying for super-credits. The evaluation study confirmed that super-credits could potentially weaken the targets, but noted that this had not yet materialised (in 2015) in view of the very low uptake of vehicles emitting less than 50 g CO2/km and as all major manufacturers were meeting their targets at that time even without taking super-credits into account. However, as the share of vehicles with low emissions is expected to increase over time, maintaining the super-credit modality, as included in the Cars and Vans Regulations, would bear a high risk of weakening the CO2 target. This analysis is confirmed in recent studies, which highlight the substantial environmental cost of electric vehicle multipliers or super-credits, in particular as the share of low-emission vehicles in the fleet starts to increase. Super-credits are seen as a counterproductive long-term vehicle policy. As an example, it is calculated that with an electric vehicle penetration at 28% of new vehicle sales in Europe, the regulation would lose 41% of its intended CO2 benefits when allowing super credits. Furthermore, as CO2 targets get stricter, super-credits could even discourage the further deployment of LEVs after 2020 due to the multiple counting. Maintaining even a small multiplier of 1.33 (the lowest value used in the current Cars Regulation) could cause the market uptake of LEV to be reduced by 6-7% by 2030. Finally, by applying a multiplier from the first LEV registered on, the current super-credits system fails to send a clear signal to manufacturers and authorities about the expected share of LEV in the fleet. The main drawbacks of the super-credit system could be mitigated or overcome by redesigning it into a crediting system, which would incentivise the uptake of LEV beyond a given level and would avoid undermining the CO2 target levels. In view of the above, the following three options are considered: ·Option LEVT_MAND: LEV mandate Under this option, each manufacturer's new vehicle fleet would have to include at least a given share of LEV. ·Option LEVT_CRED1: LEV crediting system with one-way adjustment of the CO2 target This option builds on and improves the current super-credits system. The LEV incentive would take the form of a crediting system in connection with a manufacturer's specific CO2 target. A benchmark would be defined for the share of LEV in the new fleet in a given year. The specific CO2 target of a manufacturer exceeding this LEV benchmark would be adjusted as follows: each LEV registration above the benchmark would be rewarded on a 1%/1% ratio, meaning that a manufacturer registering 1% more LEV than the benchmark would get a 1% less stringent CO2 target. The CO2 target adjustment would be limited to 5% in order to avoid it to be weakened too much. Assessing compliance would be done only against the CO2 target. Not meeting the LEV benchmark would have no consequences for this compliance assessment.

·Option LEVT_CRED2: LEV crediting system with two-way adjustment of the CO2 target This option only differs from option LEVT_CRED1 in that a manufacturer not meeting the LEV benchmark level would have to comply with a stricter specific CO2 target. Again, each LEV registration below the benchmark would be counted at a 1%/1% ratio, meaning that a manufacturer registering 1% less LEV than the benchmark would get a 1% more stringent CO2 target. The CO2 target adjustment would also be limited to 5%. Not meeting the LEV benchmark would therefore be reflected in the compliance assessment through a more stringent CO2 target. As regards the percentage of the new vehicle fleet serving as the LEV mandate (LEVT_MAND) or benchmark (options LEVT_CRED), three options are considered for cars, labelled LEV%_A, LEV%_B and LEV%_C, and two options for vans, labelled LEV%_A and LEV%_B. The values chosen for the LEV mandate/benchmark are incremental compared to the LEV shares in the new vehicle fleet under option LEV0, while taking account of recent announcements by vehicle manufacturers as regards their expected LEV share. This is further explained in Section 0. 5.4Elements for cost-effective implementation 5.4.1Eco-innovations (ECO) Article 12 of the Cars and Vans Regulations provides manufacturers with the possibility to take into account CO2 reductions achieved by innovative technologies whose CO2 reducing effect cannot be demonstrated through the official test procedure. Vehicle manufacturers and component suppliers may apply for the Commission's approval of a technology as an eco-innovation, if it fulfils the following basic conditions: ·The supplier or manufacturer must be accountable for the CO2 savings achieved; ·The technologies must make a verified contribution to CO2 reduction; ·The technologies must not be covered by the standard test cycle CO2 measurement or by mandatory provisions covered by the so-called Union's integrated approach to reach 10 g CO2/km (Article 1 and Article 12(2)(c) of the Cars Regulation , see below for more information). Where an approved eco-innovation technology is fitted to a manufacturer's vehicles, the average specific emissions of that manufacturer may be reduced by the CO2 savings from applying that technology, up to a maximum of 7 g CO2/km per year. The Commission is empowered to adopt detailed provisions on the application procedure, including on the implementation of the criteria listed above. So far, the Commission has adopted more than 20 decisions approving eco-innovations for use in cars, for instance LED lighting systems and more efficient alternators. No applications have yet been submitted with regard to vans. Both the previous impact assessment and the evaluation study concerning the Cars and Vans Regulations concluded that eco-innovations are effective and efficient as they help to reduce CO2 emissions at a lower cost than alternative options. While it could be argued that the stringency of the targets as measured on the official test procedure would be reduced by this modality, this effect is balanced by the delivery of ‘off cycle’ emission reductions which cannot be measured on the test procedure and by setting a cap on the contribution of those reductions to the target achievement. During the public consultation, a very large majority of stakeholders across all stakeholder groups was in favour of taking account of CO2 emission reductions arising from eco-innovations. Moreover, the evaluation study concluded that there is evidence supporting that the introduction of the Regulations has had a positive impact on innovation through encouraging higher R&D, and the development and deployment of fuel efficient technologies in the market. A phase-out of the eco-innovation modality will therefore not be considered as an option. The evaluation study as well as stakeholders have however raised the issue of the administrative burden linked to the application and certification of savings as an issue and have suggested that the eco-innovation regime could be simplified in order to ensure a wider up-take of eco-innovations in the EU fleet. Under the Cars and Vans Regulations (Article 12), the Commission is empowered to adopt detailed provisions on the application process, through which it may address any issues related to the administrative burden for industry and/or authorities. The Implementing Regulations set out the requirements for applications as well as for the certification by type approval authorities of the CO2 savings from the approved technologies. A revision of the Implementing Regulations is currently underway, with a view of adapting it to the new test procedure WLTP, but also to introduce a number of simplifications without changing the robustness of the assessment of the applications or the certification of the savings. The revision includes consideration of the US approach of determining off-cycle technologies with pre-defined CO2 savings as well as the possibility for amending existing approval decision upon request by stakeholders or at the Commission's initiative. In view of this, it can be concluded that the current concept of eco-innovations is both efficient in that approved innovations will reduce CO2 emissions and cost-effective in that their cost should be lower than alternative options, while not causing any significant adverse effects with regard to the stringency of the targets. Moreover, the current design of the provisions provides the Commission with the necessary powers to address effectively the concerns raised by stakeholders and identified in the relevant studies with regard to the administrative burden. Against that background, it is considered that the current design of the eco-innovation modality is fit for purpose and can be maintained for the period 2022 to 2030. However, two issues require further consideration: the cap for the CO2 savings and the current exclusion of mobile air-conditioning systems from being eligible as eco-innovations. Manufacturers have in the context of the introduction of the WLTP requested an increase in the 7 g CO2/km cap. Manufacturers as well as component suppliers have also called for including mobile air-conditioning systems in the eco-innovation regime, pending any further regulation of such systems under the type approval legislation.

Cap for the CO2 savings The current eco-innovation regime includes a cap of 7 g CO2/km for the CO2 savings that may be taken into account for compliance purposes. The cap applies regardless of the target level and vehicle category concerned. Until now, the up-take of eco-innovations has been limited (less than 1 g CO2/km in average savings for the manufacturer with the highest number of eco-innovations). It is however expected that the amount of eco-innovation credits used by manufacturers will increase significantly towards the target years 2020-2021. The 7 g CO2/km cap has been set by reference to the emissions tested on the NEDC, while the EU-wide fleet CO2 targets for the period 2022 to 2030 are to be based on the emissions measured on the new WLTP type approval test. By setting a cap on the eco-innovation savings, a balance is ensured between incentives given to efficiency improvements demonstrated on the official test procedure and those given for the development of more efficient and new technologies that are not covered by that test. That balance also takes into account the fact that the target level is set on the basis of the test procedure emissions only. The majority of technologies that have already been approved as eco-innovations will continue to fall outside also the WLTP test and will thus still be eligible as eco-innovations. There is however still uncertainty with regard to the level of the savings that can be expected from those technologies within the new testing framework as well as for the potential for other off-cycle technologies. Against that background, and in order to ensure a smooth transition from the NEDC