Commission staff working document - Accompanying document to the Proposal from the Commission to the European Parliament and Council for a regulation to reduce CO2 emissions from passenger cars - Impact Assessment {COM(2007)856 final} {SEC(2007)1723} {SEC(2007)1724}
Date: 2007-12-19
Institutions: European Commission
Subjects: EU environmental policy, environmental standard, impact study, motor vehicle pollution, reduction of gas emissions, road transport

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.12.2007 
SEC(2007) 1723 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying document to the 

PROPOSAL FROM THE COMMISSION TO  
THE EUROPEAN PARLIAMENT AND COUNCIL 

for a regulation to reduce CO2 emissions from passenger cars 

Impact Assessment 

{COM(2007)856 final} 
{SEC(2007)1724} 

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TABLE OF CONTENTS 

1. 

1.1. 

1.2. 

1.3. 

1.4. 

Procedural issues and consultation of interested parties .............................................. 5 

Background in the development of the proposal.......................................................... 5 

Organisation and timing ............................................................................................... 5 

Consultation and expertise ........................................................................................... 5 

Inter-institutional process so far................................................................................... 7 

1.4.1.  Council ......................................................................................................................... 7 

1.4.2.  European Parliament .................................................................................................... 8 

1.5. 

Results of the consultation of the Impact Assessment Board ...................................... 8 

2. 

Problem definition........................................................................................................ 9 

2.1.  What is the issue or problem that may require action? ................................................ 9 

2.2.  What are the underlying drivers of the problem?....................................................... 10 

2.2.1. 

Increase in demand for transport................................................................................ 11 

2.2.2.  Global perspective...................................................................................................... 14 

2.3. 

2.4. 

2.5. 

3. 

3.1. 

3.2. 

Stakeholders affected ................................................................................................. 14 

How would the problem evolve, all things being equal? ........................................... 15 

Subsidiarity principle ................................................................................................. 16 

Objectives................................................................................................................... 16 

Policy objectives ........................................................................................................ 16 

Consistency with horizontal objectives of the European Union ................................ 17 

3.2.1.  Lisbon strategy ........................................................................................................... 17 

3.2.2.  Sustainable Development strategy ............................................................................. 18 

4. 

4.1. 

4.2. 

Policy options............................................................................................................. 19 

Introduction and options discarded at an early stage ................................................. 19 

Design parameters ...................................................................................................... 19 

4.2.1.  Who should be responsible for delivering CO2 reductions under the new system?... 20 

4.2.2.  How can the burden be shared between car manufacturers? ..................................... 21 

4.2.3.  Flexibility mechanisms .............................................................................................. 27 

4.2.4.  Compliance mechanisms............................................................................................ 28 

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4.3. 

Conclusion and summary of the policy options identified......................................... 31 

5. 

Analysis of impacts .................................................................................................... 32 

5.1. 

Description of the methodology................................................................................. 32 

5.1.1.  Ex-ante estimates from the supporting study ............................................................. 33 

5.1.2.  Dynamic modelling with TREMOVE........................................................................ 33 

5.2. 

Economic impacts ...................................................................................................... 34 

5.2.1.  Least cost solution for the society and cost-effectiveness.......................................... 34 

5.2.2.  Distributional effects in terms of relative retail price increases at the level of 

manufacturers and relative reduction requirements per manufacturer....................... 36 

5.2.3. 

Impacts of the flexibility (trading and pooling) ......................................................... 38 

5.2.4. 

Innovation and trade aspects ...................................................................................... 56 

5.3. 

Social impacts ............................................................................................................ 61 

5.3.1.  Employment aspects................................................................................................... 61 

5.3.2.  Social aspects: social equity and distributional effects within the fleet..................... 65 

5.4. 

Environmental impacts............................................................................................... 75 

5.4.1.  Discussion on the environmental outcome against the various Options.................... 75 

5.4.2.  Compliance mechanism: influence of the financial penalties on the 

environmental outcome .............................................................................................. 76 

5.4.3.  Overall impacts in terms of emissions ....................................................................... 85 

6. 

Comparing the options ............................................................................................... 86 

6.1. 

Tradeoffs between the three options .......................................................................... 86 

6.1.1.  Social equity............................................................................................................... 86 

6.1.2.  Competitive neutrality................................................................................................ 87 

6.1.3.  Cost-effectiveness ...................................................................................................... 87 

6.1.4.  Environmental outcome ............................................................................................. 87 

6.2. 

6.3. 

6.4. 

Overall comparison of the three options .................................................................... 88 

Discussion on the utility parameter (Option 2 only) .................................................. 90 

Assessment of different slopes on the basis of the five criteria set out in the 
earlier Commission Communications of February 2007 ........................................... 91 

7. 

Monitoring and evaluation ......................................................................................... 92 

7.1.  What are the core indicators of progress towards meeting the objectives? ............... 92 

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7.2.  What is the broad outline for possible monitoring and evaluation arrangements? .... 92 

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1. 

PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 

1.1. 

Background in the development of the proposal 

In its parallel Communications from February 2007 on the revised CO2 and cars strategy1 
and on a Competitive Automotive Regulatory Framework for the 21st Century CARS 212 
(referred to as "the earlier Communications" in this document) the Commission decided 
to pursue an integrated approach with a view to reaching the EU objective of 120 g/km 
carbon dioxide (CO2) emissions on average from new cars by 2012. On the basis of the 
two  impact  assessments3  (the  "earlier  impact  assessments")  accompanying  these 
Communications,  the  Commission  announced  that  it  would  propose  a  legislative 
framework, if possible in 2007 and at the latest by mid 2008, to achieve the EU objective 
of 120 g/km CO2, focusing on mandatory reductions in the emissions of CO2 to reach the 
objective of 130 g CO2/km on average for the new car fleet by means of improvements in 
vehicle  motor  technology,  and  a  further  reduction  of  10  g  CO2/km,  or  equivalent  if 
technically  necessary,  by  other  technological  improvements  and  by  an  increased  use  of 
bio-fuels. 

The  proposal  which  this  impact  assessment  accompanies  follows  from  the  earlier 
Communications and their impact assessments, which set out the overall ambition level 
as  well  as  the  principles  and  design  criteria  for  the  future  legislative  framework. 
Consequently,  this  impact  assessment  builds  upon  the  earlier  impact  assessments  by 
considering  the  specific  question  of  the  design  of  the  legislative  framework  for  the 
achievement of the 130 g CO2/km target for passenger cars (so-called "M1" vehicles). 

1.2. 

Organisation and timing 

For  the  preparation  of  this  initiative  (agenda  planning  number  2007/ENV/005)  close 
interservice cooperation was ensured through the establishment of an interservice group 
which  oversaw  and  followed  the  supporting  study  investigating  of  possible  regulatory 
approaches  (see  1.3).  The  services  involved  in  this  group  were  the  following:  three 
coordinating  Directorates  General  (DG  Environment,  DG  Enterprise  and  Industry  and 
Secretariat General), DG Transport and Energy, DG Economic and Financial Affairs, DG 
Taxation and Customs Union, DG Employment, DG Research, Legal Service. 

1.3. 

Consultation and expertise 

In  support  of  the  earlier  Communications,  a  first  round  of  consultation  of  interested 
parties and of the general public was carried out by the Commission in 2005-2006 via an 
online  Internet  consultation  complemented  by  a  dedicated  working  group  established 
under  the  European  Climate  Change  Programme4.  The  CARS  21  stakeholder  group5 

1 
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3 
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5 

COM(2007) 19, 07.02.2007 
COM(2007) 22, 07.02.2007 
CO2 and cars: SEC(2007) 60, 07.02.2007; CARS21: SEC(2007) 77, 22.03.2007 
All  documents  of  the  working  group,  including  minutes  of  meetings,  are  available  here: 
http://circa.europa.eu/Public/irc/env/eccp_2/library?l=/light-
duty_vehicles&vm=detailed&sb=Title 
http://ec.europa.eu/enterprise/automotive/pagesbackground/competitiveness/cars21.htm 

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reviewed  the  role  of  environmental  policy  and  CO2  emissions  as  part  of  developing  an 
overarching integrated policy framework for the automotive sector. 

Building on this work, the following additional consultations were carried out, together 
with an external study aimed at investigating possible regulatory approaches to reducing 
CO2 from light-duty vehicles: 

–  Between  May  and  July  2007,  an  online  internet  public  consultation  was  carried  out, 
aimed  at  gathering  the  views  of  all  stakeholders  and  members  of  the  public  on  the 
implementation of the revised CO2 and cars strategy; 

–  To  complement  this  Internet  consultation,  a  public  hearing  was  organised  by  the 
Commission  on  11  July  2007,  where  the  stakeholders  directly  concerned  by  the 
upcoming  legislation  (automotive  industry,  suppliers,  environmental  NGOs,  social 
partners, consumers…) had the opportunity to present their positions. The final report 
is attached in Annex II. 

The  minimum  standards  for  the  consultation6  have  been  respected,  as  shown  by  the 
assessment below: 

(1) 

Clear content of the consultation process 

The  objectives  of  the  new  legislative  framework  and  the  principles  for  its  design  were 
clearly  described  on  the  public  consultation  website.  The  public  hearing  has  been 
publicised  to  relevant  stakeholders  as  well  as  widely  through  a  press  release.  The 
Commission services have made clear how comments received would be dealt with and 
how the process would proceed. 

(2) 

Consultation target groups 

The  future  legislative  framework  concerns  the  setting  of  CO2  emission  performance 
standards  for  new  passenger  cars  in  the  EU  and  represents  an  important  measure  for 
combating  climate  change.  It  was  therefore  necessary  to  involve  in  the  consultation 
automotive industry and the related branches, which would be affected by the regulation, 
such  as  automotive  suppliers,  environmental  organisations,  the  Member  States  and  the 
large  public.  The  different  industries  were  represented  mainly  through  EU  wide 
organisations. 

(3) 

Publication 

The  preparation  of  the  future  regulatory  framework  was  announced  in  the  earlier 
Communications. Interested parties were aware that there was to be consultation on the 
issues to be addressed in line with the better regulation principles. A special website was 
created for the public consultation and the public hearing.  

(4) 

Time limits for participation 

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COM(2002) 704, 07.02.2002 

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The  Commission  provided  stakeholders  with  a  month  or  more  notice  of  the  public 
hearing. It has given 10 full weeks for the submissions of written comments to the public 
consultation. Stakeholders have been given adequate time to provide written comments 
to  the  public  consultation,  as  well  as  make  a  public  statement  in  the  public  hearing. 
Overall, the Commission has been in ongoing dialogue with stakeholders and met with 
all  interested  stakeholders  requesting  so.  All  stakeholders  should  therefore  be  able  to 
express their views. 

(5) 

Acknowledgement and feedback 

from  stakeholders 

Responses 
the  stakeholder  meetings  have  been 
acknowledged and the stakeholders’ responses, namely the organisations' responses, are 
at: 
publicly 
http://ec.europa.eu/reducing_co2_emissions_from_cars/index_en.htm. 

following 

available 

According  to  the  privacy  statement,  no  individuals’  contribution  can  be  posted  therein 
without  their  consent.  The  Commission  has  not  responded  to  the  points  raised  in 
individual  responses  given  the  wide  range  of  issues  raised,  it  was  however  able  to 
identify the main issues. 

(6)  Main results and how these have been taken into account 

The  majority  of  consultation  responses  have  been  made  publicly  available  at 
http://ec.europa.eu/reducing_co2_emissions_from_cars/index_en.htm.  The  Commission 
has  analysed  the  comments  made,  and  the  results  of  the  consultation  are  presented  in 
Annex III. 

Input  from  stakeholders  has  been  taken  into  account  in  assessing  the  different  possible 
options to regulate CO2 emissions from cars, particularly with regard to the design of the 
legislation,  possible  unwanted  effects,  implications  for  competition  on  automotive 
markets,  global  industrial  competitiveness  and  environmental  outcome.  External 
expertise was used to assess the various options available, including aspects raised during 
the  consultation  process  (the  external  contractor  attended  the  public  hearing  and  was 
informed about the results of the Internet consultation). 

1.4. 

Inter-institutional process so far 

1.4.1.  Council 

in 

the  Council.  The 
The  earlier  Communications  have  been  well  received 
Competitiveness Council, in May 2007, supported "an integrated approach as proposed 
by  the  Commission,  for  reducing  CO2  emissions  from  motor  vehicles"  and  underlined 
"that all the players must make their contribution to reducing emissions harmful to the 
climate"  and  that  "the  opportunity  for  a  regulatory  framework  which  is  cost-effective, 
ensures affordable mobility and contributes to preserving the global competitiveness of 
the automotive industry". The Environment Council, in June 2007, "urged the European 
Commission  to  come  forward,  as  soon  as  possible  and  before  the  end  of  2007,  with  a 
legislative framework to reduce CO2 emissions from cars (…)"  

These two Council formations, as well as the Transport Council in June 2007, called "on 
the Commission to configure the planned framework for attaining the target for average 

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CO2  emissions  from  the  fleet  of  new  cars  sold  in  the  EU  on  the  basis  of  a  thorough 
impact  assessment  in  a  way  that  is  as  neutral  as  possible  from  the  point  of  view  of 
competition, and which is socially equitable and sustainable. It should be framed in such 
a  way  as  to  ensure  that  all  manufacturers  intensify  their  efforts  to  make  their  whole 
vehicle production more environmentally friendly in a cost-effective way". 

1.4.2.  European Parliament 

In  its  resolution  adopted  on  24  October  2007,  the  European  Parliament  welcomed  the 
Commission's plan to propose legislation and proposed that binding emission targets be 
implemented  from  2011  onwards  in  order  to  ensure  that  by  technical  improvements  to 
vehicles  alone,  the  average  new  car  fleet  would  reach  125  g  CO2/km  in  2015.  The 
Parliament also insisted that the average new car fleet should reach 95 g CO2/km by 2020 
and  possibly  70  g  CO2/km  by  2025  subject  to  a  confirmation  or  review  by  the 
Commission no later than 2016. 

Regarding  the  design  of  the  legislation,  the  Parliament  recommended  that  reduction 
targets be defined through a footprint (trackwidth times wheelbase) based limit value and 
proposed  the  creation  of  a  closed  market  mechanism  called  "Carbon  Allowance 
Reductions  System"  (CARS)  separately  from  the  EU  ETS  and  linked  to  financial 
penalties  expressed  in  €/gram.  It  was  also  recommended  that  carmakers  should  be 
allowed  to  exclude  from  the  scheme  up  to  500  vehicles  per  year,  and  that  carmakers 
selling  less  than  300.000  vehicles  and  new  entrants  with  a  market  share  below  1%  be 
addressed through specific yet ambitious provisions. 

1.5. 

Results of the consultation of the Impact Assessment Board 

Two  draft  versions  of  the  impact  assessment  report  have  been  submitted  to  the  Impact 
Assessment  Board.  The  discussion  has  triggered  substantial  improvements  in  the 
methodology  applied  for  the  assessment  of  the  policy  options.  In  its  final  opinion,  the 
Board stated7 that the IA contains robust analysis of impacts and an appropriate range of 
options, based i.a. on an extensive Stakeholder consultation and a comparison with other 
compliance schemes. The final opinion recalled some more technical aspects that, given 
the importance of the proposal, needed to be clarified. These comments have been taken 
on board in the final draft of the IA as follows: 

–  The impact of the different policy options on the fleet composition (section 5.3.2.) and 
the effect it may have on attaining the target have been clarified (section 5.4.3.). The 
methodology is described with further details (section 5.1), in particular the difference 
between  results  from  TREMOVE  and  ex-ante  analysis,  and  the  limits  of  the 
TREMOVE modelling exercise in this specific context. 

–  Given that the modelling and other estimates rely on a set of variables that might be 
influenced by external events, a sensitivity analysis for the ex-ante cost-effectiveness 
calculations  has  been  performed  on  fuel  prices  and  on  autonomous  weight  increase 
parameters (section 5.2.1.) 

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D(2007) 10823, 4/12/2007 

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–  Regarding premiums, the report further explains the advantages/disadvantages of the 
different  methodologies  for  level-setting  and  the  way  they  could  be  introduced. 
(sections 4.2.4. and 5.4.2.) 

–  The report provides an overview of the expected market developments, complemented 
by an indication of where the automotive industry is concentrated, so as to provide a 
basis for an analysis of employment impacts (Section 5.3.1.) 

–  A  short  discussion  on  effects  on  the  automotive  supplier  industry,  mergers  and 

takeovers, and competitiveness on external markets is included in section 5.2.3. 

2. 

PROBLEM DEFINITION 

2.1.  What is the issue or problem that may require action? 

The overall rationale for a revised CO2 and cars strategy based on an integrated approach 
and  implemented  through  a  legislative  framework  has  been  analysed  and  explained  in 
detail in the earlier Communications and impact assessments: 

•  All  sectors  must  contribute  to  the  fight  against  climate  change:  the  EU  is  at  the 
forefront  of  the  fight  against  climate  change  and  must  deliver  the  greenhouse  gas 
(GHG) reductions to which it has committed under the Kyoto Protocol for  the  2012 
horizon. Taking a longer perspective, the EU has committed itself to achieve at least a 
20% reduction of GHG emissions by 2020 compared to 1990 levels, and up to a 30% 
reduction  compared  to  1990  as  part  of  an  international  agreement.  To  avoid 
distortions,  and  for  the  sake  of  economic  and  social  fairness,  all  sectors  must 
contribute to the reduction effort, including transport; 

•  The CO2 performance of new vehicles should improve at a faster rate: passenger car 
use  accounts  for  about  12%  of  overall  EU  emissions  of  carbon  dioxide  (CO2),  the 
main  greenhouse  gas.  Improvements  in  vehicle  technology,  in  particular  fuel 
efficiency, have led to a 14 % fuel efficiency improvement between 1995 and 2006. 
However, improvements in fuel efficiency have been offset mainly by the increase in 
demand  for  transport  and  vehicle  size.  While  the  EU  as  a  whole  has  reduced  its 
emissions  of  greenhouse  gases  (GHG)  by  just  under  5%  over  the  1990-2004  period 
and  emission  have  been  declining  in  non-transport  sectors,  the  CO2  emissions  from 
road transport have increased by 26%. This is partly linked to the limited progress in 
fuel  efficiency  improvements,  and  partly  linked  to  the  increase  in  demand  for 
transport and vehicle size. Despite significant improvements in vehicle technology, in 
particular in fuel efficiency which also means lower CO2 emissions, progress has been 
too slow in view of the EU objective  of reaching an  average new car fleet of 120 g 
CO2/km; 

•  Road  transport  needs  to  use  less  oil:  there  is  a  direct  link  between  improved  fuel 
efficiency and lower CO2 emissions. Road transport relies heavily on oil for which the 
EU's import dependency is higher than 80%. This has a significant impact on the EU's 
security  of  energy  supply  and  makes  the  EU  economies  more  susceptible  to  oil 
shocks.  Road  transport  alone  accounted  for  as  much  as  25%  of  the  final  energy 
consumption in the EU25 in 2004; 

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•  Further  reductions  in  CO2  emissions  must  be  achieved  cost-effectively  without 
undermining  sustainable  mobility  and  the  car  industry's  competitiveness:  cars  are  an 
important  part  of  the  everyday  lives  of  a  large  number  of  Europeans  and  provide 
mobility, which is essential to European society and economy: in 2005, road transport 
accounted for ca. 86% of passenger transport activity and ca. 70% of freight transport 
activity  in  Europe.  The  automotive  industry  itself  is  a  significant  source  of 
employment  and  growth  in  many  regions  of  the  EU.  Europe  is  the  world’s  largest 
producer  of  passenger  cars  and  light  commercial  vehicles  with  ca.  30%  of  these 
vehicle  types  produced  in  Europe.  The  European  automotive  industry  is  a  major 
component  of  Europe's  manufacturing  base.  The  vehicle  industry  accounts  for  about 
20%  of  Europe’s  manufacturing  R&D  investment  (over  €20  billion),  contributed 
about €60 billion to Europe’s trade balance and contributes more than €350 billion in 
fiscal  revenues,  which  represents  ca.  8%  of  the  European  Union's  total  general 
government revenues. Consequently, the legislative framework must be designed in a 
way  that  does  not  undermine  affordable  mobility  and  compromise  the  global 
competitiveness  of  the  automotive  industry  in  Europe  and  its  role  in  contributing  to 
the Growth and Jobs agenda. 

The  overarching  problem  as  identified  in  the  earlier  Communications  is  that 
existing policies to reduce CO2 emissions and improve the fuel efficiency of new cars 
sold  in  the  EU  have  not  been  able  to  deliver  the  progress  needed  for  reaching  the 
long-standing EU objective of an average new car fleet emission of 120 g CO2/km. 
As  a  result,  the  Commission  has  decided  to  propose  a  legislative  framework  to 
implement the "integrated approach" as described in Section 1.1. 

In the earlier Communications, the Commission also outlined the principles, conditions 
and considerations on which the future legislative proposal to achieve the 130 g CO2/km 
target  for  passenger  cars  is  to  be  designed.  These  are  as  follows:  "...the  legislative 
framework  implementing  the  average  new  car  fleet  target  will  be  designed  so  as  to 
ensure  competitively  neutral  and  socially  equitable  and  sustainable  reduction  targets 
which are equitable to the diversity of the European automobile manufacturers and avoid 
any  unjustified  distortion  of  competition  between  automobile  manufacturers.  The 
legislative framework will be compatible with the overall objective of reaching the EU's 
Kyoto targets...". 

The  specific  problem  which  needs  to  addressed  is  how  to  design  the  legislative 
instrument which reflects the above criteria as set by the Commission. 

2.2.  What are the underlying drivers of the problem? 

As  far  as  overall  CO2  emissions  from  road  transport  are  concerned,  a  wide  range  of 
factors  influence  the  observed  and  predicted  growth  in  CO2  emissions  from  passenger 
road  transport,  such  as  supply  and  demand  for  cars,  individual  mobility  needs,  the 
availability of alternative public transport services and the costs of car ownership. 

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2.2.1. 

Increase in demand for transport8 

While vehicle efficiency has been increasing to a certain extent, this has been offset by 
increased  journey  lengths  and  other  trends  leading  to  higher  greenhouse  gas  emissions. 
The overall share of cars in passenger traffic has remained fairly constant over the years 
(73.5 % in 2004). Transport demand has for its part grown significantly and the number 
of  passenger-kilometres  driven  by  passenger  cars  increased  by  17.7 %  over  the  1995-
2004 period. The level of car ownership also increased substantially as shown below: 

Table 1 - Evolution in car ownership and vehicle stock in the EU25 between 1990 and 
2004 

EU 25 

1990 

2004 

Change 

Number of cars per 1000 inhabitants 

Vehicle stock (Million) 

355 

156 

469 

215 

+ 32% 

+ 38% 

This  increase  took  place  despite  a  significant  increase  in  consumer  prices  for  the 
operation of personal transport equipment: over the 1996-2005 period, indexed operation 
costs increased by 38% (indexed vehicle purchase prices increased by less than 5%). 

Figure  1  presents  the  evolution  of  the  physical  characteristics  of  passenger  cars  on  the 
EU15  car  market,  over  the  1995-2004  period:  important  increases  in  mass  (+15%)  and 
even  more  so  in  power  (+28%)  have  taken  place  in  parallel  to  a  12.4%  reduction  in 
specific CO2 emissions. 

Figure  1  -  Physical  evolution  of  ACEA's  car  fleet  compared  to  base-year  1995 
(source SEC(2006)1078) 

Mass

Pow er

Capacity

CO2

)
0
0
1
=
5
9
9
1
(

140

130

120

110

100

90

80

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

8 

Source  of  the  figures  provided  in  this  section:  "EU  energy  and  transport  in  figures:  2006", 
European Commission DG Transport and Energy in cooperation with Eurostat, 2007 

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This  trend  towards  bigger  and  more  powerful  cars  is  explained  by  the  evolution  of 
manufacturers' offer and consumer demand, and by the measures and strategies adopted 
to influence these two parameters (such as advertising practices, fuel efficiency labelling 
etc.). A market environment characterised by cost competition and the fact that vehicle 
manufacturers  need  to  sell  cars  in  order  to  gain  revenue  from  related  products  and 
services  have  also  created  a  situation  whereby  consumer  prices  for  cars  have  increased 
significantly  less  than  headline  inflation  over  the  last  years,  de  facto  making  better 
equipped, cleaner and more powerful cars cheaper than in the past9. 

The CO2 profile of new cars sold by ACEA on the EU market between 1995 and 2004 is 
shown  on  Figure  2  and  Figure  3,  showing  a  clearly  identifiable  "wave-effect"  towards 
reduced CO2 emissions and an increase in the sales of low emitting vehicles. 

Figure  2  -  ACEA's  "wave-effect"  of  CO2  categories  towards  reduced  CO2  emissions 
(source SEC(2006)1078) 

.

s
n
o
i
t
a
r
t
s
i
g
e
r

r
a
c
w
e
n
f
o
%

.

40
35
30
25
20
15
10
5
0

120+less

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004

>350

121-140

141-160

161-180

181-200

201-250

251-300

301-350

CO2 Categories (g/km)

Figure 3 - Change in ACEA's Fleet Composition by "aggregated CO2 Categories" (source 
SEC(2006)1078) 

9 

See  European  Commission  DG  MARKT  2006  report  on  "Car  price  differentials  within  the 
European Union", http://ec.europa.eu/comm/competition/car_sector/price_diffs/ 

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.

s
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.

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

161+

141-160

140&less

1995

1998

2004

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Global perspective 

The EU has one of the most fuel efficient new car fleets in the world, which needs to be 
considered  from  the  angle  of  the  global  competitiveness  of  the  European  automotive 
industry: the promotion of fuel efficiency will create a first mover advantage especially 
in the perspective of the penetration of emerging markets where oil is already scarce. The 
EU  has  thus  an  interest  in  promoting  fuel  efficiency  in  vehicles  in  other  parts  of  the 
world,  where  it  will  be  able  to  reap  the  rewards  of  its  technological  leadership  in  this 
field. The recent years have seen a move from third countries towards either the adoption 
or the reinforcement of fuel efficiency/GHG standards for light vehicles. 

At the same time, the ambition level of the domestic targets and the way in which they 
are implemented must take into account the short-term competitiveness of the European 
automotive industry. An underlying driver of the limited progress in the CO2 reductions 
observed up to 2006 is linked to the lack of truly level playing field amongst carmakers: 
this  situation  stems  from  the  fact  that  so  far  a  voluntary  approach  was  pursued  under 
which  it  appears  that  manufacturers  have  applied  very  varying  degrees  of  effort  in 
delivering the reductions that were required. It may thus be that the approach pursued so 
far  did  not  provide  for  sufficient  pressure  amongst  stakeholders  to  ensure  the  overall 
delivery of the EU objectives. 

2.3. 

Stakeholders affected 

A wide range of stakeholders are affected by the problem: 

•  The  population  of  the  European  Union  is  increasingly  affected  by  climate  change 
through  the  increased  climate variability  and  more  frequent  extreme  weather  events, 
and  their  related  impacts  (higher  maximum  temperatures,  more  hot  days  and  heat 
waves  lead  to  increased  incidence  of  death  and  serious  illness  in  older  or  more 
sensitive groups of the population; more intense precipitation events lead to increased 
floods, landslide, avalanche, mudslides, soil erosion and related increased pressure on 
Government and flood insurance systems and disaster relief; increased summer drying 
over  mid  altitude  continental  zones  and  associated  risk  of  drought  lead  to  decreased 
crop yields, water resource quantity and quality as well as increased risk of forest fire 
and damage to building foundations caused by ground shrinkage). 

•  The consumers of motor vehicles are affected by possible increases in the price of new 
vehicles  and  reductions  in  their  running  costs,  due  to  stricter  requirements  on  CO2 
emissions  and  related  improvements  in  fuel  consumption.  Consumers  of  motor 
vehicles  are  also  affected  by  possible  changes  in  the  level  of  performance  (power, 
comfort) of new vehicles. Conversely, poor fuel efficiency contributes to an enhanced 
dependency on foreign oil imports and to the related exposure to possible price surges 
due to supply shortages. 

•  Carmakers  will  be  affected  by  the  obligation  to  comply  with  the  new  regulatory 
scheme  to  reduce  CO2  emissions  through  resulting  increases  in  the  cost  of  car 
production and the need to further modify the structure of their product portfolios. As 
the  level  of  ambition  sought  by  the  legislative  framework  has  been  set  already,  the 
distributional effects of the future legislation will be of key importance as these will 
determine  how  the  legislative  framework  will  impact  individual  carmakers,  their 

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production costs, the retail price of their products and profit margins. The EU is the 
largest car market in the world and stricter fuel efficiency requirements in Europe will 
affect  those  vehicle  manufacturers  who  sell  their  products  on  the  EU  market  by 
requiring improvements to new vehicles through the development and introduction of 
better technologies. Component suppliers will also be affected by increasing demand 
for advanced technologies and higher pressure on costs as a result of the impact of the 
delivery of the targets on consumer prices. 

2.4. 

How would the problem evolve, all things being equal? 

Figure 4 presents the evolution of the average specific CO2 emissions from new cars sold 
in  the  EU  over  the  1995-2006  period.  The  analysis  of  the  reduction  trends  over  this 
period  shows  that  prior  to  the  entry  into  force  of  the  car  industry's  voluntary 
commitments (1995-1997), the average yearly reduction ranged in the order of 2 grams 
per  year;  in  the  absence  of  a  dedicated  policy  instrument,  this  could  be  considered  an 
"autonomous"  improvement  implemented  by  carmakers  without  regulatory  push.  In  the 
early  years  of  the  Commitments  (1999-2001),  the  yearly  reduction  rate  increased 
significantly,  up  to  5  grams  per  year,  but  subsequently  slowed  down  at  1-2  grams  per 
year  up  to  2006.  The  improvement  rates  necessary  to  deliver  the  130  g  CO2/km  will 
require a return to earlier levels, at 5 gram per year over the 2007-2012 period. 

Figure 4 – Evolution of the average new car fleet CO2 emissions in the EU 

e
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120

110

EU15 level in 1995:
186 gCO2/km

EU15 level in 2006:
160 gCO2/km

130 g by 2012: 
mandatory target 
via engine 
technology as 
foreseen in the 
"integrated 
approach"

5
9
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1

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2

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2

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2
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2

EU 

EU (required)

While it is difficult to precisely predict what the average new car emission would be in 
2012 in the absence of additional measures, it is useful to establish some considerations 
for a baseline against which various options will be compared. Several influences need to 
be factored in. 

•  The  recent  trend  may  continue  without  additional  measures,  implying  1.5  gram 
reduction  per  year  (average  over  the  2002-2006  period).  The  likely  2012  emission 

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level would be 151 g CO2/km based on a linear projection in the absence of additional 
measures.  

•  A less conservative approach would be to assume that in light of the revised CO2 and 
cars  strategy  and  the  announcement  of  the  upcoming  legislative  framework,  car 
manufacturers  will  step  up  their  efforts  ahead  of  the  actual  entry  into  force  of  the 
legislation. 

•  Alternatively,  an  inverse  trend  may  be  observed,  whereby  in  the  absence  of  a 
dedicated instrument, especially after 2008-9 and the end of the voluntary agreements, 
average  CO2  emissions  would  in  fact  be  reduced  at  a  slower  rate,  and  possibly 
increase due e.g. to a continued autonomous power and weight increase. 

In any case, in its recent review of the EU CO2 and cars strategy, the Commission has 
underlined that, based on the experience gained in the past in the implementation of the 
strategy, the EU objective of 120 g CO2/km would not be reached by 2012 in the absence 
of  additional  measures.  None  of  the  assumptions  above  put  into  question  the  earlier 
assessment  made  by  the  Commission  in  which  it  proposed  to  adopt  a  revised  strategy, 
based  on  an  integrated  approach:  a  legislative  framework  will  be  proposed  in  order  to 
meet the 120 g CO2/km objective, focusing on mandatory reductions of the emissions of 
CO2 to reach the objective of 130 g CO2/km for the average new car fleet by means of 
improvements in vehicle motor technology, and a further reduction of 10 g CO2/km, or 
equivalent  if  technically  necessary,  by  other  technological  improvements  and  by  an 
increased use of biofuels. 

In  order  to  provide  a  basis  for  the  assessment  of  the  future  legislative  framework, 
baseline assumptions have been made and are presented in section 4.2. 

2.5. 

Subsidiarity principle 

The subsidiarity principle is respected, since the policy objectives cannot be sufficiently 
achieved  by  actions  of  the  Member  States,  and  can  be  better  achieved  at  Community 
level.  European  Community  action  is  necessary  because  of  the  need  to  avoid  the 
emergence of barriers to the single market notably in the field of the automotive industry, 
and because of the transnational nature of climate change. At the national level, Member 
States can monitor the average specific CO2 emissions of the new cars registered in their 
territory  for  the  purpose  of  compilation  and  comparison  at  the  EU  level  against  the 
established target. However, in view of the widely varying characteristics of the new cars 
sold  in  the  various  EU  Member  States,  domestic  action  would  not  allow  for  the 
achievement of a target defined as the average of the EU new car sales. Taking a wider 
perspective,  Member  States  can  also  facilitate  the  implementation  of  the  legislation  via 
action  at  the  national  level,  notably  to  raise  awareness  about  climate  change  and  drive 
consumer demand towards more fuel efficient vehicles. 

3. 

OBJECTIVES 

3.1. 

Policy objectives 

The proposal pursues the following general policy objectives: 

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•  Providing  for  a  high  level  of  environmental  protection  in  the  European  Union  and 

contributing to reaching the EU's Kyoto targets, 

•  Improving the EU energy security of supply, 

•  Fostering  the  competitiveness  of  the  European  automotive  industry  and  encouraging 

research into fuel efficiency technologies. 

The specific objectives cover: 

•  Reducing the climate change impacts and improving the fuel efficiency of passenger 
cars  by  reaching  the  objective  of  an  average  emission  value  of  130  g  CO2/km  for 
newly sold cars. 

The operational objectives include: 

•  Designing a legislative framework efficiently implementing the average new car fleet 
target ensuring competitively neutral and socially equitable and sustainable reduction 
targets which are equitable to the diversity of the European automobile manufacturers 
and  avoid  any  unjustified  distortion  of  competition  between  automobile 
manufacturers.  The  legislative  framework  will  be  compatible  with  the  overall 
objective of reaching the EU's Kyoto targets. 

3.2. 

Consistency with horizontal objectives of the European Union 

3.2.1.  Lisbon strategy 

The  policy  objectives  of  the  revised  strategy  are  in  line  with  the  three  pillars  of  the 
European  Union’s  Lisbon  strategy,  namely  "making  Europe  a  more  attractive  place  to 
invest and work", "knowledge and innovation for growth" and "creating more and better 
jobs". 

Tighter  requirements  on  CO2  emissions  and  fuel  efficiency  for  passenger  cars  will 
encourage  the  development  and  application  of  new  environmental  technologies.  The 
policy objectives therefore promote innovation and technological development, enabling 
the  EU  car  industry  to  achieve  global  leadership  in  the  field  of  clean  and  fuel  efficient 
technologies.  Europe  already  has  world  leading  diesel  engine  technology,  and  will  be 
able  to  further  develop  this  technology  while  making  advances  in  petrol  engines  fuel 
efficiency and hybrid powertrains. 

Leadership  in  fuel  efficiency  should  in  the  short  term  pave  the  way  to  exports  of 
technologies  and  vehicles  to  emerging  markets  where  oil  is  scarce  and  that  have  set 
ambitious  fuel  efficiency  targets.  In  the  longer  term,  it  is  expected  to  provide  a  long-
standing  competitive  edge  and  the  advanced  technologies  required  to  move  towards  a 
truly low-carbon road transport system. 

By  promoting  further  advances  in  technologies,  the  strategy  will  promote  highly 
qualified jobs in Europe. Although the industry has pointed to the risk of the production 
capacity  being  relocated  outside  the  EU  to  reduce  labour  costs  while  meeting  fuel 
efficiency standards,  it should  be noted that  non-EU  manufacturers  (from  Japan,  Korea 
and  the  United  States)  will  be  subject  to  the same  standards  as  regards  their  exports  to 

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Europe,  and  that  stringent  fuel  efficiency  policies  are  already  implemented  in  their 
domestic market and, in some cases, currently subject to a revision. It should, however, 
be  noted  that  those  European  producers  that  have  proportionally  higher  sales  on  the 
European market will be proportionally more affected by the new policy instrument than 
some of their international competitors. To ensure that the new legislative framework is 
in line with the Lisbon Strategy, the design of the instrument will seek to minimise the 
cost  consequences  to  manufacturing  and  to  consumers  while  ensuring  that  the  diverse 
nature  of  the  European  car  industry  (which  plays  a  substantial  role  in  its  global 
competitiveness) is preserved. 

3.2.2. 

Sustainable Development strategy 

The overall objective of the Renewed Sustainable Development Strategy (RSDS) of the 
European  Union10,  as  regards  sustainable  transport  is  "to  ensure  that  our  transport 
systems meet society’s economic, social and environmental needs whilst minimising their 
undesirable  impacts  on  the  economy,  society  and  the  environment".  The  related 
operational  objective  and  targets  are  to  ensure  the  decoupling  of  economic  growth  and 
the  demand  for  transport  with  the  aim  of  reducing  environmental  impacts,  achieving 
sustainable  levels  of  transport  energy  use  and  reducing  transport  greenhouse  gas 
emissions and "in line with the EU strategy on CO2 emissions from light duty vehicles, 
the  average  new  car  fleet  should  achieve  CO2  emissions  of  140g/km  (2008/09)  and 
120g/km (2012)". 

The policy objectives of the revised CO2 and cars strategy are in line with the RSDS by 
contributing  to  a  more  sustainable  mobility.  Making  transport  more  sustainable  would 
facilitate achieving other sustainable development goals. This relationship is particularly 
strong  between  transport  and  climate  change,  public  health,  conservation  of  natural 
resources  and  social  inclusion.  Leaner  vehicles  will  bring  economic,  social  and 
environmental  benefits  by  reducing  the  energy  consumption  induced  by  their  use.  The 
implementation of the RSDS also means that challenges must be addressed in parallel in 
the  face  of  sometimes  conflicting  objectives.  Such  situations  include  for  example  air 
quality  and  climate  change  (e.g.  reducing  nitrogen  oxides  vs.  reducing  CO2)  or 
environment  and  safety  (e.g.  impacts  on  average  car  weight),  and  all  aspects  must  be 
addressed  in  a  compatible  way.  The  assessment  of  Member  States  contributions  to  the 
first progress report on EU SDS implementation shows that all Member States are taking 
some action on promoting sustainable energy use and reducing greenhouse gas emissions 
via  mainly  fiscal  measures  designed  to  stimulate  the  purchase  of  smaller,  more  fuel 
efficient  vehicles  and  to  promote  alternative  fuels.  However,  it  is  clear  that  only  few 
Member States perform well in terms of taking actions to realize the objectives. There is 
therefore a justified concern about the effectiveness of Member States action in this field 
and the proposed initiative taken at the EU level could substantially support the action of 
Member States. 

10 

European Council, June 2006 

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4. 

POLICY OPTIONS 

4.1. 

Introduction and options discarded at an early stage 

On the basis of the earlier impact assessments accompanying the review of the CO2 and 
cars  strategy  and  the  CARS21  Communication,  the  Commission  has  concluded  in 
February  2007  that  "as  the  voluntary  agreement  did  not  succeed,  (it)  considered 
necessary  to  resort  to  a  legislative  approach".  As  a  result,  the  options  of  "no  policy 
change" and of "alternatives to regulation" (voluntary agreement) have been discarded at 
an early stage. 

The use of regulatory market mechanisms could be envisaged as a regulatory option, but 
was also discarded at an early stage: 

•  Concerns about its effectiveness and the difficulty of adopting proposals on the basis 
of unanimity have led to excluding the option of relying exclusively on excise duties 
in transport fuels as a policy option; 

•  As  regards  a  possible  link  of  road  transport  to  the  EU  Emission  trading  system,  the 
Commission  has  announced  that  it  would  consider  this  option  for  the  third  trading 
period, which will begin in 2013. This assessment will take into account differences in 
sectoral  abatement  costs,  market  impacts,  the  compatibility  of  this  approach  with  a 
possible  sector  specific  target  setting  for  road  transport,  the  need  to  promote 
technological  innovation  as  well  as  to  achieving  CO2  reductions  in  a  globally  cost-
effective  manner.  This  option  has  thus  been  also  discarded  for  the  present  exercise, 
because the timetable as defined by the Commission committed for the delivery of the 
130 g CO2/km target in 2012. 

This  section  will  thus  focus  on  the  various  ways  in  which  a  "conventional"  regulatory 
approach could be designed so as to follow the criteria outlined by the Commission in the 
earlier Communications (as described in Section 3.1). 

4.2. 

Design parameters 

The  EU  strategy  to  reduce  CO2  emissions  from  light  vehicles  defines  CO2  emission 
targets for the "average new vehicle fleet sold in 2012". This means that, the average of 
the  CO2  emissions  of  all  the  new  vehicles  of  all  models  and  segments  placed  on  the 
market by all EU and non EU manufacturers need to respect the stated CO2 objectives. 
The  question  thus  arises  of  how  to  translate  this  "overall"  average-based  target  into  a 
legislative  proposal  in  a  way  that  allows  a  burden  sharing  between  the  various 
stakeholders  concerned,  taking  into  account  in  particular  the  specific  and  operational 
objectives listed in Section 3.1. The main questions of the present impact assessment are 
thus linked to distributional compliance with an established target: who is responsible for 
the delivery, how, what are the flexibilities and what is the compliance mechanism? 

A number of parameters need to be considered in order to be able to design a legislative 
framework, which would be cost-effective, efficient, consistent and practically workable. 

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4.2.1.  Who should be responsible for delivering CO2 reductions under the new system? 

Consideration must be given to who should be regulated i.e. amongst which stakeholders 
the burden (the delivery of the EU average target) will be shared. 

The  legal  obligation  could  rest  directly  on  the  automotive  industry  (i.e.  on  the  car 
manufacturers in the general sense namely the person or entity responsible for the type 
approval  of  the  vehicles  placed  on  the  market),  on  dealers  and  retailers  of  vehicles  in 
Member States, or on Member States themselves, which would then have to translate the 
obligations at the national level through secondary legislation. 

Options  setting  the  obligations  at  the  level  of  Member  State  would  not  offer  the 
necessary  practical  workability:  indeed,  they  would  not  allow  an  easy  link  to  be  made 
between  the  national  obligations  and  the  overall  EU  targets  which  are  defined  for  the 
average  of  all  the  new  cars  sold  in  the  EU27  in  2012.  This  problem  would  be 
complicated from the start by the fact that average new car sale CO2 emissions are very 
different in various Member States (in 2006, the average new car sold in Portugal emitted 
144  g  CO2/km,  against  187  g  CO2/km  in  Sweden  –  see  Figure  5).  Such  an  approach 
would  thus  either  impose  an  un-transparent  "burden  sharing"  between  Member  States 
which  creates  difficulties  and  goes  against  the  spirit  of  EU-wide  policies  of  the  CO2 
efficiency of cars as assisting Member States in meeting the targets for the non EU ETS 
sectors. First of all, it is unknown how much EU-wide measures will deliver exactly in 
each  Member  State.  EU-wide  regulations  of  the  CO2  efficiency  of  cars  will  reduce 
emissions in relative terms per car, but actual reductions will depend on  the amount  of 
cars  sold,  the  amount  of  mileage  driven,  driving  behavior,  or  the  extent  to  which  a 
Member  State  takes  supplementary  measures  such  as  car  (CO2)  taxation,  fuel  taxation 
etc.  Secondly this approach could  also contribute to distortions of competition between 
national  car  markets.  As  Member  States  have  little  control  over  the  contributions  that 
manufacturers could make to their targets, defining national targets could contribute to an 
unwelcome  fragmentation  of  the  market  with  little  certainty  over  their  environmental 
outcome  (restrictions  on  certain  vehicles  in  certain  countries  would  likely  be 
circumvented by consumers purchasing in other more flexible countries). 

Figure 5 - Average new car fleet CO2 emissions in EU15, EU10 and individual Member 
States  (source:  data  reported  by  Member  States  under  Decision  1753/2000/EC,  year 
2006) 

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To  a  great  extent,  attributing  the  obligation  to  dealers  or  retailers  of  cars  would  raise 
similar  problems  as  with  Member  States  being  the  regulated  entity:  dealers  are  usually 
implanted  nationally  and  they  have  little  control  over  the  cars  that  are  produced  by 
carmakers. 

Car  manufacturers  on  the  other  hand  operate  on  the  basis  of  a  single  European  market 
and  are  directly  in  control  of  the  product  mix  they  offer  for  sale  on  the  various  EU 
national markets, and can better follow the evolution of their sales in the course of a year. 
They  cannot  directly  influence  the  marketing  choices  made  by  their  competitors  (and 
related impacts on the fleet average CO2 emissions) but they are able to put in place an 
EU wide sales policy more compatible with the definition of the EU target. Furthermore, 
car  manufacturers  have  a  long  standing  experience  in  monitoring  their  sales  and  CO2 
performance:  although  the  voluntary  commitments  did  not  prove  successful,  the 
monitoring mechanisms in place have shown the ability of both Member States to deliver 
good quality data, and of manufacturers to follow accurately their performance under the 
agreement. 

As  a  result,  it  was  decided  to  consider  regulatory  options  having  car  manufacturers  as 
regulated entity, without prejudice as to whether the CO2 limit would be defined at the 
vehicle or manufacturer level. 

4.2.2.  How can the burden be shared between car manufacturers? 

Having selected car manufacturers as the regulated entity, it is then necessary to devise a 
method in order to share the reduction burden between the stakeholders concerned. Three 
main options have been identified to that effect: 

•  Uniform target: the same obligation could be given to all car manufacturers i.e. they 
would all have to individually meet the 130 g CO2/km target by 2012. In view of the 
wide variety of vehicles and emission levels on the market today (ranging from 88 to 
560  g  CO2/km),  the  achievement  of  a  uniform  130  g  CO2/km  target  would  only  be 
possible  with  the  introduction  of  market  mechanisms  (cap  and  trade)  at  the 

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manufacturer  level.  This  would  ensure  that  the  objective  of  130  g  CO2/km  is  met, 
provided  that  all  manufacturers  respect  the  target  or  that  it  is  possible  to  trade  a 
sufficient number of “credits” between manufacturers. 

•  Utility  based  targets:  in  this  approach,  the  CO2  obligation  would  be  defined  as  a 
function of a so-called "utility" parameter reflecting the utility of the cars as perceived 
by customers. This would reflect the fact that different cars have different utilities and 
emit different levels of CO2 (i.e. that a family station wagon emits more than a mini 
urban  car).  As  regards  the  utility  function  that  could  be  used,  both  linear  and  non-
linear approaches have been considered in the supporting study. However non-linear 
approaches  have  been  discarded  because  the  sales-weighted  cloud  of  points 
representing  cars'  utility  and  CO2  did  not  show  a  marked  non-linear  trend.  Besides 
non-linear  approaches  did  not  appear  to  deliver  benefits  in  terms  of  cost-
efficiency/competitive  neutrality  (an  assessment  confirmed  by  subsequent  analysis  - 
see section 5.2.2) compared to linear functions that are more transparent and thus less 
sensitive to regulatory capture. It should also be underlined that linear functions do not 
imply that small and big cars have to deliver the same relative effort – see discussion 
on the slope of the curve in Box 2. The question that arises is which utility parameter 
would be the most suitable. After analysis based on external expertise and taking into 
account the results of the public consultation, two parameters have been retained for 
further consideration: mass11 and footprint12. These two parameters are also the ones 
used  on  the  other  important  world  markets  (USA  use  footprint  for  light  trucks,  and 
Japan and China use mass for passenger cars). This system, which reflects better the 
"diversity"  of  cars/car  makers,  would  provide  more  realistic  targets  for  individual 
manufacturers, but could be the source of perverse incentives (e.g. if carmakers chose 
to  increase  utility  instead  of  decreasing  CO2  –  see  discussion  below  on  utility 
parameters). Means to prevent such perverse incentives should be considered in order 
to ensure that 130 g CO2/km target is respected. 

•  Percentage  reduction  based  targets:  in  this  approach,  the  CO2  obligation  would  be 
defined as a function of a percentage reduction compared to earlier performance. The 
"% reduction" method is based at the manufacturer level on a % reduction applied to a 
baseline  (e.g.  the  2006  emission  level)  and  could  include  fines/feebates  or  trading. 
This method respects diversity and seems a priori fair to all manufacturers as all have 
to deliver the same relative reduction, although in absolute terms bigger emitters will 
have  to  deliver  more  CO2  reductions  than  small  ones  (percentage).  This  method 
requires  agreement  to  be  reached  on  a  baseline  and  can  only  be  applied  at  the 
manufacturer level (since it is impossible to know how individual cars will evolve in 
five years - the 2012 "Golf" cannot be asked to emit X% less than the 2006 "Golf"). 
Special provisions would be needed for new entrants on the market, since they would 
not have a baseline against which to define the reduction target. 

11 
12 

Mass of the car with bodywork in running order 
Two definitions can be applied: either the total length times the total width (also called pan area), 
or the length between the front and rear wheels times the width of the car. Because data is only 
available  for  pan  area,  all  modelling  presented  in  the  impact  assessment  as  far  as  footprint  is 
concerned is based on the pan area definition 

EN 

22 

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In practical terms, deriving the 2012 obligation for all three options and analysing their 
impacts require assumptions to be made on the evolution from the 2006 situation, and the 
related costs and CO2 impacts (see boxes 1 and 2). 

Box  1:  defining  the  obligation  for  all  three  options,  taking  into  account  potential 
changes in the fleet composition  

The  baseline  relies  on  the  2006  data13  of  cars  sold  in  the  EU15.  New  cars  sold  in  the 
EU10 represented just above 3% of EU25 sales in 2006 (no data available for Bulgaria 
and Romania for 2006), and it is not expected that EU10 sales will follow significantly 
different patterns than those of EU15 up to 2012 (although likely to increase in absolute 
terms).  Consequently  it  is  considered  that  the  EU15  baseline  provides  enough 
information for the purpose of EU27 projections at the 2012 horizon. 

By  using  2006  data  on  CO2  emissions  and  utility  it  is  possible  to  determine  a  sales 
weighted correlation-line for 2006 (with CO2 emissions as a function of utility). On this 
basis,  assumptions  need  to  be  made  in  order  to  derive  a  baseline  for  the  2012  new  car 
fleet. The model used for the cost assessment relies on an overall segmentation14 which is 
not  expected  to  vary  significantly  between  now  and  2012.  The  most  relevant  factor15to 
take  into  account  to  project  the  2012  fleet  is  the  evolution  of  its  average  mass,  and 
assumptions  need  to  be  made  on  the  expected  Autonomous  Mass  Increase  (AMI) 
between 2006 and 2012 as a function of historic trends, price signals including measures 
addressing demand such as fiscal incentives. This was previously analysed in the earlier 
impact assessments. In the earlier impact assessments, two assumptions were made: the 
historic assumption assumed that a 1.5 % per year mass increase will take place between 
2006 and 2012 – this assumption was based on historic data, a lower assumption of 0.82 
%  per  year  assumed  that  due  to  external  factors  (e.g.  revised  labelling  directive,  fiscal 
measures  in  Member  States)  and  because  safety  improvements  (which  tend  to  add 
additional mass to vehicles) will not have the same weight effect as in the past. This is 
because  the  most  important  "passive  safety"  measures  (restraint  systems,  airbags)  are 
"one-offs" that have by now been introduced on most new cars while additional systems 
and  new  auxiliaries  will  largely  relate  to  electronics  based  "active  safety"  with  limited 
mass  implications.  Two  additional  scenarios  were  modelled  assuming  an  extreme  mass 
increase of 2.5 % and no mass increase assuming that the proposed legislative framework 
will provide a strong deterrent against any further mass increase. 

Consequently,  to  account  for  the  variety  of  possible  futures  and  the  important 
uncertainties involved in forward projections of consumers and producers behaviours, the 

13 

14 

15 

The cost model used in the supporting study relies on 2002 as starting year, but 2006 sales and 
emission data are introduced in its baseline in order to takount of the evolution of the fleet up to 
that year 
The segmentation referred to here is not the refined market segmentation (mini, sedan, sport...) but 
the six general segments of the cost model: small, medium and large for petrol and diesel vehicles 
Other  factors  relating  more  generally  to  the  transport  and  climate  change  policy,  such  as  the 
penetration  of  biofuels,  are  not  relevant  for  this  analysis:  indeed,  the  130  g  CO2/km  target  is  a 
"tailpipe  emission"  target  which  cannot  cover  upstream  (well  to  tank)  CO2  savings  in  order  to 
avoid double counting of savings. Biofuels are considered as part of the 10 g CO2/km additional 
savings in the proposed Integrated approach. Assumptions also have to be made on any shift in the 
petrol-diesel  mix.  This  has  been  handled  as  in  the  earlier  impact  assessments  with  no  further 
variations analysed. 

EN 

23 

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impact assessment is conducted on the basis of multiple AMI scenarios: 1. 0%, 2. 0.82 
%, 3. 1.5 % and 4. 2.5 %. 

Because mass increase leads to an increase in CO2 emissions, AMI will have an impact 
on the costs to achieve the target because its CO2 impact needs to be compensated (this 
means that if AMI occurs, even maintaining a constant CO2 emission level has a cost, as 
the mass effect on CO2 needs to be compensated). 

Building on these four 2012 scenarios, it is then possible to define 2012 trend lines such 
that  by  that  year,  the  average  new  car  fleet  respects  the  130  gram  target:  clearly,  for 
Option 1 "Uniform target", the 2012 lines corresponds to a horizontal line (y=130 gram – 
see  Figure  6)  that  manufacturers  must  respect;  the  line  is  independent  of  the  AMI 
assumptions,  which  will  only  affect  costs.  Similarly  for  Option  3  "%  reduction",  the 
manufacturer targets are defined against their 2006 levels, and thus again AMI affects the 
costs, not the target setting. For Option 2 "Utility line" however, because the 2012 line 
will  define  for  each  vehicle  a  CO2  objective  as  a  function  of  a  utility  parameter,  AMI 
needs to be considered when building the target curve if mass is used as utility. The 2012 
line derived from the 2006 line without compensating for any AMI-related CO2 increase 
would  result  in  the  fleet  not  reaching  130  grams  on  average.  On  the  other  hand,  if  an 
assumed AMI does not occur in practice manufacturers would have to deliver more than 
130g CO2/km on average. As can be seen from the graphs in Figure 6 assuming a 0.82% 
AMI  with  mass  as  the  parameter,  would  lead  to  a  higher  percentage  reduction  in  CO2 
than is the case with using pan area as parameter. For Option 2, (should mass be used as 
the utility parameter) the linear function must therefore make a correct assumption on the 
AMI  (or  include  an  adaptation  mechanism,  which  would  allow  to  correct  the  AMI 
assumption  made  today  in  order  to  reflect  real-world  developments  closer  to  the  target 
date) to ensure that the target to be met in 2012 is in reality 130 g CO2/km and to avoid 
an over or under achievement. 

The figure below represents the 2006 trend line, the horizontal line for Option 1 (y=130 g 
CO2/km)  and  different  inclinations  of  the  utility  line  for  Option  2  for  mass  and  for 
footprint (Option 3 cannot be represented graphically since it would be based on a table 
giving per manufacturer the CO2 objective to be reached). 

Figure  6  -  Examples  of  graphical  representations  for  Options  1  and  2  using  mass  and 
footprint  as  utility  parameter  assuming  an  AMI  of  0.82%  without  any  prejudice  to  the 
AMI level eventually chosen (for mass, the 0.82% AMI assumption per year leads to a 
higher overall reduction requirement than for footprint: the reasons is that the increased 
CO2  emissions  resulting  from  the  AMI  have  to  be  compensated  by  an  additional  CO2 
reduction  requirement,  explaining  the  figure  of  -21%  for  weight  against  -18.3%  for 
footprint). 

EN 

24 

   EN 

 
Option 2 slope 120%
Option 2 slope 100%
Option 2 slope 80%
Option 2 slope 60%

Option 2 slope 40%
Option 2 slope 20%
Option 1
2006 trend line

21%

21%

m
k
/
g
[

e
u
l
a
v

t
i

m

i
l

n
o
i
s
s
i

m
e

2
O
C

400

350

300

250

200

150

100

50

0

500

1000

1500

2000

2500

3000

3500

weight [kg] (AWI assumption 0,82% p.a.)

m
k
/
g
[

e
u
l
a
v
t
i

m

i
l
n
o
i
s
s
i

m
e
2
O
C

300

250

200

150

100

50

0

4

Option 2 slope 120%
Option 2 slope 100%
Option 2 slope 80%
Option 2 slope 60%
Option 2 slope 40%
Option 2 slope 20%
Option 1
2006 trend line

18.3%

18.3%

5

6

7

8

9

10

11

12

Footprint lxw [m^2]

EN 

25 

   EN 

 
 
 
 
 
 
 
 
 
 
 
The  following  figure  illustrates  the  influence  of  different  assumptions  on  AWI  on  the 
limit value curve for the case of a 60% slope. 

]

m
k
/
g
[
e
u
a
v
t
i

l

m

i

i

i
 l
n
o
s
s
m
e
2
O
C

0.82%

1.5%

Limit curve assuming 0% 
mass increase

130 g/km

140
139
138
137
136
135
134
133
132
131
130
129
128
127
126
125
124
123
122
121
120

1200

1250

1300

1350
Vehicle mass [kg] 

1400

1450

1500

Box 2 – refining Option 2 through different inclinations 

As explained in Box 1, Option 2 will be represented by a linear function giving the CO2 
limit  as  a  function  of  utility:  the  line  is  such  that,  taking  into  account  the  assumption 
made on the AMI, the average new car fleet in 2012 will respect 130 grams. The most 
straight forward way to derive the 2012 curve is to start from the 2006 curve to which a 
uniform reduction16 is applied: this results in shifting downwards and tilting the 2006 line 
into  a  2012  limit  line.  By  definition,  the  2006  trend  line  provides  the  best  statistical 
relation  between  utility  parameter  and  CO2;  applying  the  same  relative  reduction  to  all 
points  on  the  2006  line  to  derive  the  2012  line  will  maintain  this  “fully  parametered” 
relation. It will be called the 100% inclination. 

On  this  curve,  the  point  having  the  2012  average  utility  and  average  CO2  value  (130 
gram) will be the centre of gravity of the 2012 sales. This means that if the 2012 limit 
line  was  rotated  around  this  point,  the  average  would  still  be  130  grams,  and  thus  the 
objective achieved. The rotation could have the effect of making the curve flatter than the 
100% inclination curve, in which case the cars with a higher utility would have to reduce 
emissions  relatively  more  than  lower  utility  cars  (compared  to  the  100%  curve  which 
strictly maintains the utility/CO2 relation): these curves will have a lower inclination (see 
40,  60,  80%  lines  on  Figure  6).  Alternatively,  the  curve  could  be  steeper  than  100%: 
small utility cars would be asked more reductions than bigger cars (see 120% inclination 
on  Figure  6).  Variations  in  inclination  will  have  different  impacts  on  manufacturers, 

16 

The  reduction  applied  is  a  percentage  corresponding  to  distance  between  130  grams  and  the 
projected 2012 baseline level value taking into account AMI-related CO2 increase and anticipated 
change in the petrol/diesel share. 

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26 

   EN 

 
 
 
 
 
                                                 
depending on their current levels and on their abatement costs, and on the achievement of 
the environmental outcome. 

The curves as depicted in Figure 6 can be expressed in the following form: 

Target = 130g/km + a × (u - u0) 

a = slope parameter 

u = utility parameter of the vehicle  

u0 = projected average utility parameter 

The parameters a and u0 are shown in the following table for a number of slopes and for 
mass as utility parameter. 

AMI 

0% 

0.82% 

1.5% 

Slope 

a [(g/km) / kg]  M0 [kg] 

40% 

50% 

60% 

70% 

80% 

40% 

50% 

60% 

70% 

80% 

40% 

50% 

60% 

70% 

80% 

0,0305 

0,0381 

0,0457 

0,0533 

0,0610 

0,0294 

0,0367 

0,0441 

0,0514 

0,0588 

0,0285 

0,0357 

0,0428 

0,0499 

0,0571 

1289,0 

1289,0 

1289,0 

1289,0 

1289,0 

1353,7 

1353,7 

1353,7 

1353,7 

1353,7 

1409,4 

1409,4 

1409,4 

1409,4 

1409,4 

Each  of  the  above  mentioned  main  options  include  a  wide  variety  of  sub-options, 
depending  on  whether  the  CO2  limit  is  defined  at  the  vehicle  or  manufacturer  level, 
depending  on  whether  and  what  flexibility  mechanisms  are  foreseen,  the  types  of 
compliance mechanisms etc. These additional parameters are discussed below. 

4.2.3.  Flexibility mechanisms 

Flexibility will be an important determinant of the cost implications of future legislation. 
Different levels of flexibility will be envisaged: 

•  Fleet  averaging:  manufacturers  could  average  their  CO2  emissions  over  their  fleet 

(rather than having to respect a target for each car they sell); 

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27 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
•  Pooling:  manufacturers  could  do  the  same  fleet  averaging  amongst  companies 
belonging  to  the  same  group;  similarly  different  manufacturers  could  be  allowed  to 
create a pool on their own initiative and trade the credits they need, should this help to 
optimise the cost of delivering CO2 reductions needed; 

•  Trading:  an  internal  trading  system  could  be  put  in  place,  whereby  manufacturers 
would buy and sell the credits needed in order to overall achieve the target set by the 
legislation; 

•  Specialist  derogation  for  small  volume  independent  manufacturers:some  specialised 
independent manufacturers who  make  small numbers of vehicles such as sports cars 
may not find either solution accessible e.g. through a lack of pooling partners. 

Fleet  averaging  will  be  modelled  by  the  fact  that  at  the  manufacturer  level,  the  model 
assumes that the cheapest reductions are delivered first.  Trading will also be modelled, 
with  the  same  assumption  across  the  whole  fleet.  These  two  flexibility  options  will  set 
the  boundaries  for  the  impact  of  pooling  on  abatement  costs  as  this  option  can  be 
considered as an intermediate option between fleet averaging and full trading. 

Banking  and  borrowing  are  additional  options  that  introduce  a  time  related  flexibility 
whereby  car  manufacturers  could  either  bank  overachievement  in  year  N,  and  use  it  in 
year N+1 if they under achieve, or do less in year N (borrowing) provided they deliver 
more  in  year  N+1.  Because  the  objective  must  be  reached  at  a  given  date  (2012), 
borrowing will not be considered. The relevance of banking will be assessed. 

The possibility of combining Options 2 and 3 has also been put forward. The idea would 
be  to  give  the  choice  to  manufacturers  of  either  meeting  a  utility  based  target,  or 
delivering a % reduction. This solution could provide flexibility for niche manufacturers 
who would face a very high burden against a utility curve, and could thus be better off 
delivering a % reduction, even if it was an above average reduction. 

The specialist derogation has not been investigated  in further detail  because  of  its very 
small impact on the overall level of achieved average emissions.,A suitable level of cut-
off  appears  to  be  an  annual  production  volume  of  10,000  vehicles.In  order  to  provide 
incentives for such manufacturers to also improve their vehicles, ad-hoc targets could be 
set  for  each  one,  in  view  of  the  efforts  made  by  the  bulk  of  the  vehicle  fleet  and 
depending on the characteristics of their own fleet. 

4.2.4.  Compliance mechanisms 

Two  main  types  of  compliance  mechanisms  can  be  envisaged  in  the  case  of  an 
automotive legislation: 

•  Market  access  restrictions  in  case  of  non-compliance:  this  is  the  most  rigid  system. 
Because average fleet can only be calculated ex-post, such an ex-ante system can only 
be applied at the level of individual vehicles. Because the EU target is defined as the 
average  of  the  CO2  emissions  of  the  new  cars  sold  in  a  given  year,  even  if  non 
compliant  vehicles  are  prevented  from  accessing  the  market,  there  will  be  no 
guarantee that the average emission level will respect the set target (unless the target is 
uniform for all vehicles, which is not realistic as explained in section 4.2.2). Finally 

EN 

28 

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such an approach would not allow for any flexibility due to the very nature of market 
access restrictions. Besides, using market access  restrictions would  not allow  targets 
to  be  set  as  a  fleet  average  for  manufacturers,  since  it  would  then  be  impossible  to 
identify the vehicles to exclude from the market. 

•  Financial  penalties  in  case  of  non  compliance:  non-compliance  would  result  in  a 
payment  of  an  excess  emission  premium  (EPP)  defined  in  €/gram  above  the 
established target, depending on the regulatory system in place. On the one hand, the 
objective of the regulatory scheme is to deliver the CO2 targets and penalties should 
act as a deterrent to ensure that emissions reductions are delivered (in order to prevent 
a  cheap  buy  out  instead  of  the  delivery  of  the  target).  On  the  other  hand,  penalties 
should remain proportionate, take into account the cost of CO2 and not undermine the 
global competitiveness of the European automotive industry (European manufacturers 
will  be  more  affected  due  to  having  a  higher  proportion  of  global  sales  on  the  EU 
market).  The  premium  could  be  paid  for  every  vehicle  above  the  limit,  or  be 
calculated  at  the  manufacturer  level  after  fleet  averaging  (which  would  allow  low 
emitting cars to offset cars above the limit); in the latter case the premium would be 
calculated  as  the  product  of  the  distance  to  target  (in  grams)  by  the  premium  level 
(€/gram) and by the number of cars sold by the car manufacturer under consideration. 

Based on the above considerations, financial penalties have been identified as being the 
most  suitable  way  forward.  The  level  of  the  premium  will  obviously  be  of  crucial 
importance for both the effectiveness of the scheme as well as the competitiveness of the 
automotive  industry.  Three  aspects  have  been  taken  into  account  when  considering 
possible premium levels: 

•  Deterrent  effect  against  non  compliance:  the  objective  of  the  legislation  being  the 
achievement  of  the  CO2  average  fleet  targets,  penalties  must  be  sufficiently  high  in 
order  to  have  a  deterrent  effect.  A  possible  benchmark  to  guarantee  this  deterrent 
effect  would  be  to  set  the  level  of  the  penalties  at  least  at  the  level  of  the  technical 
costs to achieve the target: under this approach it would basically cost more to miss 
the  target  than  to  introduce  the  technologies  needed  to  meet  it.  For  this  approach,  it 
should  be  noted  that  the  technical  cost  curves  are  not  linear,  which  means  that 
different actors in the market face different marginal costs of abatement: achieving a 
deterrent  effect  across  the  board  would  require  basing  premium  levels  on  the  upper 
range  of  the  marginal  abatement  costs  (150  €/gram)  for  certain  manufacturers.  A 
premium of 150 €/gram could be considered as an example of a premium level which 
would provide a very strong deterrent effect, while 25 €/gram would reflect the lower 
range of the average abatement cost. An upper range of the marginal abatement costs 
(95 €/gram) for mainstream manufacturers could be also considered17. 

•  Competitiveness dimension: the second effect to consider when setting the level of the 
penalties  is  their  effect  on  global  competitiveness  and  the  automotive  value  chain's 
ability  to  continue  contributing  to  the  Growth  and  Jobs  agenda.  Depending  on  the 
level  of  premiums  and  on  the  extent  to  which  the  target  could  be  missed,  a 
manufacturer  could  potentially  face  very  high  overall  penalties.  (see  section  5.3.2). 

17 

The marginal abatement cost represents the cost of delivering the last gram needed to reach the 
obligation 

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Given that the marginal CO2 abatement cost through vehicle technology is relatively 
high,  premium  levels  based  on  technical  costs  could  led  to  high  premium  levels. 
Furthermore,  high  premium  levels  will  have  a  different  overall  impact  on  different 
market participants depending on the proportion of their global sales in the European 
market.  The  issue  of  proportionality  should  also  be  considered  given  that  premiums 
based on technical costs would price CO2 at a significantly higher price than the price 
of CO2 under the EU Emissions Trading Scheme. This issue also has to be placed into 
the context of the EU industry's competitiveness as a whole: on the one hand a number 
of sectors within the ETS are more subject to international competition when placing 
their products on the EU market than car manufacturers, who will all have to respect 
the EU CO2 legislation; on the other hand, sectors in the ETS have the opportunity to 
purchase CO2 on the open market at the market price, which the automotive industry 
cannot do. A premium level of 7€/g - 10€/gram would reflect a range for the expected 
price  of  carbon  under  the  ETS  system  in  the  future  while  a  premium  level  of  25€ 
/gram would reflect the ETS penalty price. 

•  Time dimension: Together with the competitiveness dimension, it should also be taken 
into account that manufacturers do not have full control over the average of their sales 
in a given year and the target is defined as the average of all the cars placed on the 
market. This creates a margin for error, which manufacturers could to a degree reduce 
through putting in place continuous sales monitoring or through introducing a safety 
margin for uncertainties. The combination of these factors suggests that there would 
be a case for allowing a gradual increase in the premium level over time, to reflect the 
uncertainties  faced  by  manufacturers.  Using  such  a  gradual  approach  could  be 
designed in such a way that it becomes more and more costly to miss on the delivery 
of the target. Such an approach could be to introduce a gradually increasing premium, 
whereby the premium in year N+1 would be higher than the premium in year N. 

Against this background, premium levels set in legislative frameworks pursuing similar 
objectives are of interest, although situations are not stricto sensu comparable: 

•  Fines under the U.S. CAFE programme (Corporate Average Fuel Economy) are set at 
$5.5  for  every  tenth  gallon/mile  by  which  the  target  is  exceeded  and  US  fines 
correspond to roughly 10-15 €/gCO2/km18.  The  US CAFE programme  is based on a 
uniform fuel efficiency target set for the average fleet of all manufacturers selling cars 
in  the  US.  It  was  designed  in  the  1970s,  and  reflects  the  fact  that  major  car 
manufacturers offer vehicles in all market segments, thus being able to overall deliver 
on  the  fleet  targets.  As  far  as  European  carmakers  are  concerned,  because  their 
average fleet did not meet the CAFE standards, they have regularly been fined for non 
compliance:  in  2004,  Porsche  paid  more  than  6.3  M$,  Volkswagen  3.4  M$  and 
DaimlerChrysler 8.5M$19. Although the fact that only certain manufacturers pay fines 
reflects one of the drawbacks of a uniform target  based approach, it also shows that 
the level of the fines did not achieve a deterrent to non compliance in the US; 

18 

19 

Estimate based on an average vehicle (because fuel economy (miles/gallon) is inversely related to 
fuel consumption limits (gallon/miles or g CO2/km), a constant conversion factor cannot be used) 
http://www.nhtsa.gov/cars/rules/CAFE/FINES-COLLECTED-SUMMARY.html 

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•  Fines for non-compliance in the Japanese top-runner system at set at circa € 6000 per 
manufacturer:  while  the  figure  is  very  low,  it  is  noteworthy  that  all  manufacturers 
subject to the system have met the 2010 Japanese standard way ahead of the deadline, 
which would indicate either that compliance with the standard was relatively easy, or 
that in Japan other considerations than the deterrent effect of financial penalties would 
have  driven  car  manufacturers  to  deliver  targets  that  were  attributed  to  them  by  the 
authorities; 

•  Another relevant example is that of the compliance mechanism of the EU Emissions 
Trading  Directive,  whereby  the  penalty  level  for  non  compliance  is  set  at  100 €  per 
ton of CO2 for the 2008-2012 trading period. This level of financial premium, which 
would  correspond  to  an  estimated  25€  per  g CO2/km20  is  considerably  lower  than 
marginal costs to reach the 130 g CO2/km. However it should be underlined that, to 
remain inline with the EU ETS approach, the missing reductions in year N would be 
subject to both the said penalty and the obligation in year N+1 to deliver the missing 
reductions. 

•  Taking  into  account  the  current  discussions  regarding  the  GHG/RES  impact 
assessments, a premium level of 7 to 10€/gram would reflect the possible future price 
of carbon post-2012. 

Based on the cost estimates provided in the supporting study and taking into account the 
above  mentioned  considerations  five  hypotheses  have  been  retained  for  the  further 
analysis: 7€ per g, 10€ per g, 25€ per g, 95€ per g and 150€ per g. Consideration will also 
be given to a possible gradual increase in the level of the premiums over time. A careful 
balance has to be struck between the deterrent effect on the one hand and the effects on 
the global competitiveness on the other.] 

4.3. 

Conclusion and summary of the policy options identified 

Based  on  the  analysis  of  the  possible  options  described  in  the  previous  sections,  the 
following regulatory options have been considered as possible means to meet the policy 
objectives identified in section 3.1: 

(1) 

(2) 

Uniform  target:  this  option  sets  a  common  CO2  emission  limit  for  each 
manufacturer for the average of their new passenger car fleets sold in 2012. To be 
workable,  this  option  needs  to  rely  on  a  trading  mechanism  providing  the 
necessary flexibility in view of the current diversity of car manufacturers; 

Utility parameter based limit curve: a linear function provides the CO2 limit to 
be respected as a function of the utility of the vehicle under consideration. Two 
utility parameters have been identified: mass and footprint. Furthermore there are 
various ways to establish the linear function, as an inflexion of its inclination will 
influence the way in which the burden is shared amongst manufacturers and the 
certainty of the environmental outcome; 

20 

Preliminary estimate based on a direct translation from ETS monitoring to type approval values, 
with a lifetime mileage estimated at 250.000 km and without assumptions on future CO2 penalty 
levels in the ETS, nor discounting 

EN 

31 

   EN 

 
                                                 
(3)  %  reduction  based  targets:  on  the  basis  of  the  2006  emission  levels  averaged 
per manufacturer, reduction targets are established corresponding to the distance 
between the current level and the 2012 target (e.g. for passenger cars the distance 
between  the  2006  level  of  160  g  CO2/km  and  the  2012  target  of  130  g  CO2/km 
corresponds to a circa 19% reduction, so all manufacturers would have to deliver 
by 2012 a 19% against their 2006 levels). 

For all options, flexibility mechanisms, and compliance mechanisms based on premium 
levels  of  7€/gram,  10€/gram,  25€/gram,  95€/gram  and  150  €/gram  will  be  considered, 
including the possibility of a gradual increase in the level of the premiums over time. 

5. 

ANALYSIS OF IMPACTS 

In  its  February  Communication,  the  Commission  has  set  out  the  operational  objectives 
listed  in  section  3.1.  These  principles  will  be  considered  as  part  of  the  overarching 
economic,  social  and  environmental  impacts  for  the  purpose  of  the  analysis  of  the 
options. 

The  economic  impacts  are  primarily  analysed  with  regard  to  overall  cost-effectiveness, 
distributional effects among manufacturers and innovation and trade. The social impacts 
are primarily analysed with regard to employment, affordability of cars and the effect on 
different  segments  of  the  vehicle  market.  The  environmental  impacts  are  primarily 
analysed with regard to effectiveness of the different options. 

It should be underlined that the respect of these principles, which can broadly be grouped 
into social equity, neutrality for competition and cost-efficiency (including achievement 
of the environmental outcome) can in some cases lead to trade offs for example between 
the competitive position of certain manufacturers on the one hand, and the objective of 
maintaining the affordability of cars on the other; similarly, depending on its stringency, 
the  compliance  mechanism  could  influence  significantly  the  environmental  outcome  of 
the scheme as well as the competitive position of European manufacturers compared to 
both  domestic  and  international  competitors.  The  analysis  of  the  impacts  will  thus  be 
carried  out  taking  into  account  the  separate  principles  first  in  the  present  section,  and 
then bringing together the assessment in Section 6 in order to provide an overview of the 
impacts and possible trade offs of the three options considered against the said principles. 

5.1. 

Description of the methodology 

The  methodology  followed  for  the  analysis  of  the  impacts  of  the  policy  options  builds 
upon  the  analytical  framework  developed  in  support  of  the  earlier  impact  assessments 
complemented by the supporting study and stakeholder input provided through the public 
consultation.  To  reflect  in  the  modelling  the  overall  socio-economic  impacts,  the 
modelling time horizon is 2020. 

The  quantitative  assessment  of  the  economic,  environmental  and  social  impacts  of  the 
policy options for the regulation is function of the cost increase per segment, the related 
fuel  cost  savings,  and  the  way  in  which  manufacturers  will  pass  through  costs  to 
consumers at the segment level and by cross subsidisation between segments since fleet 
averaging  would  be  allowed.  Obviously,  modelling  the  evolution  of  the  car  market 

EN 

32 

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segmentation, and different manufacturers behaviour, is difficult, and the IA report relies 
on two assessment sources in order to provide the upper and lower boundaries of the cost 
effectiveness of the options pursued.  

5.1.1.  Ex-ante estimates from the supporting study 

The  cost  model  used  in  the  supporting  study  is  based  on  6  cost  curves  covering  small, 
petrol  and  large  diesel  and  petrol  vehicles  (see  Figure  7),  and  is  well  known  to 
stakeholders: the cost curves have been developed further to an extensive consultation in 
the preparation of the earlier impact assessments21. 

Figure 7 - Cost curves for manufacturer costs and retail price increase (based on Task A 
but excluding manufacturer and dealer margins) 

cost curves (manufacturer costs)

cost curves (retail price increase)

p,S

p,M
p,L

d,S

d,M

d,L

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i
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e
v
/
€
[
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t
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o
c

10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0

p,S

p,M
p,L

d,S

d,M

d,L

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10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0

0

20

40

60

80

100

0

20

40

60

80

100

CO2 reduction [g/km]

CO2 reduction [g/km]

As  explained  in  Box  1,  on  the  basis  of  fleet  evolution  assumptions  between  2006  and 
2012,  the  cost  model  used  in  the  supporting  IEEP/TNO/CE  study  provides  ex-ante 
compliance cost estimates at the manufacturer level, and thus cost-effectiveness estimates 
taking  into  account  the  related  fuel  savings.  In  this  ex-ante  assessment,  no  significant 
variation to overall segmentation of the car market is expected by 2012, bearing in mind 
that the segmentation under consideration is not the refined market segmentation (mini, 
sedan, sport...) but the six general segments of the cost model: small, medium and large 
for petrol and diesel vehicles. 

5.1.2.  Dynamic modelling with TREMOVE 

In  addition  to  the  modelling  of  cost  impacts  at  manufacturer  and  consumer  level, 
TREMOVE  runs  have  been  carried  out.  TREMOVE  is  a  transport  and  emissions 
simulation  model  developed  for  the  European  Commission.  It  is  designed  to  study  the 
effects of different transport and environment policies on the emissions of the transport 
sector. The model estimates the changes in transport demand, modal split, vehicle fleets, 
emissions of air pollutants and welfare level of different policy scenarios. The scenarios 
for  the  present  IA  report  have  been  modelled  using  the  latest  version  of  the  model 
TREMOVE  2.52,  which  covers  all  EU-27  Member  States  over  the  period  1995-2030. 

21 

See Task A study publicly available at 
http://circa.europa.eu/Public/irc/env/eccp_2/library?l=/light-
duty_vehicles/task_a/report_2006_31pdf/_EN_1.0_&a=d 

EN 

33 

   EN 

 
 
 
 
                                                 
The details on the model structure and the baseline can be found in the final report of the 
service contract for the development of the model22.  

For  the  present  report,  a  variant  of  the  baseline,  called  2.53,  has  been  used,  modifying 
both the type-approval CO2 emissions and vehicle retail costs over the period 2006-2012 
and beyond, in order to be fully consistent with the assumptions used in the [supporting 
study] for baseline b1. The results presented here cannot therefore be directly compared 
to the calculation of cost-effectiveness of SEC(2007) 60, that referred to 140g by 2008/9 
as a baseline. Another factor makes difficult any comparison with the TREMOVE runs 
undertaken in 2006: the model has been substantially improved in 2007 by Transport & 
Mobility Leuven, on the basis of the expert model review and stakeholder suggestions: 
The main changes are an update of the emission factors model (from Copert III to Copert 
IV) and the improvement of the vehicle choice logit module (i.a. introducing imperfect 
consumer information on fuel savings over lifetime, as discussed in June 2006 workshop 
on  TREMOVE  vehicle  choice  modelling).  Moreover,  the  present  simulations  are 
performed  very  close 
to  TREMOVE  model  boundary  conditions.  The  coarse 
segmentation in 6 vehicle categories was very useful to define ambition levels – and this 
was  done  in  2006  for  SEC(2007)  60  –  but  is  less  adapted  for  the  fine  tuning  of  the 
regulation. 

Against  that  background,  the  three  options  have  been  modelled  with  TREMOVE  (for 
Option  2,  both  mass  and  footprint  and  slopes  of  40  and  80%  have  been  considered  in 
order  to  provide  a  representative  overview  of  the  slopes  under  consideration).  The 
scenarios implemented consist in a variation of the car purchase price, for each vehicle 
category (small, medium and large, for both petrol and diesel cars), over the period 2006-
2012, together with a variation in fuel consumption, both variables expressed in relative 
terms as a percentage variation over 2002 absolute levels (TREMOVE does not take into 
account  increased  maintenance  costs  for  the  purpose  of  assessing  the  impacts  of 
environmental  legislation).  Using  the  TREMOVE  model  allows  assessing  the  effect  of 
potential changes in sales structure on the cost-effectiveness of the scheme. 

5.2. 

Economic impacts 

5.2.1.  Least cost solution for the society and cost-effectiveness 

The economic impacts for the society as a whole are first and foremost function of the 
level  of  ambition  of  the  targets  which  were  defined  by  the  Commission  in  its  earlier 
Communications  on  the  basis  of  the  earlier  impact  assessments.  Based  on  the  ex-ante 
cost assessment model used to assess different approaches/options for target setting, the 
least cost option for the society at manufacturer level would be based on Option 2, with a 
%  inclination  of  circa  123%23  i.e.  a  line  which  would  require  more  savings  from  cars 
with a small utility compared to bigger cars. This is mainly explained by the fact that the 
bulk of the sales in the EU take place in the small and medium segments (thus reductions 
in the bigger segments only would not suffice to deliver the average targets). 

Obviously,  the  least  cost  solution  would  lead  to  substantially  higher  cost  increases  for 
small cars and thus raise concerns in terms of affordability. It is noteworthy that although 

22 
23 

www.tremove.org  
Valid both for footprint and weight 

EN 

34 

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the optimum lies above 120%, the average cost variations per car when fleet averaging is 
allowed  do  not  vary  much  for  inclinations  between  60%  up  to  140%;  even  at  a  40% 
inclination, the average cost is still less than 4% above the least cost solution. It can thus 
be concluded that other  inclinations than the cost-optimised solution could be taken, in 
view of other  objectives and of the fact that the cost variation remains  limited. Indeed, 
the  earlier  Communication  on  CO2  and  cars  endorsed  a  wide-ranging  notion  of  cost-
effectiveness  that  accounts  notably  for  security  of  energy  supply,  sensitivity  to 
international  competition,  affordability  for  consumers  and  positive  rebound  effects, 
effects that could not be modelled completely in such cost-optimisation. 

In terms of net present value and cost effectiveness, Table 2 provides an indication of the 
cost-effectiveness of the options, based on the two methods described above 

Table  2  -  Cost-effectiveness  of  the  three  options  over  the  2006-2020  period  (source 
Supporting study and TREMOVE) 

Cost effectiveness in €/t CO2 

NPV Cost to 
society 2006-
2020 (M€) 

TREMOVE 

WtW 
CO2eq 
Abatement 
2006-2020 
(Mt) 

Supporting 
study (ex-
ante) 

€/t CO2 

Option 1 

Uniform target per manufacturer with 
trading 

Option 2 

40% slope – Footprint 

80% slope – Footprint 

40% slope – Mass 

80% slope - Mass 

Option 3 

Percentage 
manufacturer 

reduction 

per 

9.746 

22.159 

21.008 

21.674 

20.523 

17.922 

-624 

-638 

-634 

-638 

-634 

-626 

15.6 

34.7 

33.1 

34.0 

32.4 

28.6 

45.6 

39.8 

36.4 

38.7 

34.8 

34.3 

As described later in the report, the TREMOVE runs suggest a substantial change in the 
sales  structure,  which  triggers  a  much  better  cost-effectiveness  of  the  scenario  with 
respect to the static ex-ante estimates. This effect is even stronger in the case of Option 1, 
for which the changes in relative price structure (expressed in lifetime cost for car driver) 
are bigger. This is why the range of cost-effectiveness values - between the static ex-ante 
simulation and the dynamic TREMOVE runs – is the widest for this scenario. 

As  regards  the  ex-ante  calculation,  the  calculation  is  based  at  vehicle  level  for  each 
vehicle category and aggregated using 2012 TREMOVE 2.52 baseline sales structure per 
vehicle category. The variation in vehicle purchase price (excluding taxes) is added to the 
fuel savings (average current 2006-07 average price excluding taxes) over the lifetime of 
the vehicle, using a 4% discount rate (inline with the IA guidelines). This is why for this 
calculation, only cost effectiveness results are provided, and neither total costs nor CO2 
savings. The accuracy of the ex-ante calculation is function of the distance between the 
static  approach  taken  and  how  market  trends  will  actually  evolve.  It  can  be  considered 
that both TREMOVE and ex-ante approaches provide respectively a lower and an upper 
boundary of the cost effectiveness of the legislation. 

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35 

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The output of the [supporting study] can be further exploited to provide useful insights 
on cost-effectiveness. A sensitivity analysis presented in Table 3 has been performed on 
two key parameters: 

(1) 

(2) 

Autonomous weight increase (a.w.i.). The central calculation is based on 0.82% 
annual  increase.  Two  additional  sets  of  value  are  provided  for  respectively  0% 
and 1.5% a.w.i. 

Fuel price. The central estimates are based on an average fuel price before tax of 
respectively  0.50  and  0.40  for  petrol  and  diesel,  based  on  average  prices  in  the 
period 2006-2007. A modulation of +/- 30% has been performed. 

Table 3 – Sensitivity analysis on ex-ante Cost-effectiveness of the three options, based on 
alternative autonomous weight increases and fuel prices (source Supporting study) 

Cost effectiveness in €/t CO2 

Alternative Autonomous weight 
increase 

Alternative fuel price 

Option 1 

Uniform target per manufacturer with 
trading 

Option 2 

40% slope – Footprint 

80% slope – Footprint 

40% slope – Mass 

80% slope - Mass 

Option 3 

Percentage 
manufacturer 

reduction 

per 

0.00% 

19.6 

14.3 

11.1 

13.3 

9.6 

8.4 

1.50% 

70.4 

64.2 

60.8 

63.2 

59.2 

59.2 

-30% 

82.8 

77.1 

73.8 

76.0 

72.1 

71.5 

+30% 

8.4 

2.5 

-1.0 

1.4 

-2.6 

-3.0 

Clearly,  the  way  in  which  the  target  is  delivered,  and  in  particular  the  burden  sharing 
amongst car manufacturers, will also influence the economic impacts, at least at the level 
of  the  automotive  industry.  Because  of  the  potential  distributional  effects  of  different 
regulatory approaches, one of the specific objectives of the Commission (see section 3.1) 
is  to  ensure  “competitively  neutral  targets”  that  are  “equitable  to  the  diversity  of 
European automobile manufacturers and avoid any unjustified distortion of competition 
between automobile manufacturers”. 

Against  this  background,  a  thorough  analysis  has  been  carried  out  on  the  impacts  at 
manufacturer level of Options 1, 2 (for mass and footprint and for different inclinations 
of the line) and 3. 

5.2.2.  Distributional  effects  in  terms  of  relative  retail  price  increases  at  the  level  of 

manufacturers and relative reduction requirements per manufacturer 

Figure 9, Figure 10, Figure 11 and Figure 12 present the impacts of the three options for 
the achievement of the 130 g CO2/km target expressed in terms of relative price increase 
and  2006-2012  reduction  requirement,  including  different  inclinations  of  the  line  for 
Option 2 in the case of mass (Figure 9 and Figure 11) and in the case of footprint (Figure 
10 and Figure 12). 

Figure 13, Figure 14, Figure 15 and Figure 16 present the absolute retail price increase 
and  lifetime  fuel  savings  linked  to  the  achievement  of  the  130  g  CO2/km  target  at  the 

EN 

36 

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manufacturer level , including different inclinations of the line for Option 2 in the case of 
mass (Figure 13 and Figure 15) and footprint (Figure 14 and Figure 16). 

These results confirm the intuitive result that the flatter the curve, the more advantageous 
for  manufacturers  of  smaller  cars,  which  is  true  for  both  utility  parameters.  The  use  of 
mass results in slightly higher relative retail price increases for those manufacturers, but 
the  impact  remains  limited.  However,  while  the  same  types  of  manufacturers  follow 
similar  patterns,  the  speed  of  their  cost  variation  is  not  the  same  for  all  manufacturers. 
Differences  in  distributional  effects  between  the  different  options  analysed  are  much 
larger than differences in impact on average cost per vehicle. 

As  regards  Option  1  (represented  in  the  subsequent  figures  by  the  0%  slope),  the 
consequence  of  using  a  uniform  target  is  that  manufacturers  of  relatively  smaller  cars 
would find it substantially easier to comply with the future legislation than manufacturers 
of relatively bigger cars. Using a uniform target raises concerns as to the respect of the 
diversity  of  European  car  manufacturers  and  does  not  meet  the  requirement  of 
competitive neutrality for the European car market, as it would penalise manufacturers of 
larger cars while not providing sufficient incentive for manufacturers of smaller cars to 
continue reducing their CO2 emissions once they have reached the level of 130 g CO2/km 
in the absence of a trading system. As regards trading, an operational system would have 
to assume that there are sufficient "credits" available on the market. 

Option  2  delivers  the  most  even  sales-weighted  distribution24  of  relative  retail  price 
increase  per  manufacturer,  for  slopes  between  74%  and  80%  for  mass  as  utility 
parameter, and between 64% and 68% for footprint (depending on the assumptions made 
on autonomous mass increase). The most even un-weighted distribution of relative retail 
price increase per manufacturer is delivered for slopes between 39% and 47% for mass as 
utility  parameter,  and  between  18%  and  27%  for  footprint  (again,  depending  on  the 
assumptions  made  on  autonomous  mass  increase).  The  scatter  of  relative  retail  price 
increases per manufacturer remains quite important, at +/- 4% around the average value 
of 6%. It derives from this that a linear utility function cannot be tailored to fully equalise 
the burden per manufacturer in terms of relative retail price increase.  

However,  the  analysis  provided  by  the  supporting  study  (technical  note  #4)  has 
concluded that in view of the underlying factors leading to this scatter around the mean 
average,  the  use  of  a  non-linear  utility  function  would  not  improve  the  equalisation  of 
relative retail price increase over the manufacturers.  

In Figure 8 below, scatter diagrams show the distribution of CO2 emissions in relation to 
the two principal utility parameters currently available as listed above. A sales weighted 
regression  line  also  illustrates  that  either  of  these  parameters  is  at  first  sight  a  suitable 
choice. That is, they show a reasonably close correlation to CO2 emissions, but also have 
a significant  R2 value, ie there is a significant ‘bandwidth’ which suggests that there is 
room  for  improvement  in  relation  to  either  parameter.  Both  also  exhibit  a  significant 
number of ‘outlier’ models towards the top or right-hand side of the cloud. These figures 
are based on the complete database of vehicles available on the market in 2006. 

24 

Excluding Porsche and Subaru in view of the specificities of their fleet – high emitting petrol cars 
– which would make the optimisation meaningless 

EN 

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Figure 8 - distribution of CO2 emissions in relation to the two principal utility parameters 

Vehicle pan area [l x w] 

Vehicle mass (empty) 

Source: Supporting study 

Regarding Option 3, the % reduction target leads to a lower average cost per car than for 
Option 1 or 2, and to a seemingly even distribution of the relative retail price increase per 
car over all manufacturers (see Figure 9, Figure 10, Figure 11 and Figure 12). However 
the  relative  retail  price  increase  per  car  is  higher  for  manufacturers  of  small/light/low 
CO2 emitting cars than for manufacturers of large/heavy/high CO2 emitting cars and thus 
raises affordability and fairness concerns. Furthermore, in terms of competitiveness and 
market strategies, an important drawback of Option 3 is that it locks the manufacturers of 
small/efficient  vehicles  in  their  present  market  position,  while  manufacturers  of 
large/inefficient vehicles can meet their target by widening their market offering towards 
smaller segments. Finally, Option 3 leads to higher costs for early movers as they have to 
climb further on the cost curve to meet the target. 

5.2.3. 

Impacts of the flexibility (trading and pooling) 

As  explained  in  section  4.2.3,  three  forms  of  flexibility  will  be  addressed:  fleet 
averaging,  pooling  and  trading  between  manufacturers.  Introducing  flexibility  is  partly 
indented to provide manufacturers with a broader range of options to meet their emission 
targets, but the extent to which flexibility is used could also have important implications 
for  the  overall  cost-effectiveness  of  the  system.  The  cost  of  reducing  CO2  emissions  is 
vehicle  specific  and  consequently  the  cost-effectiveness  of  the  system  would  not  be 
optimised  if  every  vehicle  would  have  to  comply  with  specific  emission  targets.  The 
differences in abatement costs at the vehicle level are independent of the way the targets 
are set and the three flexibility options would improve cost-effectiveness under all target-
setting options. 

Applying the target to manufacturers’ average fleet rather than individual vehicles would 
allow manufacturers to decide for themselves how and in which segments to reduce their 
average  emissions.  Reduction  of  average  emissions  may  be  achieved  by  reducing  the 
emissions of the models where such reductions cost the least although manufacturers are 
also  likely  to  take  portfolio  and  market  considerations  into  account.  The  average  retail 
price increase is approximately 6% if the target is applied to manufacturer averages (see 
Figure 9 and Figure 10), while it increases to 8 % (depending on the way the target is set) 

EN 

38 

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if the targets are applied to individual vehicles. The fleet averaging option consequently 
reduces the overall cost of meeting the targets. 

Pooling  between  two  or  several  manufacturers  is  in  essence  a  continuation  of  fleet 
averaging applied to several manufacturers. Similarly to different vehicles being subject 
to different abatement costs, different manufacturers are also faced with varying costs of 
abatement.  By  allowing  pooling,  the  abatement  costs  of  different  manufacturers  could 
theoretically  move  towards  averaging  costs,  which  would  result  in  increased  cost-
effectiveness.  In  addition,  pooling  would  allow  for  niche  producers  to  combine  their 
portfolios  with  mainstream  producers  hence  helping  to  address  the  problem  of  outliers 
within the overall system. While the precise impact of pooling on cost-effectiveness will 
depend  on  the  extent  to  which  manufacturers  use  this  possibility  and  the  nature  of  the 
agreements they reach between one another, it is likely that it will take place in practice 
and  has  been  supported  by  representatives  of  the  automotive  industry  during  the 
consultation process. 

As regards the effects of trading on the costs of abatement, this flexibility leads to a more 
even  distribution  of  relative  price  increases,  and  sensitivities  of  manufacturers  to  the 
inclination of the line in the case of Option 2 is reduced. At the segment level, the trading 
option promotes small diesel vehicles, for which additional reductions would not be cost 
effective without the trading incentive. The supporting study shows that trading does not 
greatly influence costs for the mainstream manufacturers, but that it could significantly 
reduce costs for niche/high-emitting manufacturers (an effect that could be achieved with 
pooling as well). The assessment shows that Option 1 leads to the highest trading activity 
(5,63.107 g CO2/km or an average of nearly 4 g CO2/km traded for each car sold), with 
three  times  more  credits  exchanged  than  with  Option  3.  Option  2,  depending  on  the 
inclination  used  for  the  curve  but  irrespective  of  the  parameter  lies  between  these  two 
extremes. The fact that traded volumes represent a significant share (10-20%) of the total 
costs  of  reaching  130  g  CO2/km  could  justify  setting  up  a  trading  system  although  of 
course the modelling assumes that the overall 2012 target will be met on average and that 
the  market  will  behave  perfectly,  and  thus  trading  results  in  an  optimal  solution. 
However,  liquidity  of  the  market  is  not  certain  (in  a  worst  case  scenario  if  the  overall 
target is missed in 2012 there will not be enough credits to trade) and transaction costs 
entailed by flexibility mechanisms have not been estimated, although it is very likely that 
pooling  would  induce  lower  transaction  costs  than  implementing  a  separate,  formal 
sector-wide trading scheme within the timeframe applicable to the future legislation. The 
outcome  of  the  public  consultation  has  shown  that  the  car  industry  would  rather  be  in 
favour  of  a  voluntary  "pooling"  scheme  than  of  a  full  scale  industry  wide  scheme. 
Pooling would thus appear to be the most promising option, especially if sufficient time 
is  offered  to  manufacturers  to  assess  their  potential  offer/demand  for  credits  during  a 
given year. In addition, in fact if pooling works perfectly, it could achieve similar result 
to  trading.  Consequently,  fleet  averaging  and  pooling  appear  to  be  the  most  promising 
flexibility options at this time to help maximise cost-effectiveness. 

It  is  not  expected  that  the  option  of  pooling  or  trading  would  significantly  influence 
decisions  on  mergers  and  take  overs,  as  drivers  for  such  operations  go  far  beyond  the 
impacts of a future CO2 legislation. In this respect, Ford has recently announced that it 
would  sell  Land  Rover  and  Jaguar,  two  high  emitting  brands,  without  assurances 
regarding the future regulatory system regarding CO2 and possible flexibilities. 

EN 

39 

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Figure 9 - Relative retail price increase at the manufacturer level for options 1, 2 (incl. variations) and 3, using mass as utility (a) assuming 0% AMI and 
(b) assuming 0.82% AMI (without prejudice to the AMI level eventually chosen) and allowing fleet averaging (source supporting study)  

per manufacturer - utility - m - c / b1

per manuf. - utility - m - slope 0%

per manuf. - utility - m - slope 20%

per manuf. - utility - m - slope 40%

per manuf. - utility - m - slope 60%

per manuf. - utility - m - slope 80%

per manuf. - utility - m - slope 100%

per manuf. - utility - m - slope 120%

per manuf. - percentage red.

(a) 

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40 

EN 

 
  
 
 
 
 
(b) 

]

%

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Option 1
Option 2 slope 20%
Option 2 slope 40%
Option 2 slope 60%
Option 2 slope 80%
Option 2 slope 100%
Option 2 slope 120%
Option 3

30%

25%

20%

15%

10%

5%

0%

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EN 

41 

EN 

 
  
 
 
 
 
Figure 10 - Relative retail price increase at the manufacturer level for options 1, 2 (incl. variations) and 3, using footprint as utility (a) assuming 0% AMI 
and (b) assuming 0.82% AMI (without prejudice to the AMI level eventually chosen) and allowing fleet averaging (source supporting study)  

per manufacturer - utility - l x w - c / b1

per manuf. - utility - lxw - slope 0%

per manuf. - utility - lxw - slope 20%

per manuf. - utility - lxw - slope 40%

per manuf. - utility - lxw - slope 60%

per manuf. - utility - lxw - slope 80%

per manuf. - utility - lxw - slope 100%

per manuf. - utility - lxw - slope 120%

per manuf. - percentage red.

(a) 

]

%

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25%

20%

15%

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42 

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(b) 

]

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30%

25%

20%

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per manufacturer - utility - l x w - a / b1

per manuf. - utility - lxw - slope 0%

per manuf. - utility - lxw - slope 20%

per manuf. - utility - lxw - slope 40%

per manuf. - utility - lxw - slope 60%

per manuf. - utility - lxw - slope 80%

per manuf. - utility - lxw - slope 100%

per manuf. - utility - lxw - slope 120%

per manuf. - percentage red.

t

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43 

EN 

 
  
 
 
 
 
 
Figure  11  -  Relative  reduction  target  expressed  as  %  of  2006  emissions  using  mass  as  utility  (a)  assuming  0%  AMI  and  (b)  assuming  0.82%  AMI 
(without prejudice to the AMI level eventually chosen) and allowing fleet averaging (based on supporting study) 

relative reduction target (2006  avg. vs. 2012 target)

per manuf. - utility - m - slope 0%

per manuf. - utility - m - slope 20%

per manuf. - utility - m - slope 40%

per manuf. - utility - m - slope 60%

per manuf. - utility - m - slope 80%

per manuf. - utility - m - slope 100%

per manuf. - utility - m - slope 120%

per manuf. - percentage red.

(a) 

]

%

[

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60%

50%

40%

30%

20%

10%

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44 

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(b) 

6
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60,0%

50,0%

40,0%

30,0%

20,0%

10,0%

0,0%

Per manufacturer - utility - m

slope 0%

slope 40%

slope 60%

slope 80%

slope 20%

slope 50%

slope 70%

slope 100%

slope 120%

percentage red.

PSA

Fiat

Renalut

Toyota

Honda

GM

Ford

Nissan

Suzuki

Hyundai

VW

Mitsubishi

Mazda

BMW DC

Subaru

Porsche

EN 

45 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
Figure 12 - Relative reduction target expressed as % of 2006 emissions using footprint as parameter (a) assuming 0% AMI and (b) assuming 0.82% AMI 
(without prejudice to the AMI level eventually chosen) and allowing fleet averaging (based on supporting study) 

relative reduction target (2006  avg. vs. 2012 target)

per manuf. - utility - lxw - slope 0%

per manuf. - utility - lxw - slope 20%

per manuf. - utility - lxw - slope 40%

per manuf. - utility - lxw - slope 60%

per manuf. - utility - lxw - slope 80%

per manuf. - utility - lxw - slope 100%

per manuf. - utility - lxw - slope 120%

per manuf. - percentage red.

(a) 

]

%

[

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60%

50%

40%

30%

20%

10%

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A
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46 

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(b) 

60,0%

50,0%

]
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40,0%

30,0%

20,0%

10,0%

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6
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Per manufacturer - utility - I x w

slope 0%

slope 40%

slope 60%

slope 80%

slope 20%

slope 50%

slope 70%

slope 100%

slope 120%

percentage red.

PSA

Fiat

Renalut

Toyota

Honda

GM

Ford

Nissan

Suzuki

Hyundai

VW

Mitsubishi

Mazda

BMW DC

Subaru

Porsche

EN 

47 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
Figure 13 - Absolute retail price increase at the manufacturer level for options 1, 2 (incl. variations) and 3, using mass as utility (a) assuming 0% AMI 
and (b) assuming 0.82% AMI (without prejudice to the AMI level eventually chosen) and allowing fleet averaging (source supporting study) 

per manufacturer - utility - m - c / b1

per manuf. - utility - m - slope 0%

per manuf. - utility - m - slope 20%

per manuf. - utility - m - slope 40%

per manuf. - utility - m - slope 60%

per manuf. - utility - m - slope 80%

per manuf. - utility - m - slope 100%

per manuf. - utility - m - slope 120%

per manuf. - percentage red.

(a) 

]
€
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10000

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48 

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(b) 

]
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18000

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10000

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0

A
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per manufacturer - utility - m - a / b1

per manuf. - utility - m - slope 0%

per manuf. - utility - m - slope 20%

per manuf. - utility - m - slope 40%

per manuf. - utility - m - slope 60%

per manuf. - utility - m - slope 80%

per manuf. - utility - m - slope 100%

per manuf. - utility - m - slope 120%

per manuf. - percentage red.

t

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EN 

49 

EN 

 
  
 
 
 
 
Figure 14 - Absolute retail price increase at the manufacturer level for options 1, 2 (incl. variations) and 3, using footprint as utility (a) assuming 0% AMI 
and (b) assuming 0.82% AMI (without prejudice to the AMI level eventually chosen) and allowing fleet averaging (source supporting study) 

per manufacturer - utility - l x w - c / b1

per manuf. - utility - lxw - slope 0%

per manuf. - utility - lxw - slope 20%

per manuf. - utility - lxw - slope 40%

per manuf. - utility - lxw - slope 60%

per manuf. - utility - lxw - slope 80%

per manuf. - utility - lxw - slope 100%

per manuf. - utility - lxw - slope 120%

per manuf. - percentage red.

(a) 

]
€
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per manufacturer - utility - l x w - a / b1

per manuf. - utility - lxw - slope 0%

per manuf. - utility - lxw - slope 20%

per manuf. - utility - lxw - slope 40%

per manuf. - utility - lxw - slope 60%

per manuf. - utility - lxw - slope 80%

per manuf. - utility - lxw - slope 100%

per manuf. - utility - lxw - slope 120%

per manuf. - percentage red.

(b) 

]
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51 

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Figure 15 - Absolute fuel savings at the manufacturer level for options 1, 2 (incl. variations) and 3, using mass as utility (a) assuming 0% AMI and (b) 
assuming 0.82% AMI (without prejudice to the AMI level eventually chosen) and allowing fleet averaging (source supporting study with lifetime 
mileage of 208.000 km and 4% discount rate) 

(a) 

i

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per manuf. - utility - m - slope 0%

per manuf. - utility - m - slope 20%

per manuf. - utility - m - slope 40%

per manuf. - utility - m - slope 60%

per manuf. - utility - m - slope 80%

per manuf. - utility - m - slope 100%

per manuf. - utility - m - slope 120%

per manuf. - percentage red.

16000

14000

12000

10000

8000

6000

4000

2000

0

A
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52 

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(b) 

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Option 2 slope 20%

Option 2 slope 40%

12000

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Option 2 slope 80%

Option 2 slope 100%

Option 2 slope 120%

Option 3

10000

8000

6000

4000

2000

0

PSA

Fiat

Renault

Toyota

Honda

GM

Ford

Nissan

Suzuki

Volkswagen
Hyundai

Mitsubishi

Mazda

BMW

DaimlerChrysler

Subaru

Porsche

Average

EN 

53 

EN 

 
  
 
 
 
 
 
 
 
 
Figure 16 - Absolute fuel savings at the manufacturer level for options 1, 2 (incl. variations) and 3, using footprint as utility (a) assuming 0% AMI and 
(b) assuming 0.82% AMI (without prejudice to the AMI level eventually chosen) and allowing fleet averaging (source supporting study with lifetime 
mileage of 208.000 km and 4% discount rate) 

(a) 

i

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per manuf. - utility - lxw - slope 20%

per manuf. - utility - lxw - slope 40%

per manuf. - utility - lxw - slope 60%

per manuf. - utility - lxw - slope 80%

per manuf. - utility - lxw - slope 100%

per manuf. - utility - lxw - slope 120%

per manuf. - percentage red.

16000

14000

12000

10000

8000

6000

4000

2000

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EN 

55 

EN 

 
  
 
 
 
 
 
 
 
 
 
5.2.4. 

Innovation and trade aspects 

The  possible  effects  of  legislation  on  areas  such  as  research  and  development  and 
external trade should also be considered.  

The  automotive  industry  accounts  for  approximatively  20%  of  manufacturing  R&D  in 
Europe and is one of the most important R&D investors in Europe. 

Table 4 - Top 20 industrial R&D investors in Europe, 2005 

The  130  g  CO2/km  target  as  set  out  in  earlier  Communications  provides  the  main 
stimulus  for  impacts  in  the  area  of  research.  The  ambition  level  set  out  by  the 
Commission  can  be  expected  to  speed  up  the  development  and  market  introduction  of 
more  fuel  efficient  vehicles  in  the  future.  Although  there  are  already  technologies 
available  to  deliver  the  130  g  CO2/km  target  by  2012,  the  entry  into  force  of  the 
legislation will promote further technological advances in this field, foster research and 
development and accelerate the market penetration of advanced combustion and power-
train technologies as manufacturers seek to achieve scale production effects. 

It  is  worth  briefly  considering  whether  the  way  in  which  the  achievement  of  the  target 
may affect particular technologies or segments of the market. It is not expected that there 
will  be  a  strong  shift  in  the  segmentation  of  vehicles,  at  least  in  the  short-term.  It  is 
probable  that  the  proposed  legislation  will  limit  possible  vehicle  upsizing  and  that  the 
design  of  cars  will  take  vehicle  mass  into  consideration  significantly  more  than 
previously.  The  use  of  diesel  technology  has  played  an  important  role  in  past  CO2 
reductions and it  is  expected  that  the  diesel penetration  rate  will continue  increasing in 
the short term. Other specific improvements are likely to include a speedier introduction 
of elements  such as hybrid powertrains, stop-start systems  and gasoline direct injection 
systems. 

EN 

56 

   EN 

 
 
Automotive suppliers account for circa 2/3 of the final product and over 50% of research 
in  this  sector.  Effective  supply  chain  management  is  one  of  the  key  competitive 
advantages  of  the  European  industry  while  production  of  advanced  components  is  an 
important strength of the European supply industry. 

The worldwide demand for vehicles is set to grow significantly in the medium term with 
most  of  the  global  demand  increases  for  vehicles  projected  to  come  from  rapidly 
developing economies (e.g. China, India, Russia etc.). The 2004 Competitiveness Report 
also  concludes  that  “worldwide  demands  for  safer  and  more  environment-friendly 
vehicles will continue” and that these demands will have a role in driving research and 
innovation. In the global perspective, research and innovation are seen as strengths of the 
European market and it is not likely that the above trends will have a damaging effect on 
the competitive position of EU manufacturers. As regards mature non-EU markets where 
EU manufacturers are already present (e.g. US, Canada), there is general trend towards 
the  reinforcement  of  fuel  efficiency/greenhouse  gas  emission  standards.  Because 
requirements  on  these  markets  are  so  far  less  ambitious  than  those  in  the  EU,  the 
proposed  EU  legislation  will  allow  European  carmakers  to  provide  vehicles  that  are 
competitive and meet the reinforced standards to come into force in the coming years. As 
regards  emerging  car  markets  such  as  China,  there  is  a  growing  recognition  that 
ambitious  fuel  efficiency  standards  for  light  vehicles  are  needed  if  consumers  in  those 
countries  are  to  be  able  to  access  mobility  in  an  affordable  and  sustainable  manner  (in 
view notably of the reliance of those countries on energy imports). 

On  the  other  hand,  it  should  also  be  noted  the  current  demand  structure  in  emerging 
markets  suggests  that  exporters  of  new  premium  vehicles  generally  have  a  customer 
base,  which  is  relatively  price  insensitive  (to  both  vehicle  and  fuel  prices)  while  the 
buyers  of  “mass  market”  vehicles  tend  to  be  very  price-conscious,  which  suggests  that 
significant added cost to mass-produced vehicles is unlikely to give European producers 
a  competitive  advantage  in  those  segments.  It  should  be  noted,  however,  that  mass 
market products are more likely to be produced in situ using production facilities which 
do not correspond to those used for the European market, which should reduce the scope 
of  any  disadvantage.  On  the  other  hand,  it  should  also  be  noted  that  the  competitive 
advantage  which  more  fuel  efficient  vehicles  could  provide  on  mature  markets  is  also 
likely  to  become  more  relevant  in  emerging  markets  with  the  passage  of  time  and  the 
creation of a larger middle-class customer base.  

The  automotive  industry  in  Europe  contributes  nearly  EUR  60  billion  to  the  European 
trade  balance  and  from  the  trade  perspective  it  is  worth  assessing  the  role  that  the 
proposal  may  have  on  both  the  European  market,  which  accounts  for  a  major  share  of 
European  manufacturers'  sales,  as  well  as  on  international  markets  from  which  most 
future demand growth is likely to come. 

EN 

57 

   EN 

 
Figure 17 - Overview of the evolution of vehicle imports (in value and number of cars) 
into the EU-27 

Value in euros

Imports from outside EU 27 to EU 27

10,000,000,000

9,000,000,000

8,000,000,000

7,000,000,000

6,000,000,000

5,000,000,000

4,000,000,000

3,000,000,000

2,000,000,000

1,000,000,000

0

Gas  and
petrol <=
1.000
cm 3

Gas  and
petrol  > 1
000 cc
but =<
1.500 cc

Gas  and
petrol  >
1.500
cm 3 but
<= 3.000
cm 3

Gas  and
petrol >
3.000
cm 3

Dies el 
<= 1.500
cm 3

Dies el  >
1.500
cm 3 but
<= 2.500
cm 3

Dies el >
2.500
cm 3

Electric
m otors  

Others

Number of cars

Imports from outside EU 27 to EU 27

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

2003
2004

2005

2006

2003

2004

2005

2006

Gas and
petrol <=
1.000 cm3

Gas and
petrol  > 1
000 cc but
=< 1.500
cc

Gas and
petrol  >
1.500 cm3
but <=
3.000 cm3

Gas and
petrol >
3.000 cm3

Diesel  <=
1.500 cm3

Diesel  >
1.500 cm3
but <=
2.500 cm3

Diesel >
2.500 cm3

Electric
motors 

Others

All  manufacturers  (from  the  EU  and  outside)  will  have  to  comply  with  the  same 
legislative  framework  when  placing  cars  on  the  European  market.  If  the  legislation 
distributes the burden of compliance relatively evenly (i.e. legislation is  designed  so  as 
not  to  discriminate  arbitrarily  between  two  manufacturers  in  a  similar  position)  there 
should  in  principle  be  no  significant  change  in  the  competitive  positions  of  those 
manufacturers  who  produce  primarily  in  Europe  and  those  who  produce  outside.  In 
reality,  however,  the  general  competitive  position  of  European  manufacturers  on  the 
home market is likely to improve when compared to overseas manufacturers. 

EN 

58 

   EN 

 
 
 
It can be argued that the recent EU enlargements will be an important driver of aggregate 
demand, as car ownership levels in the EU12 are currently relatively low and often met 
through  second-hand  car  sales.  Thus  new  car  sales  in  EU12  are  projected  to  increase, 
whereas  the  market  in  EU15  is  mature  and  largely  saturated.  Owing  to  their  strong 
position in manufacture and sales in EU12 as well as in EU-15, it is the manufacturers 
present on the European market that should be best placed to exploit this developing new 
car market. 

Figure 18 - Overview of the export position of the automotive industry in Europe (source 
Eurostat) 

Exports from EU 27 to outside EU 27

Value in euros

33,000,000,000

30,000,000,000

27,000,000,000

24,000,000,000

21,000,000,000

18,000,000,000

15,000,000,000

12,000,000,000

9,000,000,000

6,000,000,000

3,000,000,000

0

Gas  and
petrol <=
1.000 cm 3

Gas  and
petrol  > 1
000 cc but
=< 1.500
cc

Gas  and
petrol  >
1.500 cm 3
but <=
3.000 cm 3

Gas  and
petrol >
3.000 cm 3

Dies el  <=
1.500 cm 3

Dies el  >
1.500 cm 3
but <=
2.500 cm 3

Dies el >
2.500 cm 3

Electric
m otors  

Others

Number of cars

Exports from EU 27 to outside EU 27

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

2003
2004
2005
2006

2003
2004
2005
2006

Gas  and
petrol <=
1.000 cm 3

Gas  and
petrol  > 1
000 cc but
=< 1.500
cc

Gas  and
petrol  >
1.500 cm 3
but <=
3.000 cm 3

Gas  and
petrol >
3.000 cm 3

Dies el  <=
1.500 cm 3

Dies el  >
1.500 cm 3
but <=
2.500 cm 3

Dies el >
2.500 cm 3

Electric
m otors  

Others

EN 

59 

   EN 

 
 
The  graphs  above  suggest  that  Europe  primarily  exports  medium  and  large  petrol 
vehicles.  This  is  mainly  due  to  the  fact  that  for  high  quantity  mass  market  vehicles, 
manufacturers tend to produce on, or close to the markets in which their sales take place. 
It  would  appear  that  exported  vehicles  are  generally  those  with  above-average  CO2 
emissions  and  raise  the  question  of  whether  the  obligation  to  significantly  reduce  CO2 
could have an adverse effect on the ability of European manufacturers to maintain their 
export  performance25.  In  the  light  of  the  price  level  reached  by  oil  prices  and  the 
predicted increase in the number of vehicles globally (see Figure 19 below), it is difficult 
to conclude that the export ability of European industry would be significantly impaired 
as a consequence of CO2 legislation despite the fact that purchasers of luxury cars tend to 
remain more insensitive to the price of fuel. 

Figure  19  -  Global  production  of  passenger  cars  (2002  –  2005)  and  forecast  of  future 
passenger car production trends (2006 – 2016): Source: Global Insight 

30,000

25,000

)
s
0
0
0
(

s
t
i

n
U

20,000

15,000

10,000

5,000

0

2002

2004

2006

2008

2010

2016

Africa and Middle East

Asia 

Eastern Europe NAFTA

South America Western.Europe

An  important  parameter  in  assessing  the  competitive  position  of  EU  manufacturers  in 
other  major  markets  is  the  size  of  their  sales  outside  the  EU.  If  a  manufacturer  has 
relatively  low  sales  on  non-EU  markets  then  it  is  probably  too  expensive  for  that 
manufacturer  to  differentiate  models  for  the  different  markets.  On  the  other  hand  most 
global  car  makers  already  produce  different  models  or  different  model  versions  for 
different markets. 

Japanese brands completely dominate the Japanese markets, so it cannot be foreseen that 
a  change  in  regulation  will  have  a  significant  impact  (positive  or  negative)  on  sales  in 
this market, and hence on employment opportunities. 

In contrast, however, the US market is more diverse. Home grown brands still dominate, 
but  here  the  German  brands  hold  the  third-largest  market  share  and  US  sales  make  an 
important  contribution  to  their  total  sales  and  income.  Specifically  Porsche,  BMW, 
Mercedes and to a lesser extent Volkswagen have large sales in the US, especially in the 

25 

Obviously the EU CO2 obligation would only apply to vehicles sold in EU27, not to vehicles built 
for export purposes 

EN 

60 

   EN 

 
 
                                                 
high end part of the market (with high margins), and this trend is not expected to change. 
The 2004 Competitiveness Report notes that demand in the domestic market also tends to 
translate into success abroad, in that purchasers of European cars in the US tend to be of 
significantly higher average income than buyers of Asian or American brands, reflecting 
the "luxury" status of many of the European cars sold there. 

A  further  question,  however,  is  whether  selling  more  fuel  efficient  vehicles  in  e.g. 
California may give European carmakers a competitive advantage. It can be argued that 
fuel price rises in the US have damaged sales of the largest gas guzzling vehicles. This in 
turn has adversely affected the profitability of the three big US car makers, all of which 
are  in  serious  financial  difficulties,  while  Japanese  and  European  manufacturers  have 
benefited  from  the  rise.  Thus  fuel  economy  has  given  imported  models  an  important 
competitive advantage in recent years. 

The  Chinese  market  is  growing  rapidly,  and  some  European  manufacturers  are  already 
positioning themselves there. China is one of the countries that already has fuel economy 
standards owing to its concerns over oil imports. Already most European car models are 
capable  of  meeting  future  Chinese  standards,  and  will  in  future  have  a  competitive 
advantage over US companies, many of whom will have models not complying. 

The Russian car market is also expanding. While much of the market in Russia is based 
on  second-hand  cars,  the  market  for  new  cars  is  likely  to  increase,  and  European 
manufacturers will be well placed owing to their proximity and long land borders. 

Although  some  manufacturers  are  present  in  other  markets  in  South  America,  Middle 
East, Asia and Africa, the models sold in these markets are generally not as advanced as 
those  sold  in  the  EU  (older  models  or  older  Euro-standard)  and  that  these  vehicles  are 
usually assembled in local factories to reduce costs and be near the destination market. 
Furthermore these markets are still small compared with the others discussed above. In 
this  case  the  CO2  legislation  for  the  EU  market  does  not  directly  influence  the 
competitive position of European manufacturers in these markets. 

5.3. 

Social impacts 

5.3.1.  Employment aspects 

In  term  of  supply  and  demand,  the  net  effect  of  a  higher  price  of  vehicles  on 
employment in the EU is determined by the increase of the amount of labour within the 
EU per vehicle, due to the application of additional or more expensive components, and 
the change in vehicle sales, linked to the higher price and related fuel savings. The latter 
is determined by the price elasticity. The balance of these two elements is critical to the 
direct impacts on employment in the automotive sector. 

The  price  elasticity  for  new  car  sales  with  regard  to  the  price  of  new  cars  is  a  very 
specific type of elasticity. Precise values are not well known because data on the "real" 
price trend of new cars are difficult to derive, and other variables such as income are very 
important.  In  general,  however,  price  elasticities  for  car  ownership  as  function  of  fuel 
price, income etc. are between 0 and -1 (i.e. fairly inelastic), so that one can expect that 
this is also the case for price elasticity for new car sales with regard to the price of new 
cars. In that case, a 6% price increase (reflecting the average cost increase, which is valid 

EN 

61 

   EN 

 
for  all  three  options  under  consideration,  and  assuming  a  full  pass-through  to  the 
consumer  which  gives  the  biggest  price  effect)  will  lead  to  less  than  6%  reduction  in 
sales - i.e. the total value of sales will rise slightly. Therefore, lower vehicle sales within 
the EU will not necessarily lead to loss of jobs in the automobile industry within the EU, 
and  could  easily  lead  to  a  rise  in  direct  employment  depending  on  what  share  of  extra 
costs  were  to  go  into  extra  labour.  In  either  case,  the  direct  impact  seems  likely  to  be 
relatively marginal. 

In addition to volume considerations, the upstream and downstream impacts triggered 
by  the  upcoming  legislation  also  need  to  be  taken  into  account.  The  net  effect  for  the 
society  will  not  only  be  function  of  the  impact  on  carmakers,  but  also  on  possible  job 
creations in other sectors, in particular in the supply chain but also in other areas such as 
for example the development of public transport. As far as the supply chain is concerned, 
the  automotive  industry  itself  can  be  conceived  as  having  four  levels,  although 
definitions  vary  slightly:  Original  Equipment  Manufacturers  (OEMs)26,  Tier  1 
Suppliers27, Tier 2 Suppliers28 and Tier 3 Suppliers29. Suppliers play an increasing role in 
the  value  chain  over  time,  often  accounting  for  "the  lion’s  share"  of  added  value.  In 
Germany, the share of manufacturers in total added value declined from 18% in 1995 to 
12.1%  in  2001  as  a  result  of  pressures  of  innovation  and  more  sophisticated  vehicle 
design,  and  similar  declines  were  witnessed  in  most  EU  manufacturing  countries. 
Increased vehicle value, e.g. through innovation in electronics, is cited as a key avenue 
for future growth in the supplier industry. This is a key possible growth area in relation to 
reducing CO2, and Europe is well represented with specialist suppliers. Thus a focus on 
carmakers  can  mask  the  vital  contribution  of  domestic  upstream  inputs  to  the  industry, 
which is estimated to provide significantly more value added in addition to that which is 
added  within  the  automotive  industry  itself.  A  further  25%  of  the  added  value  is 
accounted for by imports to the EU – i.e. a further Euro is added elsewhere. Combining 
this with the calculation above, it seems clear that higher prices should produce a strong 
positive multiplier effect higher up the supply chain, and some at least of this should be 
translated into extra employment. 

However,  the  following  considerations  should  be  borne  in  mind  in  the  context  of  the 
present proposal: 

•  The  main  challenge  in  achieving  the  130  g/km  target  is  not  related  to  the  need  to 
introduce revolutionary new technologies but rather to the cost of proliferating already 
available  technologies  throughout  large  parts  of  the  fleet.  Consequently,  it  is  not 
expected  that  this  proposal  will  create  a  dramatic  technological  shift  leading  to 
numerous  components  becoming  obsolete.  It  is  usually  via  redesign,  addition  and 
integration that environmental improvements are brought into vehicles.  

•  During  the  stakeholder  consultation  process,  representatives  of  component  suppliers 
were significantly more optimistic about the introduction of the 130 g/km target than 

26 
27 

28 
29 

major manufacturers 
work  closely  with  manufacturers  to  deliver  major  component  elements  of  the  vehicle,  such  as 
drive train assemblies. They in turn purchase components from Tier 2 and Tier 3 suppliers 
manufacture minor subassemblies that are supplied to and assembled by the Tier 1 suppliers 
supply the raw materials to the component manufacturers 

EN 

62 

   EN 

 
                                                 
vehicle  manufacturers  themselves  due  to  the  fact  that  they  see  it  as  creating  new 
potential opportunities to market high-value added, innovative technologies. 

•  There  is  currently  a  substantial  consolidation  process  under  way  in  the  supplier 
industry  despite  the  fact  that  the  suppliers’  volume  of  production  has  more  than 
doubled  over  the  last  10  years  (due  to  continued  outsourcing  of  manufacturing  and 
services  by  end-product  manufacturers  and  an  increasing  number  of  vehicle  fittings 
many of which are also purchased externally). There are a number of reasons for this 
process which, among other things, reflect the heterogeneity of the  suppliers  (small-
and  medium  sized  suppliers  have  experienced  difficulties  in  accessing  capital,  there 
has been significant downward pressure on prices initiated by manufacturers seeking 
to  cut  costs,  passing  higher  commodity  prices  on  to  consumers  has  at  times  been 
difficult for a number of component manufacturers, competition between suppliers has 
intensified  etc.)  but  the  overall  effect  has  been  increased  pressure  to  rationalise  the 
market and promote mergers30. As discussed above, however, reasons for this process 
are mainly not related to increased environmental requirements. 

For all three options under consideration, if the cars on the European market become on 
average 6% more expensive compared to 2006, the additional costs to manufacturers are 
built  up  from  material  costs  for  own  production  of  CO2  reducing  technologies  and 
purchase costs for components purchased from suppliers, tooling costs and labour costs. 
Tooling costs and purchase costs are again built up from the same three costs types but 
then at the level of suppliers. Overall therefore a large share of the additional costs can be 
translated  into  labour  costs.  Remaining  costs  are  costs  of  materials  and  components 
imported  from  outside  the  EU.  Except  maybe  for  electric  motors  and  batteries  used  in 
hybrids the share of these import costs is expected to be limited. 

Downstream  services  also  comprise  a  very  substantial  component  of  the  automotive 
industry  as  a  whole,  as  they  are  required  throughout  the  lifetime  of  a  vehicle.  These 
include accessories and spare parts, repairs and maintenance, in-service testing, fuel and 
other  consumable  supplies,  finance  and  insurance,  etc.  In  the  context  of  the  upcoming 
legislation, improved fuel consumption would lead to a decrease in the aggregate demand 
for fuel. Against this, higher prices could lead to an increase in turnover for finance and 
insurance  industries,  while  the  use  of  more  complex  technologies  could  lead  to  more 
activities in relation to parts and maintenance. 

In  a  global  market,  relocation  of  manufacturing  capacity  outside  Europe  in  response  to 
higher  costs  could  be  a  concern  from  the  employment  perspective.  However,  car 
manufacturers  tend  to  locate  new  production  facilities  on  the  markets  for  which  the 
vehicles are destined (Figure 20). Besides, the fact that all manufacturers, domestic and 
foreign will have to respect the legislation will further limit its competitiveness impacts. 
Finally,  the  2004  Competitiveness  Report31  reflects  evidence  that  when  German 
automotive  suppliers  sought  new  manufacturing  locations  during  the  1997-2002,  only 
17.3%  of  new  sites  were  in  Germany,  but  60%  remained  within  the  EU.  Of  the 

30 

31 

A study by Mercer Management Consulting and Fraunhofer Gesellschaft foresees that despite the 
expected  substantial  expansion  in  production  and  added  value  in  the  industry,  the  number  of 
independent  component  manufacturers  worldwide  will  decrease  from  5,600  in  2000  to  2,800  in 
2015 
SEC(2004) 1397, 8.11.2004 

EN 

63 

   EN 

 
                                                 
remainder, South America was the most favoured choice, followed by the US and Asia32. 
Although legislation is among many factors which impact manufacturers' and suppliers' 
production location decisions, it could be argued that there is an increased likelihood that 
advanced  component  production  for  fuel  efficient  vehicles  would  continue  to  be 
European-based. It could also act as an inhibiting factor to the relocation of parts of the 
supply chain out of Europe. As part of the public consultation, trade unions have shown 
support  for  ambitious  CO2  reductions  in  the  automotive  sector  as  part  of  an  overall 
energy efficient industrial policy, and provided all vehicle types/manufacturers would be 
subject to requirements recognising the diversity of the market and the need to maintain 
car manufacturers competitiveness. 

Figure  20  -  Automotive  production  locations  on  the  European  continent  -  Source: 
European Automobile Manufacturers Association (ACEA) 

In  terms  of  competitiveness  impacts  and  related  employment  effects,  the  three  options 
under  consideration  have  different  impacts  upon  the  average  costs  of  the  various 
manufacturers. Depending on how these costs will be passed on to consumers, this could 
have  an  impact  on  the  sales  or  profitability  of  the  manufacturers,  and  there  could  be 
"winners"  and  "losers".  While  such  effects  will  be  limited  by  the  achievement  of  the 
operational  objectives  listed  in  Section  3.1,  in  a  first  approximation  it  can  be  expected 
that aggregate employment levels should not be affected if some sales switch from one 
manufacturer to the other. More important impacts could be felt if either the total volume 

32 

but  sites  outside  of  the  EU  were  chosen  for  the  purpose  of  selling  cars  in  the  EU  with  cheaper 
production costs, but rather to have production nearer the market targeted 

EN 

64 

   EN 

 
 
                                                 
of  sales  changes  significantly  or  if  European  manufacturers  as  a  whole  lose  out 
significantly to third country manufacturers in terms of future sales. The analysis of the 
three options at the manufacturer level does not point towards such a worst case scenario.  

5.3.2. 

Social aspects: social equity and distributional effects within the fleet 

One  of  the  specific  objectives  set  by  the  Commission  in  preparing  the  legislation  is  to 
design the legislative instrument on the basis of targets that are "socially equitable". 

The  comparison  of  figures  Figure  13  and  Figure  15  (Figure  14  and  Figure  16 
respectively)  show  that  overall,  the  retail  price  increase  of  vehicles  will  be  more  than 
compensated  by  the  fuel  savings  (net  present  value)  over  the  lifetime  of  the  vehicle. 
However, in view of consumer purchasing patterns (i.e. how far consumers take life-time 
operating costs into account when buying a car, which is further complicated by the fact 
that many buyers do not own the same vehicle throughout its lifetime), there also needs 
to  be  an  analysis  of  the  affordability  of  the  measures  i.e.  can  people  who  will  benefit 
from the fuel savings afford to buy the vehicle in the first place. 

At the vehicle level, the assumption that manufacturers will fully apply fleet averaging to 
deliver  the  CO2  savings  required  leads  to  lower  retail  price  increases  for  large  petrol 
vehicles  than  for  small  petrol  vehicles  (because  these  vehicles,  and  in  particular  small 
and  medium  ones,  are  the  vehicles  that  present  the  most  cost-effective  solutions  for 
overall CO2 reductions). For Option 1, the relative retail price increase for small vehicles 
is  about  the  same  as  that  for  large  vehicles,  but  still  larger  than  that  for  medium-sized 
vehicles.  Obviously  this  raises  affordability  concerns  and  it  can  be  expected  that 
manufacturers will seek a middle ground between a full fleet averaging (i.e. equalisation 
of  marginal  abatement  costs  across  all  segments)  and  an  approach  based  on  vehicles 
only. While it is not possible to assess to what extent manufacturers will cross subsidise 
the CO2 reductions amongst segments, an analysis at the vehicle level has been carried 
out  in  the  supporting  study  for  the  three  options  under  consideration  assuming  that 
reductions  would  need  to  be  delivered  at  the  segment  level  (i.e.  no  fleet  averaging).  In 
this  case  (see  Figure  21  and  Figure  22),  relative  retail  price  increases  are  smaller  for 
small petrol vehicles than for larger petrol vehicles for Option 1 and for Option 233 for 
slopes up to 60% (both for mass and footprint). For diesel vehicles this condition is met 
for Option 1 and for  Option  2 with inclinations up to 120%, with cost increases more 
pronounced with vehicle size class for the lower slope values. 

Figure 21 - Relative retail price increase per segment for utility based limits applied per 
car for mass and AMI=0.82% (source supporting study) 

33 

As explained in Section 0, Option 3 cannot be applied at the vehicle level 

EN 

65 

   EN 

 
 
                                                 
per car - utility - m - a / b1

per car - utility - m - slope 0%

per car - utility - m - slope 20%
per car - utility - m - slope 40%
per car - utility - m - slope 60%

per car - utility - m - slope 80%
per car - utility - m - slope 100%
per car - utility - m - slope 120%

25%

20%

15%

10%

]

%

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5%

0%

-5%

p,S

p,M

p,L

d,S

d,M

d,L

average

Figure 22 - Relative retail price increase per segment for utility based limits applied per 
car for footprint and AMI=0.82% (source supporting study) 

per car - utility - l x w - a / b1

per car - utility - lxw - slope 0%

per car - utility - lxw - slope 20%

per car - utility - lxw - slope 40%

per car - utility - lxw - slope 60%

per car - utility - lxw - slope 80%

per car - utility - lxw - slope 100%

per car - utility - lxw - slope 120%

p,S

p,M

p,L

d,S

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average

]

%

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25%

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As a result the changes in the structure of the sales by fuel type and size could potentially 
be more substantial. Sales of diesel cars would decrease, while sales of medium and large 
petrol cars would increase, in all scenarios. Again this is explained by the findings of the 
supporting  study,  which  point  to  the  higher  potential  for  cost-effective  CO2  savings  on 
petrol  cars.  Consequently,  the  expected  fuel  savings  will  be  larger  for  petrol  cars. 
Depending  on  the  extent  to  which  such  savings  are  taken  into  consideration  by 

EN 

66 

   EN 

 
 
 
 
 
 
 
 
 
 
 
consumers, this could increase the demand for petrol vehicles. Sales of small petrol cars 
would increase in Option 1, and slightly decrease in Options 2 and 3 (see Figure 23). 

Figure 23 - Impact on Passenger Cars sales, 2015 (source TREMOVE) 

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

car >2.0l - diesel

car 1.4-2.0l - diesel

car <1.4l - diesel

car >2.0l - petrol

car 1.4-2.0l - petrol

car <1.4l - petrol

baseline sales
2015

uniform target
per manufacturer
with trading

40% slope - lxw
based limit
function per
manufacturer

80% slope - lxw
based limit
function per
manufacturer

40% slope - m
based limit
function per
manufacturer

80% slope - m
based limit
function per
manufacturer

percentage
reduction per
manufacturer

Furthermore,  at  the  manufacturer  level,  the  supporting  study  has  concluded  that  for 
Option 2 (both for mass and footprint, and for 40% and 80% inclinations), around 80% 
or  more  of  the  vehicles  sold  in  Europe  would  be  exposed  to  an  average  relative  retail 
price increase per manufacturer that was below or around the average value – see Figure 
24.  Due  to  modelling  limitations,  it  was  not  possible  to  assess  whether  this  conclusion 
was valid for the 80% most sold vehicle models in Europe. For the 40% inclination, the 
80%  market  share  at  the  manufacturer  level  includes  all  European  “mainstream” 
manufacturers  (PSA,  Renault,  Fiat,  Ford,  Volkswagen  and  GM),  as  well  as  Japanese 
manufacturers  Toyota  and  Honda,  which  seems  to  point  towards  a  relatively  equitable 
distribution  of  costs,  whereby  the  mainstream  carmakers  would  face  on  average  lower 
cost increases than more specific producers selling vehicles that emit higher CO2 levels. 
However for a 80% inclination, Fiat is faced with relative retail price increases above the 
average,  while  BMW  falls  below  average  since  Fiat  is  presently  producing  cars  with 
relatively  high  CO2  emissions  compared  with  average  utility.  For  Porsche  the  relative 
retail price increase is a factor of 2 to 3 times the average depending on the option and 
the utility parameter. 

Figure  24  -  Relative  retail  price  increase  of  manufacturers  ordered  by  market  share  for 
40,  50,  60,  70  and  80%  inclinations  and  for  the  following  cases:  (a)  mass  as  utility 
parameter,  assuming  0%  AMI  (without  prejudice  to  the  AMI  level  eventually  chosen); 
(b)  mass,  assuming  0.82%  AMI;  and  (c)  footprint,  assuming  0.82%  AMI  (source 
supporting study) 

EN 

67 

   EN 

 
 
(a) 

per manufacturer - utility - m - ami = 0.0% / b1

]

%

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25%

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10%

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0%

25%

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0%

per manuf. - utility - m - slope 40%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 40% slope

C
D

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60%

70%

80%

90%

100%

cumulative share of sales [%]

per manufacturer - utility - m - ami = 0.0% / b1

per manuf. - utility - m - slope 50%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 50% slope

i

a
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H

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0%

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50%

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cumulative share of sales [%]

EN 

68 

   EN 

 
 
 
 
 
 
 
 
 
 
 
]

%

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25%

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25%

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per manufacturer - utility - m - ami = 0.0% / b1

per manuf. - utility - m - slope 60%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 60% slope

i

a
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H

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

cumulative share of sales [%]

per manufacturer - utility - m - ami = 0.0% / b1

per manuf. - utility - m - slope 70%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 70% slope

n
a
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s
N

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0%

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20%

30%

40%

50%

60%

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cumulative share of sales [%]

EN 

69 

   EN 

 
 
 
 
 
 
 
 
 
 
 
]

%

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25%

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0%

per manufacturer - utility - m - ami = 0.0% /  b1

per manuf. - utility - m - slope 80%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 80% slope

n
a
s
s
N

i

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b
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50%

60%

70%

80%

90%

100%

cumulative share of sales [%]

(b) 

per manufacturer - utility - m - a / b1

per manuf. - utility - m - slope 40%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 40% slope

C
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cumulative share of sales [%]

]

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EN 

70 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
]

%

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25%

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5%

0%

per manufacturer - utility - m - a / b1

per manuf. - utility - m - slope 50%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 50% slope

i

a
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50%

60%

70%

80%

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100%

cumulative share of sales [%]

per manufacturer - utility - m - a / b1

per manuf. - utility - m - slope 60%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 60% slope

i

a
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cumulative share of sales [%]

EN 

71 

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]

%

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25%

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15%

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per manufacturer - utility - m - a /b1

per manuf. - utility - m - slope 70%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 70% slope

i

a
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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

cumulative share of sales [%]

per manufacturer - utility - m - a / b1

per manuf. - utility - m - slope 80%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 80% slope

n
a
s
s
N

i

u
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a
b
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a
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30%

40%

50%

60%

70%

80%

90%

100%

cumulative share of sales [%]

EN 

72 

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(c) 

per manufacturer - utility - l x w - a / b1

per manuf. - utility - lxw - slope 40%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 40% slope

u
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a
b
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0%

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20%

30%

40%

50%

60%

70%

80%

90%

100%

cumulative share of sales [%]

per manufacturer - utility - l  x w - a / b1

]

%

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per manuf. - utility - lxw - slope 50%

20%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 50% slope

]

%

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cumulative share of sales [%]

EN 

73 

   EN 

 
 
 
 
 
 
 
 
 
 
 
per manufacturer - utility - l x w - a / b1

25%

per manuf. - utility - lxw - slope 60%

20%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 60% slope

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cumulative share of sales [%]

per manufacturer - utility - l x w - a / b1

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per manuf. - utility - lxw - slope 70%

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Manufacterers listed in order 
of increasing relative retail 
price increase for 70% slope

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40%

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cumulative share of sales [%]

EN 

74 

   EN 

 
 
 
 
 
 
 
 
 
per manufacturer - utility - l x w - a / b1

25%

per manuf. - utility - lxw - slope 80%

20%

average

Manufacterers listed in order 
of increasing relative retail 
price increase for 80% slope

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50%

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70%

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cumulative share of sales [%]

5.4. 

Environmental impacts 

5.4.1.  Discussion on the environmental outcome against the various Options 

For  Option  1,  because  by  definition  the  target  is  the  same  for  all  manufacturers  (130 
grams),  the  environmental  outcome  is  linked  to  the  availability  of  credits  to  trade 
amongst manufacturers and to the efficiency of the compliance mechanism (see section 
5.4.2). As mentioned in Section 5.2.2 the quantity of credits traded could potentially be 
significant in the order of 10 to 20% of the total costs for delivering the 130 g CO2/km 
target. However it is unclear whether the market would function effectively i.e. whether 
there  would  be  enough  credits  to  trade  considering  that  manufacturers  who  would 
potentially have the possibility to go beyond 130 g CO2/km might not see an advantage 
in selling the credits to competitors rather than letting them pay the premiums. A trading 
scheme  could  also  lead  to  substantial  administrative  costs.  Going  beyond  these  market 
strategies, the  level of the  premiums  will  be crucial in the effectiveness of the scheme, 
since  it  will  de  facto  define  the  upper  limit  for  the  value  of  the  credits  traded  amongst 
carmakers. 

In the case of Option 2 “Utility parameter”, as discussed in Section 4.2.2, assumptions 
on  the  Autonomous  Mass  Increase  (AMI)  are  crucial  in  the  definition  of  the  linear 
function in order to ensure that the 130 g CO2/km target will be delivered and not under 
or over achieved. In addition, in the case of mass as utility parameter, depending on the 
slope of the curve, there could be an incentive to increase mass for manufacturers: if the 
mass  increases  faster  than  the  CO2  obligation,  increasing  mass  will  bring  a 
vehicle/manufacturer  closer  to  its  CO2  obligation.  Based  on  the  supporting  study,  to 
avoid stimulation of perverse effects or market trends which cause the 2012 average CO2 
emissions to increase above 130 g/km the inclination of a mass-based limit function for 
Option 2 should thus be below 80%. 

EN 

75 

   EN 

 
 
 
 
 
 
In the case of Option 3 “% reduction”, all manufacturers are attributed a fixed reduction 
to  be  achieved  against  their  2006  performance.  Under  the  hypothesis  that  the  market 
position of the various manufacturers remain the same both in terms of segmentation and 
of market share, then the delivery of the environmental outcome will mainly be linked to 
the  level  of  the  financial  penalties.  However,  in  case  the  market  is  subject  to  profound 
changes, carmakers could be in a situation where they meet their CO2 obligation but the 
overall target of 130 g CO2/km is not delivered (for example if the sales of a big or small 
emitter significantly increase, its relative mass in the overall EU average would increase, 
and  shift  the  average  either  above  or  below  the  130  g  CO2/km  target).  The  fact  that 
newcomers would not have a baseline against which to set the target would equally lead 
to uncertainty in the delivery of the environmental objective. 

In the public consultation, the question of the impact of vehicle price increase on the fleet 
renewal  rate  has  been  raised.  It  is  however  a  question  more  linked  to  the  level  of 
ambition  of  the  strategy,  and  in  particular  the  130  g  CO2/km  target,  than  to  the 
distributive  effects  of  the  various  options  under  consideration.  Meeting  the  operational 
objectives laid down by the Commission (see section 3.1) should in any case minimize 
such impacts. 

5.4.2.  Compliance  mechanism: 

influence  of 

the 

financial  penalties  on 

the 

environmental outcome 

The environmental outcome is influenced by the level of the financial premium because 
firms  will  adapt  their  behaviour  in  response  to  it.  The  figure  below  illustrates  the 
situation  of  a  firm  that  faces  rising  marginal  costs  (MC)  in  improving  its  average  car 
fleet. The firm will keep on improving its fleet until the marginal cost exceeds the level 
of the emissions premium. From that crossover point onwards, the firm will opt to pay 
the  fine.  The  total  expenditure  of  the  firm  is  given  by  the  shaded  area  in  the  graph. 
Within  that  area,  the  triangular  part  to  the  left  of  the  crossover  point  indicates  the 
expenditure  on  technological  improvement,  whereas  the  rectangular  part  to  the  right  of 
the crossover point shows the total amount of premium that has to be paid. 

Cost situation of a manufacturer

160

140

120

Crossover 
point

Excess emissions premium

)

100
m
k
/
g
(

80

/

€

60

40

20

0

MC

Target

0

10
20
Distance to target (g/km)

30

40

EN 

76 

   EN 

 
 
 
 
This  has  consequences  as  illustrated  in  the  following  figure.  For  small  levels  of  the 
excess emissions premium, the majority of the payment made by a manufacturer would 
be  spent  on  the  emissions  premium,  without  spending  much  on  improving  the  CO2 
emissions. In a sense, a low penalty would have the characteristics of an additional tax on 
the  manufacturer  with  little  environmental  benefit.  For  a  high  premium,  on  the  other 
hand, the largest proportion of the money spent by the manufacturer would be spent on 
improving the vehicles in order to reduce their emissions. Only a small portion would go 
into paying the premium. Above a certain level of the premium, no premium would be 
paid and full compliance would be ensured. 

Expenditure for a manufacturer 
at differnent pentalty levels

Excess emissions premium
%share of excess premium in total expenditure
Share of firm's expenditure spent on reducing emissions

1

0,9

0,8

0,7

0,6

0,5

0,4

0,3

0,2

0,1

0

0

10

20

30

40

50

60

70

80

90

Penalty [€ / (g/km ) ]

The total expenditure of the manufacturer is rising as the penalty increases (see yellow 
line  in  the  next  figure).  At  levels  close  to  full  compliance,  the  total  expenditure  curve 
becomes  flat.  Thus,  the  last  few  grams  before  compliance  cause  a  small  additional 
expenditure  because  the  rising  technology  cost  is  compensated  by  the  falling  penalty 
cost.  Therefore,  a  premium  level  that  is  somewhat  below  full  compliance  would  cause 
almost  the  same  cost  to  the  manufacturer  as  one  that  ensures  full  compliance,  but  it 
would lead to a correspondingly smaller improvement in CO2 emissions (which vary in a 
linear fashion with the level of the premium). 

EN 

77 

   EN 

 
 
Expenditure on technical improvement

Excess emissions premium

Total expenditure

1,8

1,6

1,4

1,2

1

0,8

0,6

0,4

0,2

0

0

10

20

30

40

50

Excess emissions premium

60

70

80

90

It  is  important  to  note  that  these  considerations  apply  to  a  situation  where  the 
manufacturer is technically capable of reaching its target value, so its decision on how far 
to  improve  its  fleet  is  taken  on  purely  financial  grounds.  On  the  basis  of  the  [Task  A] 
study,  this  appears  to  be  a  safe  assumption  for  targets  as  considered  in  this  impact 
assessment, although the cost may be high for some manufacturers. 

For a given level of the premium, the achieved fleet average CO2 level can be estimated 
for each manufacturer as above, based on its 2006 mix of car models and the cost curves 
of the supporting study. The resulting fleet average CO2 level is shown in the two graphs 
below for mass as the utility parameter (top) and for footprint (bottom) and for a variety 
of  cases  each  (slopes  of  the  limit  value  curve  and  assumptions  on  autonomous  weight 
increase). There is not much difference between the two types of utility parameters used. 
It can be seen that for a higher assumed autonomous weight increase, the sanctions also 
have to be correspondingly higher. It becomes apparent that in order to exceed the target 
by no more than 5g/km, the premium level would have to be in the order of 50-70 €/gram 
depending  on  the  autonomous  weight  increase.  For  a  target  exceedance  of  maximum 
2g/km,  the  required  premium  level  is  ca  60-90  €/gram.  For  a  target  exceedance  of 
maximum 1g/km, the required premium level is ca 60-100 €/gram. 

EN 

78 

   EN 

 
 
Achieved CO2 fleet average for different penalty levels
b1 - m - awi 0%, 0.85% or 1.5% pa, all slopes

140
139
138
137
136
135
134
133
132
131
130

)

m
k
/
g
(
2
O
C

50

60

70

80

90

100

Penalty level [€/(g/km)]

Achieved CO2 fleet average
b1 - lxw - awi 0%, 0.85% or 1.5% pa, all slopes

)

m
k
/
g
(
2
O
C

140
139
138
137
136
135
134
133
132
131
130

50

60

70
Penalty  level  [€/(g/km)]

80

90

100

awi 0.85 - 0%

awi 0.85 - 20%

awi 0.85 - 40%

awi 0.85 - 50%

awi 0.85 - 60%

awi 0.85 - 70%

awi 0.85 - 80%

awi 0.85 - 100%

awi 0.85 - 120%

awi 1.5 - 0%

awi 1.5 - 20%

awi 1.5 - 40%

awi 1.5 - 50%

awi 1.5 - 60%

awi 1.5 - 70%

awi 1.5 - 80%

awi 1.5 - 100%

awi 1.5 - 120%

awi 0.0 - 0%

awi 0.0 - 20%

awi 0.0 - 40%

awi 0.0 - 60%

awi 0.0 - 80%

awi 0.0 - 100%

awi 0.0 - 120%

awi 0.85 - 0%

awi 0.85 - 20%

awi 0.85 - 40%

awi 0.85 - 50%

awi 0.85 - 60%

awi 0.85 - 70%

awi 0.85 - 80%

awi 0.85 - 100%

awi 0.85 - 120%

awi 1.5 - 0%

awi 1.5 - 20%

awi 1.5 - 40%

awi 1.5 - 50%

awi 1.5 - 60%

awi 1.5 - 70%

awi 1.5 - 80%

awi 1.5 - 100%

awi 1.5 - 120%

awi 0.0 - 0%

awi 0.0 - 20%

awi 0.0 - 40%

awi 0.0 - 60%

awi 0.0 - 80%

awi 0.0 - 100%

awi 0.0 - 120%

Following the discussion on premium levels in Section 4, it was decided that premiums34 
set  at  7€/gram,  10€/gram,  25€/gram,  95€/gram  and  150  €/gram  would  be  investigated 
further  and  placed  into  the  perspective  of  gradually  increasing  premium  levels  through 
time (e.g. 2012 – 2015). 

34 

The  final  wording  penalties/compensation  will  be  decided  at  the  stage  of  the  final  political 
decision 

EN 

79 

   EN 

 
 
 
 
 
                                                 
Manufacturer specific elements also have to be taken into account. Given that the most 
transparent way of setting penalties/compensation is to express them in €/gram terms, it 
has to be noted that the potential premium levels are likely to have a bigger impact on 
those manufacturers required to deliver the most in terms of absolute (cumulated grams) 
reductions. As has been noted previously, however, this is to a degree offset by the fact 
that producers of bigger vehicles have higher margins which makes it easier for them to 
pass  costs  (including  premiums)  to  their  customers.  Figure  25  and  Figure  26  below 
provide  an  overview  of  the  absolute  reductions  required  from  individual  manufacturers 
under different target setting methods and using mass and footprint as utility parameters. 

EN 

80 

   EN 

 
Figure 25 - Absolute reduction needed between 2006 and 2012, using mass as parameter and allowing fleet averaging (based on supporting study) 

Per manufacturer - utility - m

160
140
120
100
80
60
40
20
0

t
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m
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0% slope

20% slope

40% slope

50% slope

60% slope

70% slope

80% slope

100% slope

120% slope

% reduction

PSA

Fiat

Renalut

Toyota

Honda

GM

Ford

Nissan

Suzuki

Hyundai

VW

Mitsubishi

Mazda

BMW DC

Subaru

Porsche

EN 

81 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
Figure 26 - Absolute reduction needed between 2006 and 2012, using footprint as parameter and allowing fleet averaging (based on supporting study) 

160

140

120

100

80

60

40

20

0

]
s
n
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Option 1
40% slope
60% slope
80% slope
120% slope

20% slope
50% slope
70% slope
100% slope
Option 3

PSA Fiat

Renalut

Toyota

Honda

GM

Ford

Nissan

Suzuki

Hyundai

Mitsubishi
VW

Mazda

BMW DC

Subaru

Porsche

EN 

82 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
Figure 27 below presents the possible impact of the chosen premium scenario levels on 
the  automotive  industry  as  a  whole  under  the  assumption  that  the  target  is  missed  in  a 
range  of  1  to  10  g  CO2/km.  The  figure  also  puts  these  premium  levels  into  the 
perspective  of  gross  profits  earned  by  globally  by  both  the  European  vehicle 
manufacturers as well as the global automotive industry as a whole. It should be borne in 
mind (a) that the profit margins presented are not confined to sales of vehicles, in view of 
the significant role of post-sales revenue made by the industry, and are "before tax", and 
(b) that expenditure caused by the premium can be passed through to consumers in the 
same way as investment costs needed to ensure compliance and is therefore unlikely to 
be paid fully out of profits. 

Figure  27  -  Cumulated  annual  payments  for  five  levels  of  premiums  (source  for  profit 
figures:  Aggregate,  global,  group  income  before  taxes  for  the  financial  year  ending  31 
December  2006  (Nissan  and  Mazda  financial  year  ending  Q1  2006),  based  on 
consolidated  income  statements  according  to  annual  reports.  Group  income  from  all 
activities. Fuji Heavy Industries (Subaru) is not included since only a smaller portion of 
its income before taxes is generated from automotive related products and services) 

s
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u
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n
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A

40,00

35,00

30,00

25,00

20,00

15,00

10,00

5,00

0,00

7€ per gram

10€ per gram

25€ per gram
95€ per gram

150€ per gram

1 2 3 4 5 6 7 8 9 10

Industry deviation from target, g/km

Global industry gross profit
EU manuf. gross profit

Figure 28 presents the same premium scenarios in "per car" terms. It should be noted that 
this  figure  is  based  on  manufacturers'  costs  and  does  not  show  the  effect  on  the  retail 
price. 

Figure 28 - Annual payments per car for five levels of premium 

EN 

83 

   EN 

 
 
 
 
 
7€ per gram
10€ per gram
25€ per gram
95€ per gram
150€ per gram

s
o
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,
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a
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1600

1400

1200

1000

800

600

400

200

0

1

2

3

4

5

6

7

8

9

10

Deviation from target, g/km

Figure  29  below  presents  the  different  premium  levels  when  compared  to  a  possible 
future carbon market price as well as the current ETS penalty levels35. 

2
O
C
n
o
t

r
e
p
s
o
r
u
E

700

600

500

400

300

200

100

0

7 €/g

10 €/g

25 €/g

95 €/g

150 €/g

ETS
penalty

Possible
future
carbon
market
price

Figure  30  presents  the  comparison  of  the  retail  prices  of  vehicle  optional  equipments 
with the additional cost linked to different levels of premium for a target missed by 10 
grams at the vehicle level assuming full pass-through of the premium to consumers and 
an average tax level of 19% (source: http://www.aramisauto.com and www.mercedes.be, 
January 2007) 

35 

This  does  not  take  into  account  the  obligation  for  operators  covered  by  the  ETS  to  surrender 
additional  allowances  in  the  following  period  in  case  of  non-compliance  in  the  current  period, 
which raises the cost of non-compliance above the level shown 

EN 

84 

   EN 

 
 
 
 
 
 
 
 
 
 
                                                 
€
(

t
s
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l
i
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a
n
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i
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d
A

3.500 €

3.000 €

2.500 €

2.000 €

1.500 €

1.000 €

500 €

0 €

Target missed by 10 grams at 150€ per gram
Parking radar on VW Golf
Navigation system Land Rover Freelander
Target missed by 10 grams at 95€ per gram
Target missed by 10 grams at 25€ per gram
Target missed by 10 grams at 10€ per gram
Alloy wheels Peugeot 307 SW
Sport alloy wheels Alfa Romeo 159
DVD system 2 screens Volvo V70
Manual rooftop Renault Clio
Metal paint Audi A3
Audio and GPS system Mercedes E200 CDI

5.4.3.  Overall impacts in terms of emissions 

The  three  options  lead  to  cumulated  CO2  equivalent  savings  for  the  2010-2020  period 
superior to 600 Mt, as shown in Table 5. 

Table 5 - Cumulated CO2 savings for the three options (source TREMOVE) 

WtW CO2eq 
Abatement 2006-
2020 (Mt) 

Option 1  Uniform 

target  per  manufacturer  with 

624 

trading 

Option 2 

40% slope – Footprint 

80% slope – Footprint 

40% slope – Mass 

80% slope – Mass 

Option 3 

Percentage reduction per manufacturer 

638 

634 

638 

634 

626 

According  to  TREMOVE  simulations,  the  changes  in  vehicle  sales  with  respect  to  the 
baseline  would  some  positive  impact  on  the  actual  effectiveness  of  the  scenarios  with 
respect to ex-ante simulations: the ex-post type-approval average by 2012 would be 129 
for option 1, and around 129.5 for options 2 and 3. 

EN 

85 

   EN 

 
 
 
 
 
 
 
Regarding air pollution aspects, all three options lead to somewhat comparable impacts 
in  terms  of  emissions  of  conventional  pollutants.  Reductions  in  SO2,  NOx  and  PM  are 
expected,  as  shown  in  table  Table  6  below.  VOC  emissions  however  increase  slightly 
compared  to  the  baseline  for  all  three  options,  due  to  the  increasing  market  share  of 
petrol vehicles. 

Table 6 - Impact on pollutant exhaust emissions from passenger cars in 2020 compared 
to the baseline (source TREMOVE) 

Option 1 

Option 2 

% abatement 
with respect to 
the baseline 
by 2020 

uniform 
target per 
manufacturer 
with trading 

40% slope - 
lxw based 
limit function 
per 
manufacturer 

80% slope - 
lxw based 
limit function 
per 
manufacturer 

40% slope - m 
based limit 
function per 
manufacturer 

80% slope - m 
based limit 
function per 
manufacturer 

Option 3 

percentage 
reduction per 
manufacturer 

NOX exhaust 

-4.5% 

PM exhaust 

-3.0% 

-4.6% 

-3.2% 

-4.6% 

-3.1% 

-4.5% 

-3.2% 

-4.5% 

-3.1% 

-4.3% 

-3.0% 

SO2 exhaust 

-14.2% 

-14.6% 

-14.5% 

-14.6% 

-14.5% 

-14.2% 

VOC exhaust 

2.9% 

2.3% 

2.4% 

2.3% 

2.4% 

2.4% 

6. 

COMPARING THE OPTIONS 

6.1. 

Tradeoffs between the three options 

Section 5 shows that there is a trade-off between the different policy options with regard 
to operational objectives such as social equity, competitive neutrality, cost-effectiveness 
and environmental outcome. No single option is optimal from the perspective of all the 
objectives and hence a balance involving comparative value judgements has to be struck 
between the different considerations. 

6.1.1. 

Social equity 

Option 1 would result in targets which would be very difficult to meet for manufacturers 
of relatively bigger cars and easier to meet for manufacturers of smaller cars. This would 
in turn translate into substantially higher cost increases (technology costs) and premiums 
for producers with a larger proportion of premium vehicles in their portfolio while these 
would be lower for small-car producers. It could be argued that vehicle size provides a 
good proxy for assessing social equity: the implication being that buyers of new smaller 
vehicles are households with proportionally lower purchasing power and hence that a flat 
curve  would  be  most  appropriate  to  ensure  mobility  and  affordability  of  cars  for  such 
households.  While  this  may  hold  true  partially,  it  cannot  be  considered  to  be  a  perfect 
proxy insofar as it does not account for the ability of households to purchase vehicles on 
the second-hand market as well as the practical needs of individual families (e.g. a family 
consisting of 4 members may not find that purchasing a new “small” vehicle would best 
serve  their  needs).  Option  2,  on  the  other  hand,  could  lead  to  more  balanced  cost 
increases for cars of all sizes although it should be borne in mind that the distribution of 
price  increases  across  segments  depends  on  the  slope  of  the  target  function  (%  of  the 
curve as explained in Figure 6). Relatively flatter slopes will on average result in relative 
price increases which are higher for manufacturers of heavier cars. As shown in section 

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5.2.2. the relative price increases are on average higher for manufacturers of bigger cars 
for  all  slopes  below  80%,  although  in  the  case  of  mass  impacts  on  certain  small  car 
manufacturers can be seen above a 70% inclination. Consequently (again taking car size 
as  the  proxy  for  social  equity),  Option  2  is  also  capable  of  ensuring  social  equity 
although  a  judgement  has  to  be  made  at  which  slope  this  would  be  optimal  when 
compared  to  considerations  under  other  criteria.  Finally,  Option  3  would  result  in  the 
least  socially  equitable  approach  since  it  would  require  producers  of  smaller  cars  to 
deliver the same proportional CO2 reductions as those producing bigger vehicles. 

6.1.2.  Competitive neutrality 

Option 1 is the least competitively neutral option as it sets the same average target for all 
manufacturers  without  taking  the  diversity  of  European  car  manufacturers  into 
consideration. As such, it fails to account for the fact that different manufacturers have 
varying  commercial  strategies  and  product  portfolios  and  consequently  operate  in 
different  segments  of  the  automotive  market.  Option  2  provides  differentiated  targets 
based on the characteristics of the vehicles placed on the market, and provides for a more 
neutral approach while still requiring higher relative and absolute (grams to be delivered) 
emission reductions from producers  of bigger vehicles. Once  again, however,  the slope 
of  the  line  has  important  implications  on  the  extent  to  which  the  targets  optimise 
competitive  neutrality.  Slopes  between  74  and  80%  for  mass  and  64  and  67%  for 
footprint  provides  an  even  distribution  of  sales-weighted  average  retail  price  increases 
while  still  requiring  higher  relative  and  absolute  (grams  to  be  delivered)  emission 
reductions from producers of bigger vehicles. The most even un-weighted distribution of 
relative  retail  price  increase  per  manufacturer  is  delivered  for  slopes  between  39%  and 
47%  for  mass  and  between  18%  and  27%  for  footprint..  Option  3  requires  the  same 
relative reduction effort from all manufacturers, but is not optimal from the perspective 
of  competitive  neutrality  since  it  fails  to  take  into  account  past  reduction  efforts  and 
would  penalise  those  manufacturers  who  have  already  come  close  to  reaching  the 
average CO2 emissions required under the voluntary commitments. 

6.1.3.  Cost-effectiveness 

The overall cost-effectiveness of the system is largely independent of which of the three 
main  options  that  is  chosen.  Of  greater  importance  for  cost-effectiveness  are  the 
flexibility  options  which  have  been  discussed  in  Sections  4  and  analysed  in  Section  5. 
Applying the target to manufacturer averages rather than to individual vehicles improves 
cost-effectiveness  significantly  due  to  marginal  abatement  costs  being  vehicle  specific. 
Trading  between  manufacturers  would  further  improve  cost-effectiveness  if  trading 
actually takes place in practice, the market operates perfectly and administrative costs are 
kept  low.  The  use  of  pooling  could  in  principle  provide  similar  flexibility  and  cost 
reductions  as  trading  by  averaging  abatement  costs  while  requiring  less  administration 
and lower transaction costs. 

6.1.4.  Environmental outcome 

Option 1 and 3 would ensure that the 2012 target is met provided that all manufacturers 
respect their emissions target. Option 2 could result in either over- or under-achievement 
of the target if future utility values deviate from the assumptions on the evolution of the 
physical characteristics of the fleet (AMI) in building the curve. This risk can be reduced 

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by  building  the  curve  on  the  basis  of  assumptions  on  the  evolution  of  the  physical 
characteristics of the fleet (AMI), accompanied where appropriate by applying a revision 
mechanism  which  would  review  the  real-world  situation  ahead  of  the  target  date 
(2012)36.  More  important,  however,  is  the  impact  on  the  probability  that  individual 
manufacturers are able to meet their targets in 2012. Setting a single target level for all 
manufacturers (Option 1) would make it very difficult for some manufacturers to comply 
with the target while Options 2 and 3 would require more proportional reductions across 
the board hence increasing the likelihood of achieving the overall target by 2012. 

6.2. 

Overall comparison of the three options 

Table 7 – Overview of the options 

CO2 
reductions 

Cost-
effectiveness37 

Option 1 
Uniform target 

Option 2 
Utility approach 

Option 3 
% reduction 

624 Mt CO2 eq. 

634 to 638 Mt CO2 eq. 

626 Mt CO2 eq. 

16 to 46 €/ton CO2 

32 to 40 €/ton CO2 

29 to 34 €/ton 
CO2 

Competitive 
neutrality/avo
idance of 
unjustified 
distortions of 
competition 

(cid:47) 

Producers of low 
emitting vehicles are 
winners, and high 
emitters are losers, 
since the target is the 
same for all 

(cid:46)/☺ 

For limit lines between 
74 and 80% for mass 
and 64 and 67% for 
footprint an even 
distribution of sales-
weighted average retail 
price increase is 
achieved. The most even 
un-weighted distribution 
of relative retail price 
increase per 
manufacturer is 
delivered for slopes 
between 39% and 47% 
for mass and between 
18% and 27% for 
footprint. However for 

(cid:47) 

Manufacturers of 
small vehicles get 
locked in their 
current market 
segment, while 
producers of 
bigger cars can 
either reduce CO2 
on their current 
fleet or develop 
the sales in the 
small and medium 
segments 

36 

37 

The revision mechanism would be based on a review by the Commission in 2010 of the changes 
to the mass of new passenger cars in the Community. The Commission would then evaluate the 
necessity  to  amend  the  way  of  calculating  specific  emissions  targets  in  Annex  I  taking  into 
account  the  objective  of  reducing  average  CO2  emissions  from  new  passenger  cars  in  the 
Community  to  130g  CO2/km  by  means  of  improvements  in  motor  technology.  This  approach 
aims at ensuring that the limit curve actually requires 130 g (see discussion on AMI in box 1) and 
not  more  or  less  than  this  objective.  It  would  thus  increase  the  predictability  of  the  system  for 
manufacturers,  since  their  own  efforts/planning  would  be  based  on  the  delivery  of  a  curve 
delivering 130 g. 
The cost-effectiveness calculations are based on the period 2006-2020 

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Option 1 
Uniform target 

Social equity 

(cid:46)/☺ 

The option rewards low 
emitting/small medium 
vehicle producers, thus 
maintaining the 
affordability of the 
most sold vehicles in 
Europe. For a high 
level of fleet 
averaging/without cross 
subsidisation, small 
petrol cars may face 
higher relative price 
increases 

Option 3 
% reduction 

(cid:47) 

Because all 
manufacturers 
have to deliver the 
same relative 
reduction, 
manufacturers of 
small cars (which 
are already low 
emitters) face 
relatively high 
costs 

Option 2 
Utility approach 
mass, depending on the 
assumptions in building 
the curve regarding the 
evolution of the fleet's 
mass, the curve could 
result in reduction 
requirements below 130 
g CO2/km 

(cid:46)/☺ 

For inclinations below 
80%, most mainstream 
manufacturers of 
small/medium cars 
representing 80% of the 
market sales are exposed 
to below average retail 
price increases. For 
mass, impacts on certain 
small car manufacturers 
can be seen above a 70% 
inclination. At the 
vehicle level, for slopes 
below 60% and in the 
absence of fleet 
averaging/with cross 
subsidisation, small 
petrol cars face lower 
relative retail price 
increases than medium 
and large petrol cars 

Sustainability
/compatibility 
with Kyoto 
targets 

(cid:46)/☺ 

(cid:46)/☺ 

The target being 130 g 
CO2/km for all 
manufacturer, its 
delivery will be 
function of whether the 
trading system will 
actually function 
smoothly, and of the 
level of the financial 
penalties 

For inclinations below 
80% the possible 
perverse incentives to 
increase mass are 
avoided. However for 
mass, depending on the 
assumptions in building 
the curve regarding the 
evolution of the fleet's 
mass, the curve could 
result in missing the 130 

(cid:46)/☺ 

The achievement 
of the overall 
target depends on 
the respective 
evolution of 
manufacturers 
market shares, 
which cannot be 
controlled 

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Option 1 
Uniform target 

Option 2 
Utility approach 
g CO2/km target 

Option 3 
% reduction 

Equity to the 
diversity of 
European 
manufacturer
s 

(cid:47) 

See comment on 
competitive neutrality 

☺ 

The utility based 
approach reflects already 
the diversity of 
manufacturers. Pooling 
will further contribute to 
this, by providing a 
workable solution to 
small volume specialised 
manufacturers 

☺ 

The approach 
combined with 
pooling 
recognises that 
different 
manufacturers 
have different 
emission levels, 
and would 
maintain this. 

Based  on  this  assessment,  the  following  conclusion  can  be  drawn:  of  the  three  options 
analysed, Option 2 seems the most promising subject to a number of caveat regarding 
the underlying assumptions in the establishment of the curve, its inclination and function 
of the utility parameter chosen.  

6.3. 

Discussion on the utility parameter (Option 2 only) 

Two possible parameters have been identified for the purpose of building a utility based 
system. The table below identifies the ex-ante pros and cons of both parameters: 

Table 8 - Comparing mass and footprint as utility parameters for Option 2 

Mass 

Footprint  Discussion 

Good measure 
of utility 

= 

+ 

Mass  is  a  proxy  for  other  utility  parameters 
such as vehicle size, special features.  

Footprint is directly linked to the utility (family 
car  vs.  mini  town  car,  number  of  seats,  trunk 
space) 

++ 

=/- 

Mass is readily available and reported.  

Data 
availability 

Footprint defined as inner surface between the 
wheels is not yet reported. Footprint defined as 
total  surface  (length  times  width,  also  called 
pan  area)  is  available  but  not  reported  yet.  It 
could be used as a proxy for footprint in a first 
phase. 

Both  parameters  result  in  comparable  impacts 
in 
for 
relative  price 
terms  of 
manufacturers 

increase 

Impact on 
manufacturers 

= 

= 

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Mass  provides  a  better  distribution  of  burden 
between manufacturers overall. 

Footprint  is  slightly  more  favourable  to  small 
car  manufacturers,  but  the  impact  is  limited 
(less than 1% additional increase with mass) 

Footprint defined as the surface within the four 
wheels is less easy to apprehend 

Mass  increase  can  be  used  to  ease  the  CO2 
obligation  but  this  effect  can  be  prevented  by 
choosing a line inclination inferior to 80% 

Footprint  is  less  likely  to  be  manipulated  to 
follow  market  trends,  although  if  defined  as 
pan  area,  bigger  bumpers  could  be  used  to 
increase "artificially" utility (it can be expected 
that gaming on pan area would be more limited 
aesthetic 
than  on  mass, 
considerations notably). 

in  view  of 

Mass  is  used  for  passenger  cars  in  China  and 
Japan while footprint is used the U.S. for light 
trucks 

Mass  reduction  is  a  prominent  way  to  reduce 
CO2.  If  mass  is  the  parameter,  some  of  its 
"reduction"  potential  will  be  annihilated  by  a 
mass  based  curve.  Again  this  effect  will  be 
function of the inclination of the line 

Understandable 

Avoids perverse 
effects/gaming 

+ 

- 

=/- 

= 

International 
compatibility 

+ 

= 

--/- 

++ 

Allowing all 
relevant 
reduction 
techniques 

Preliminary conclusions regarding the utility parameter suggest a preference for a mass-
based system under the condition that perverse effects are avoided. The choice of mass as 
utility parameter also requires assumptions on the autonomous mass increase to be made 
(see 4 scenarios in Box 1 of Section 4.2.2). 

6.4. 

Assessment of different slopes on the basis of the five criteria set out in the 
earlier Commission Communications of February 2007 

•  Least cost solution: the least cost solution is for the 123% slope curve (same for both 
mass and footprint), meaning that smaller cars do more than bigger cars - because it is 
"overall" cheaper to do it on small cars even if there would be affordability problems. 
This  solution  cannot  work.  However  it  is  noteworthy  that  in  absolute  terms  the 
variations in price compared to the variations in slope are small. It means that other 
criteria could justify a different slope without going too far away from the least cost 
solution 

•  Competitively neutral: sales-weighted distribution of relative retail price increase per 
manufacturer,  slopes  between  74%  and  80%  have  been  identified  for  mass  as  utility 

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parameter,  and  between  64%  and  68%  for  footprint  (depending  on  the  assumptions 
made  on  autonomous  mass  increase).  The  most  even  un-weighted  distribution  of 
relative retail price increase per manufacturer is delivered for slopes between 39% and 
47%  for  mass  as  utility  parameter,  and  between  18%  and  27%  for  footprint  (again, 
depending on the assumptions made on autonomous mass increase) 

•  Sustainable: perverse incentives linked  to mass are avoided for inclinations  inferior 
to  80%.  For  mass,  the  assumptions  on  the  evolution  of  the  fleet's  average  utility 
(autonomous mass increase) are crucial in order to avoid over or under shooting the 
130 g CO2/km target 

•  Socially  equitable:  For  inclinations  below  80%,  most  mainstream  manufacturers  of 
small/medium cars representing 80% of the market sales are exposed to below average 
retail  price  increases.  For  mass,  impacts  on  certain  small  car  manufacturers  can  be 
seen above a 70% inclination. At the vehicle level, for slopes below 60% and in the 
absence  of  fleet  averaging/with  cross  subsidisation,  small  petrol  cars  face  lower 
relative retail price increases than medium and large petrol cars. 

•  Diversity  of  manufacturers:  this  criteria  is  met  to  some  extent  by  the  competitive 
neutrality  above,  and  by  the  fact  that  pooling  would  be  allowed  in  the  future 
legislation 

the  criteria  described  above  (as 

The  application  of 
the  earlier 
Communications) would, on the basis of initial analysis, suggest that in order to strike a 
balance  between  these  criteria,  a  range  between  50%  and  80%  should  be  considered 
further at this stage. Previous discussions on the uniform target (0% slope) and the 123% 
slope  should  be  considered  when  justifying  the  exclusion  of  very  flat  and  very  steep 
slopes. Consequently, it has been decided that at this stage the 50%, 65% and 80% slopes 
would  be  considered  further.  In  terms  of  flexibility,  it  appears  that  in  addition  to  fleet 
averaging, the option of pooling should be offered to manufacturers in the legislation. 

laid  out 

in 

7. 

MONITORING AND EVALUATION 

7.1.  What are the core indicators of progress towards meeting the objectives? 

The core indicators of progress are linked to the evolution of the average new car over 
the years, and they cover data relating to:  

•  specific  CO2  emissions  as  measured  under  the  EU  test  procedure,  to  assess  the 
performance of the automotive industry towards the respect of the mandatory targets,  

•  utility (mass or footprint), to provide an analysis of the evolution of the EU car market 
e.g.  in  case  a  shift  in  utility  would  require  an  adaptation  of  the  regulatory  curve  for 
Option 2. 

7.2.  What  is  the  broad  outline  for  possible  monitoring  and  evaluation 

arrangements? 

The monitoring and evaluation arrangements could rely on two sources of data, and be 
administered by the Commission: 

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•  Under the existing CO2 and cars strategy, the European Parliament and Council have 
adopted  a  monitoring  decision  aimed  at  providing  third  party  data  to  measure  the 
progress of the car industry towards the respect of its voluntary agreements: Decision 
1753/2000/EC  already  provides  that  Member  States  should  report  a  number  of  data 
regarding new passenger cars placed on the EU market (including CO2, mass, power 
etc.). However data relating to footprint (be it pan-area or inner wheel surface) is not 
yet reported. The existence of a monitoring scheme based on a third party outside of 
the  remits  of  the  automotive  industry  should  be  maintained  in  the  future,  and  there 
will  thus  be  a  need  to  either  amend  Decision  1753/2000/EC,  or  to  repeal  it  and 
introduce  simplified  monitoring  provisions  tailor  made  to  the  requirements  of  the 
upcoming legislation. 

•  However,  because  it  is  expected  that  manufacturers  should  be  the  regulated  entity 
under the future scheme, there could be legal risks linked to relying on Member States 
data only. Indeed the data reported by Member States is based on the cars registered 
in a given year, which do not fully correspond to the cars sold in a given year – the 
ones on which car manufacturers have a control and can be held accountable for. For 
example cars sold at the end of 2012 may only be registered at the beginning of 2013 
and  thus  not  be  reported  in  the  2012  monitoring  by  Member  States.  While  the 
difference  in  the  two  data  sets  is  expected  to  be  small,  there  could  be  a  benefit  in 
setting  up  a  separate  monitoring  requiring  manufacturers  selling  cars  in  the  EU  to 
provide the Commission with the relevant data regarding theirs sales in a given year. 
Consequently this aspect will be given further consideration later. 

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ANNEX 1: REFERENCE DOCUMENTS AND ADDITIONAL 
CONSIDERATIONS ON THE MODELLING FRAMEWORK 

Reference Documents 

(1) 

(2) 

(3) 

(4) 

(5) 

[Supporting  Study]  Possible  regulatory  approaches  to  reducing  CO2  emissions 
from  cars  070402/2006/452236/MAR/C3:  Annex  on  quantitative  analysis  of 
various options with updated model, September 2007 

[Task  A]  "Review  and  analysis  of  the  reduction  potential  and  costs  of 
technological and other measures to reduce CO2 emissions from passenger cars", 
final  report,  Contract  n°  SI2  408212  by  TNO  for  DG  Enterprise  and  Industry, 
at 
October 
http://ec.europa.eu/enterprise/automotive/projects/report_co2_reduction.pdf 

available 

2006, 

[IEEP 2004] "Service contract to carry out economic analysis and business impact 
assessment  of  CO2  emission  reduction  measures  in  the  automotive  sector"  Final 
Report http://ec.europa.eu/environment/co2/02858/sec02858_en.pdf& Annexes 

[Task  B]  "Service  Contract  in  Support  of  the  Impact  Assessment  of  Various 
Policy Scenarios to Reduce CO2 Emissions from Passenger Cars", Contract: N° 
070501/2004/392571/MAR/C1  by  Centre  for  European  Economic  Research 
(ZEW) for European Commission (DG Environment), October 2006. (available at 
http://ec.europa.eu/environment/co2/co2_studies.htm) 

[TREMOVE] "Service contract for the further development and application of the 
transport  and  environmental  TREMOVE  model Lot  1 (Improvement of the  data 
set  and  model  structure)",  Service  Contract  070501/2005/420798/MAR/C1  by 
Transport  and  Mobility  Leuven  for  European  Commission  (DG  Environment), 
July 2007 (available at http://www.tremove.org/index.htm). 

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ANNEX II: FINAL REPORT ON THE PUBLIC HEARING 

Review of the EU strategy to reduce  
CO2 emissions and improve fuel efficiency from cars 

Report on the Public Hearing Brussels, 11 July 2007, 9.00-13.00 

The  presentations  (slides)  that  were  made  at  the  public  hearing  that  took  place  on  11 
July  2007  have  been  made  public  and  are  available  on  the  following  website: 
http://ec.europa.eu/reducing_co2_emissions_from_cars/presentations_en.htm. 

Session 1  

Agenda Item 0: Welcome and Introduction by the European Commission 

Catherine Day (the Secretary General of the European Commission) welcomed the 
participants to the public hearing. She stressed that there was a wide range of interesting 
presentations  on 
interesting  exchange  of  views,  and 
acknowledged the complexity of the topic.  

the  agenda,  ensuring  an 

In  her  introductory  remarks,  she  set  out  the  overall  political  background,  recalling  the 
difficult decisions made by the Heads of State and government in March 2007: a 20 % 
unilateral  GHG  emissions  reduction  target  (30  %  if  developed  countries  join),  a  20  % 
renewables  target  and  a  20  %  energy  efficiency  target.  These  targets  are  not  just  a 
political  declaration,  but  are  serious  commitments  based  on  an  in-depth  analysis  and 
elaborated  in  the  package  put  forward.  The  Commission's  task  is  to  deliver  legislative 
and other initiatives and to turn the headline goals into reality. There is a clear need for 
partnership  between  the  private  and  public  sectors,  as  the  public  sector  alone  cannot 
effect the necessary change by itself. There is no one way to reach the objectives and the 
measures will have an impact on all sectors. Only by working across the board can we 
bring  about  the  deep  emissions  cuts  in  the  most  cost-effective  way.  The  proposal  for 
reducing CO2 emissions from cars is one important piece of the overall jigsaw. It should 
not be looked in an old fashioned way, but as an opportunity to turn challenges into an 
advantage, such as leading the switch to a low carbon economy or taking a technological 
lead. The goal of limiting average emissions from passenger cars to 120 g CO2/km has 
existed already for a long time. The reduction should come from two sources: down to 
130  g  by  engine  technologies  and  the  rest  through  other  technologies.  Catherine  Day 
recalled  the  core  principles  for  the  design.  Any  future  legislative  framework  should  be 
competitively  neutral,  socially  equitable  and  respect  the  diversity  of  the  European 
automobile  manufacturers,  avoiding  any  unjustified  distortion  of  competition.  These 
principles represent the terms for reference for the debate. The Commission has to offer a 
sufficiently robust system of monitoring and control to ensure real implementation and to 
build in enough flexibility to ensure that cost-effectiveness can be maximised. There is 
no shortage of options as the impact assessment work has already identified 46 options. 
Now there is a need to look carefully at the most realistic and cost-effective options. She 
stressed the key questions for the debate:  

How to set the target – as a uniform target, as a target modulated by a variable such as 
the type of car, or as a reduction from a baseline?  

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•  On what should the target be applied – on different models, different manufacturers, 

on importers and dealers? 

•  What flexibility mechanism would work? 

•  What mechanisms are needed to guarantee compliance?  

Whatever system is put in place, it needs to be predictable - for the citizens in terms of 
the emissions reduction and for the businesses for their planning.  

Peter  Carl  (Director  General  for  Environment)  informed  the  hearing  about  the 
ongoing public internet consultation and encouraged all to participate in the consultation 
process. He recalled that the Environment Council endorsed the strategy a few weeks ago 
and  that  positive  signals  are  coming  from  the  European  Parliament.  The  question  is 
therefore not if or when, but how the reduction goal and the timetable which have been 
agreed will be delivered through the legislation. He outlined 6 main guiding principles:  

(1) 

(2) 

(3) 

(4) 

(5) 

CO2/cars legislation is an essential component in the fight against climate change 
(passenger cars produce 12 % of overall EU GHG emissions and transport sector 
is the second biggest emitter). Since 1990, EU has reduced emissions by 5 % but 
the contribution of road transport increased by 26 %. In order to live up to the 20 
%  goal,  it  is  not  acceptable  that  the  burden  remains  only  on  the  other  sectors. 
Transport  emissions  should  also  be  reduced.  The  long-standing  objective  of 
120g/km by 2012 will contribute as much as 20 % of the overall reduction effort 
still  required  to  meet  Kyoto.  The  Commission  is  proposing  an  integrated 
approach, because the requirements do not relate solely to new cars, but also on 
improvements to car components which could benefit the existing car fleet.  

The car industry plays an important role in the EU economy, but has to fight in 
order to remain competitive. The Commission understands their concerns and the 
strategy should provide for a stable and predictable environment for investments.  

Getting to grips with CO2 emissions from cars will help address concerns about 
security of energy supply by reducing reliance on imported fossil oils.  

All manufacturers  should be treated with equal fairness and  cars should be kept 
affordable as it does not make sense to produce clean cars that nobody can afford 
to  buy.  Legislation  should  be  fair  to  all  carmakers  whatever  their  market  niche 
and the distortions of competition should be avoided. The way the target is shared 
between carmakers should be sustainable and equitable. 

Addressing  consumer's  demand  for  fuel  efficient  cars  would  reduce  compliance 
costs to manufacturers. Taxation is one important tool and Member States have an 
important  responsibility  in  this  field.  Some  Member  states  have  begun  to  make 
use of this (most recently Spain). The Commission will propose an amendment to 
the fuel efficiency labelling directive to improve its effectiveness. Unfortunately, 
so  far  manufacturers  have  not  replied  to  the  Commission's  invitation  to  sign  a 
code of good practice.  

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(6) 

It is important to take a decision as on the legislation as early as possible in order 
to  allow  the  car  industry  the  lead-time  it  needs  to  deliver  the  CO2  emissions 
reductions required. The target dates back to 1990s and it is not a figure invented 
in February by the Commission. It is nonetheless important that legislators give a 
clear signal to the industry on how the strategy will be implemented as early as 
possible. We will endeavour to make a formal proposal if possible in 2007. 

He concluded that:  

•  Moving  to  a  low-carbon  economy  is  a  must,  not  an  option  and  the  Community 
objective  of  adopting  an  integrated  approach  to  have  a  new  car  fleet  with  average 
emissions of 120 gram CO2/km is at the very core of the work 

•  There is a need to recognise the legitimate demands of consumers for better and safer 

cars and to inform them better about fuel consumption and its cost.  

•  The legislation should be equitable and respect the diversity of car manufacturers.  

•  The  world  needs  clean  and  efficient  technologies  to  win  the  battle  against  climate 

change. Those who lead the way will reap the rewards.  

Heinz  Zourek  (Director  General  for  Enterprise  and  Industry)  stressed  that,  in  line 
with  the  principles  of  better  regulation,  the  Commission  will  try  to  listen  to  different 
stakeholders.  The  public  hearing  provides  a  good  opportunity  for  this  exchange.  It  is 
better  to  discuss  CO2  and  cars  not  only  with  the  car  industry,  but  also  other  interested 
parties, as the integrated approach involves other actors. Legislating on cars is not new. 
Nor is the sustainability concept. An integrated approach should result in four things:  

(1) 

Progressively more fuel efficient cars and cleaner fuels 

(2) 

Efforts should meet if not exceed 120 g – thus delivering on the commitment 

(3) 

Retain the competitiveness of the industry without discrimination 

(4) 

Set  up  a  system,  regularly  improved  and  updated,  with  a  need  to  keep  lead 
time/instruments in place 

Concerning the car industry's contribution to meeting the reduction target, it is possible to 
deliver on this although it should be admitted that the level of ambition is very high. The 
car  technology  pillar  of  the  CO2  strategy  has  to  respond  to  the  three  challenges 
(neutrality of competition, not favouring one over another, avoidance of unfairly biased 
solutions) should be socially equitable and sustainable. There is no point in delocalising 
the car industry and we should not behave in an irresponsible way with regard to global 
performance. The initiative is about a global strategy (preserving our climate). We should 
be  equitable  to  the  diversity  of  car  manufacturers  and  should  not  exclude  certain 
segments (no banning of specific models). It is important to give options – to respond to 
consumer  wishes  and  to  environmental  necessity.  On  the  other  hand,  it  is  important  to 
keep in mind the costs because of the effect and unwanted social implications they might 
have.  It  may  take  time  to  renew  the  existing  fleet.  It  is  therefore  important  from  this 
public consultation and public hearing to get ideas in order to gauge the cost impact, not 

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only the immediate impact, but the life-cycle impact. Contributions from other industries 
(outside  the  automotive  industry)  could  be  broadened  in  scope,  not  just  measures 
targeting only the new fleet, but measures for the improvement of the fleet already in use. 
This would bring an additional benefit.  

The Commission wishes to achieve two objectives:  

•  To rely on data brought forward to its attention by experts 

•  To avoid that this data is biased 

The  Commission  is  receptive,  but  this  is  only  the  beginning  of  the  process  to  be 
continued  in  the  European  Parliament  and  the  Council.  The  Commission  will  have  to 
respond to questions on the choice of the different solutions.  

Catherine  Day  (the  Secretary  General)  assured  participants  that  the  Commission  has 
not  yet  decided  on  its  preferred  options.  Therefore  the  discussion  is  important.  She 
introduced  the  next  agenda  item,  which  set  the  scene  for  further  discussion  with  5 
different  views:  the  automotive  industry,  suppliers,  NGOs,  consumers  and  the 
international perspective.  

Agenda Item 1: Automotive industry perspective 

In  his  presentation,  Ivan  Hodáč  (ACEA)  underlined  that  this  regulation  represents  the 
most important issue for the car industry. He argued that the  industry  had delivered  on 
the voluntary agreement. The Community strategy is based on three pillars and only the 
industry's  commitment  delivered  (an  unbroken  reduction  trend  of  13  %  until  2004  and 
fleet composition changes can be observed). In his view, external factors pushed in the 
opposite direction and account for 15 g/km. These external factors should be considered 
in  the  assessment  of  whether  the  industry  met  the  target.  The  automotive  industry  has 
introduced new technologies to the market every year. ACEA supports the political target 
of  120  g/km,  but  as  a  part  of  an  integrated  approach  (together  with  eco-driving, 
alternative fuels, infrastructure measures). An integrated approach means that everybody 
has  to  participate.  CO2  taxation  needs  to  be  harmonized  across  the  EU.  The  target  at 
stake  seems  in  ACEA's  view  significantly  more  ambitious  than  the  EU  target  of  20  % 
reduction  between  1990  and  2020.  On  cost-effectiveness,  both  ECCP  and  the  Stern 
review concluded that car technology is a high-cost measure. Other measures are much 
cheaper.  This  does  not  mean  that  the  industry  will  not  continue  to  improve  vehicle 
technology.  He  illustrated  the  integrated  approach  with  two  potential  measures  (eco-
driving  (constant  speed,  which  can  deliver  savings  and  reduces  emissions  across  the 
board) and infrastructure (e.g. the Japanese experience). Complementary car technologies 
account for more than 5 g/km.  

In conclusions, he reiterated ACEA's main points:  

•  Support for the 120 g target  

•  An integrated approach is needed  

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•  The  timeframe  of  2012  is  unrealistic  and  an  appropriate  lead-time  (2015  at  the 

earliest) is necessary 

•  Any system must safeguard diversity and social equity. Cars must remain affordable.  

•  Mass appears to be the most suitable parameter 

•  Flexibilities are needed (for instance group averaging, banking, credits for renewable 

fuel vehicles) 

According to Hiroki Ota (JAMA), JAMA members make an important contribution to 
the  EU  economy  (15.9  bln  in  research)  and  are  actively  pursuing  the  introduction  of 
CO2-efficient  vehicles  as  part  of  the  fight  against  climate  change.  He  put  forward  two 
main concerns with the upcoming framework: 1. the 2012 target application year and 2. 
target values. Firstly, the target application year should be postponed as the development 
of  a  new  car  model  requires  a  total  lead  time  of  at  least  7  years  prior  to  regulatory 
application. Japan has introduced fuel-efficient standards, giving a lead time of 8 years to 
the  industry.  In  JAMA's  view,  the  target  application  should  be  postponed  until  2015  at 
the earliest. Secondly, JAMA supports the 120 g/km target, but this goal can only be met 
through  a  combination  of  efforts  by  various  stakeholders  (including 
industry, 
Governments and the driving public) in an integrated approach.  

For  the  legislative  framework  JAMA  recommends  that  the  EU  adopt  a  segmentation 
system based on vehicle mass categories. On complementary measures, JAPA supports 
the increased use of bio-fuels. Their blend rates should be determined on the basis of a 
comprehensive  evaluation  of  their  impact  on  emissions,  drivability  etc.  Further  CO2 
reductions in the road transport sector will require improved road infrastructure and more 
effective traffic management as well as improved driver behaviour. 

He illustrated this integrated approach by reference to the Japanese strategy which relies 
on  three  elements:  1.  greater  fuel  efficiency,  2.  traffic  flow  and  3.  eco-driving.  By 
adopting  these  measures,  an  estimated  54.9  Mt  of  CO2  will  not  be  emitted  in  order  to 
meet  the  Kyoto  Protocol-related  2010  CO2  reduction  target  for  Japan's  road  transport 
sector.  

In conclusion, he stressed two major points: 

•  The application target year should be postponed until 2015 at the earliest 

•  An integrated approach should be considered 

Agenda Item 2: Automotive supplier's perspective 

In his address, Lars Holmqvist (CLEPA) assured participants that CLEPA members are 
fully committed to addressing climate change. However, setting the target of 120 g/km 
for 2012 does not provide for a long-term solution and a longer perspective is necessary. 
Today advanced technology is capable of reducing CO2 emissions, but a sufficient lead-
time is needed. In his view, it is impossible with the current institutional set up to expect 
the  legislation  to  be  in  place  before  2009.  The  investment  decisions  driving  the 
technologies to the  market  cannot  take into account any late  changes in the legislation. 

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CLEPA  is  not  afraid  of  more  ambitious  targets,  but  there  is  a  need  to  implement  them 
and test them. Cars should remain reliable, safe, environmentally friendly and affordable 
in order to guarantee future mobility. Member States should stimulate demand for more 
fuel-efficient vehicles through labeling and/or taxes and there should be more investment 
in R&D. Good practices should be promoted (advertising). For the existing fleet (which 
is  getting  older  and  older),  retrofitting  is  a  solution.  Among  the  complementary 
measures,  CLEPA  wishes  to  concentrate  on  telematics,  tyre  pressure  monitoring,  low 
rolling  resistance  tyres,  alternative  fuels  and  energy-efficient  air  conditioning.  Use  of 
eco-driving  devices  should  be  recognized  alongside  awareness  campaigns.  He  quoted 
one  experience  with  2500  cars  where  a  reduction  in  fuel  consumption  of  15  %  was 
achieved through eco-driving. However, he admitted that this cannot be achieved across 
the board. He called for the agreed 10 years roadmap in CARS21 to be applied.  

In  her  presentation,  Fazilet  Cinaralp  (ETRMA)  explained  the  technical  details  of  the 
tyre related measures, mainly in respect of tyre rolling resistance. The latter contributes 
together  with  a  vehicle's  other  sources  of  drag,  to  its  fuel  consumption  and,  thus  to  its 
CO2  emissions.  The  rolling  resistance  of  a  tyre  depends  mainly  on  two  factors:  tyre 
design  and  tyre  inflation  pressure.  Depending  on  the  type  of  road  and  driving  style, 
rolling resistance causes about 20 % of the CO2 emitted by a car, and about 30 % of the 
CO2  emitted  by  a  heavy  truck.  Two  main  tyre-  technological  solutions  have  a  positive 
impact  on  CO2  emissions  reduction:  1.  tyre  pressure  maintenance  and  2.  low  rolling 
resistance  tyres  (accounting  respectively  for  ~2  and  4  %  of  expected  CO2  emissions 
reduction). Concerning the correct tyre inflation pressure, she explained the relationship 
with the rolling resistance: the lower the tyre inflation pressure, the higher the effect on 
rolling  resistance.  With  a  permanent  20  to  25  %  under-inflation,  the  tyre  rolling 
resistance  is  increased  by  10  %,  which  in  turn  results  in  about  2  %  more  fuel 
consumption.  Mrs  Cinaralp  emphasized  the  relationship  and  interdependence  of  tyre 
performance items and that maximized performance of one may have impacts on others.  

She concluded by setting the main tyre industry proposals and their contribution in terms 
of CO2 annual savings: 

•  Establishing  maximum  limits  and  implementing  a  grading  for  rolling  resistance  to 
assure that consumers can make informed choices (- 22 Mt of CO2 annual savings) 

•  Maintenance of inflation pressure at the right level (10 Mt of CO2 annual savings) 

•  Observe minimum limits and a grading for Wet Grip to make sure that low RR tyres 

are achieved without compromising safety 

•  Sufficient lead time is needed for all sectors 

•  Proper enforcement of rules in order to ensure compliance and therefore certainty on 

the market 

Agenda Item 3: NGO's perspective 

In his presentation, Jos Dings (Transport and Environment) elaborated on four critical 
issues:  1.  Impact  assessment  work,  2.  targets  and  timelines,  3.  compliance  and  4.  the 
class parameter.  

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In his view, the impact assessment has quite serious flaws:  

•  Its scope should be broadened to cover also the economic and environmental impact 
of the rules through lower oil imports and oil prices. He argued that costs and benefits 
are not symmetrical in geographic terms : most of the (oil) savings of the policy are 
net welfare gains for the EU, while most of the costs are not net welfare losses to the 
EU as they are investments into the European automotive supply industry. Therefore, 
the  costs  of  the  policy  are  not  really  costs  but  investments  of  capture  a  share  of  the 
low carbon technology market  

•  The  effect  on  oil  prices  is  likely  to  be  significant  –  the  EU  is  the  world  largest  car 
market and almost the whole of Asia follows EU air pollution standards and is likely 
to  be  strongly  influenced  by  EU  fuel  efficiency  standards.  The  upcoming  regulation 
represents the most significant policy to reduce oil demand (similar to the introduction 
of US fuel economy standards in the 1970's).  

•  The environmental impact of lower marginal oil demand should be addressed: with tar 
sands or CTL (coal to liquid fuel) replacing increased CO2 emission related to crude 
oil process.  

•  The impact of lower oil prices on coal/gas balance should be addressed as high oil/gas 
prices  lead  to  a  shift  back  to  coal  in  power  generation  with  the  corresponding 
increased emissions.  

•  Not  only  low  carbon  technologies  should  be  addressed,  but  also  low  carbon  car 

specifications, i.e. look at possibilities of whole process of car design.  

•  The  current  impact  assessment  does  not  address  the  learning  effect  and  mass 
production (for instance 3-way catalysts were estimated to cost 700 euro, whereas the 
current price is about 10 % of that figure).  

Concerning targets and timetables, Jos Dings emphasized that the lead time given to the 
industry was already extended twice from 10 years to 17 years as the target was shifted 
from  2005  to  2012,  and  tat  the  target  moved  from  120  g  initially  to  130  g.  Due  to  a 
decade  of  regulatory  inaction,  only  5  brands  are  close  to  meeting  the  voluntary 
agreement.  The  120  g  target  by  2012  is  perfectly  feasible  with  the  cost  of  19  euro  per 
tonne of CO2 according to the impact assessment. He concluded on this point that long-
term  targets  are  of  absolute  necessity  for  the  industry  and  climate/energy  policies.  The 
regulator should accept that technological uncertainties exist.  

The  ambitious  target  would  however  mean  nothing  without  a  decent  compliance 
mechanism.  He  warned  against  giving  access  to  CDM/JI  credits  or  ETS  credits.  He 
suggested  a  penalty  of  €150  per  g/km  per  car  as  appropriate  based  on  the  marginal 
abatement costs. In case, it was lower, the industry would pay this as a tax which is not 
the purpose of this regulatory policy.  

In  principle  the  target  should  not  distinguish  between  different  types  of  cars.  At  least 
over  time  standards  should  become  independent  of  car  classes.  If,  however,  a  utility 
parameter is politically necessary in the short term, it should be a fair representation of 
customer  value  and  avoid  perverse  incentives  that  increase  CO2  and  safety.  Put 

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differently:  the  parameter  should  give  car  makers  the  maximum  degree  of  options  to 
reduce  CO2.  Footprint,  number  of  seats  or  surface  (shadow)  represents  the  best 
compromise.  They  all  enable  car  makers  to  reduce  CO2  by  reducing  weight,  height  or 
power of the car – improving safety at the same time. Weight, height and power of the 
car therefore should definitely not be part of the utility parameter. 

He concluded:  

•  The targets should be come stricter over time, 120 by 2012, 80 g in 2020, 60 by 2025  

•  A strict compliance regime should be set  

•  Footprint or number of seats should be chosen as utility parameters  

•  the  impact  assessment  should  take  the  strategic  and  global  outlook  (impact  on  oil 

markets and car suppliers)  

Agenda Item 4: Consumers perspective 

According to Laure Degallaix (BEUC), the car manufacturers’ voluntary agreement has 
failed.  Transport  sector  is  responsible  for  12  %  of  EU  total  CO2  emissions  and  its 
emissions  rose  by  26  %  between  1990  and  2004.  This  sector  has  been  the  worst 
performing  one  regarding  the  achievement  of  EU  objectives  under  the  Kyoto  Protocol. 
The car manufacturers’ voluntary agreement lacked ambition, transparency and efficacy 
– in the same way as the vast majority of voluntary agreements have proven to be in the 
past.  She  denounced  the  increasing  use  of  such  agreements  by  EU  institutions  in  the 
environmental area. It is time for car manufacturers to take their responsibilities and for 
the EU Commission to adopt a strong and ambitious regulation to reduce car emissions. 

In  overall,  the  proposed  Commission’s  integrated  approach  is  welcomed  by  EU 
consumers’  organisations.  The  policy  toolbox  is  varied  in  this  area  and  all  economic 
actors  should  contribute  to  the  reduction  of  CO2  emissions.  However,  the  bulk  of 
reduction  should  come  from  individual  car  emissions  values.  Other  complementary 
technological  improvements  (such  as  gear  shift  indicators  or  biofuels)  should  only  be 
additional  to  mandatory  improved  vehicle  technology  measures.  All  tools/techniques 
should  be  measurable,  accountable  and  easy  to  monitor.  Taxation  and  fiscal  incentives 
should also be part of the legislative framework. In order to increase consumers' interest 
and  contribution,  energy  efficiency,  as  well  as  sustainable  development  and  mobility, 
should  be  promoted.  Up  to  now,  there  has  been  a  clear  discrepancy  between  the 
increasing market for more powerful and fuel-intensive cars and the objectives of the EU 
climate  change  and  energy  efficiency  policies.  It  is  necessary  to  ensure  coherence 
between market and political objectives; this only will guarantee the credibility of the EU 
policy in the future. An improved EU labelling scheme is needed as it is not harmonised 
across  the  EU  and  its  visibility  is  low.  This  was  illustrated  by  comparing  the  labels 
currently used in Germany and in the United Kingdom. Finally, rules should be imposed 
on advertising and marketing to avoid misleading messages and provide consumers with 
clearer  and  more  visible  information  on  CO2  emissions.  Ms  Degallaix  illustrated  this 
with an advertisement which claimed that a hybrid car, whose CO2 emission level was of 
192g/km, was low-emitting. Consumers should have the possibility not only to compare 
products but also to identify which are more ecologically-friendly.  

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In conclusion:  

•  Ambitious regulation is a matter of urgency 

•  The implementation of this regulations should be transparent, and its progress should 

be monitored and made publicly available 

•  The  120g/km  target  for  2012  should  be  adhered  to  and  should  be  implemented  in  a 

transparent way  

•  Intermediate and long-term mandatory targets for car emissions values also needed, it 
is unclear what is foreseen by the 2010 review in the Commission’s communication 

•  Fundamental  and  sustainable  change  in  the  transport  sector  is  needed,  energy 

efficiency should become a minimum requirement  

In his presentation, Wil Botman (FIA) presented the FIA vision from European, global 
and  consumer  information  perspective.  He  applauded  the  efforts  of  the  automotive 
industry  so  far,  but  acknowledged  that  the  cars  have  become  heavier  and  that  this  has 
resulted  in  increased  CO2  emissions.  This  is  partly  dues  to  additional  safety  features 
included  on  cars.  He  welcomed  the  120g/km  target  and  the  integrated  approach.  In  his 
view,  there  is  a  role  for  complementary  measures,  such  as  infrastructure  and  consumer 
behaviour.  Mobility  has  increased,  but  the  infrastructure  has  not  grown  to  the  same 
extent. The consumers should have the right to choose to but a bigger car but must have 
the  information  to  make  an  informed  choice.  There  are  a  number  of  measures  which 
could influence consumer choice: CO2 based taxation, taxation on new cars, and the cost 
of  fuel  (which  is  in  itself  CO2  based)  and  eco-labelling.  The  information  on  labels  is 
often  hidden  and  more  work  should  be  done  on  improving  eco-labelling.  Driver 
behaviour  could  be  influenced  by  eco-driving,  and  this  would  not  only  cover  new  cars 
but also the existing fleet and could result in CO2 savings of up to 10%. Efforts should 
be  fairly  distributed  across  the  industry.  From  the  global  perspective,  Mr  Botman 
underlined that the climate change is a global problem and EU must look beyond its own 
borders. EU should therefore work in international fora, such the UNECE working party, 
where  the  fuel  quality  will  also  be  addressed.  He  mentioned  the  EcoTest  developed  by 
ADAC  with  a  database  of  200  current  models.  FIA  will  further  push  for  a  harmonised 
clear fuel label as this is a promising way to influence consumer's choice.  

Agenda Item 5: International perspective 

In  his  presentation  Drew  Kodjak  (ICCT)  placed  the  European  proposals  within  the 
international  context  and  gave  some  thought  to  addressing  the  competitiveness  issue  in 
the  design  of  the  regulation.  He  presented  the  early  findings  of  a  study  done  by  ICCT 
reviewing  passenger  cars  standards,  fuel  economy  standards  and  GHG  emissions.  The 
report  is  entitled  'Passenger  Vehicle  Greenhouse  Gas  and  Fuel  Economy  Emissions 
Standards:  A  Global  Review'.  Both  the  EU  and  Japan  are  still  global  leaders  with  the 
most  stringent  passenger vehicle greenhouse gas and fuel economy standards. Japanese 
standards  are  expected  to  lead  to  the  lowest  fleet  average  GHG  emissions  (125g  by 
2015).  California  was  bolstered  recently  by  the  decision  of  the  US  Supreme  Court  that 
GHG  is  a  pollutant  and  can  be  regulated  by  the  Environmental  Protection  Agency.  To 
date, eleven other US states have adopted the Californian standards. The US lags behind, 

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but  a  lot  is  happening  in  the  US  Congress  and  the  executive  branch.  A  fuel  economy 
standard of 35 mpg by 2020 was passed by the Senate. South Korea opted for different, 
more  lenient  standards  for  vehicles  with  larger  displacement  engines.  The  shift  in  the 
market is expected to result in an increase in GHG emissions. He explained the graphic 
with different CO2-equivalent emission standards based on the European test cycle and 
explained the methodology and translation of various vehicle standards (i.e., CO2, GHG 
and fuel economy) to enable a fair and uniform comparison. Japan has the most stringent 
standards, followed by the EU. No action has taken place in China since 2004, but China 
has  new  taxation  measures  in  place.  By  2011,  the  new  U.S.  passenger  vehicle  fleet  is 
expected to achieve 236 g CO2/ km under the European test cycle. As to the magnitude 
of  reductions,  the  EU  has  done  an  excellent  job  with  a  sufficient  long  lead  time  since 
1995.  

Competitiveness is a significant issue (also for the US): looking at the table showing the 
ranking  of  different  manufacturers,  there  is  a  difference  between  the  best  performing 
(Peugeot, Fiat, Renault) and the low end, mainly German manufacturers. It is challenging 
but  possible  to  reconcile  environmental  sustainability  with  competitive  neutrality  by 
adopting an appropriate policy design. 

Drew  Kodjak  explained  that  the  US  has  grappled  with  the  same  problem  of 
competitiveness  among  manufacturers  for  many  years.  The  latest  reform  of  CAFE 
(Corporate  Average  Fuel  Economy)  changed  dramatically  the  standards  that  apply  to 
light  trucks.  This  regulation  is  now  based  on  size  (by  footprint)  and  on  continuous 
function,  correlating  each  vehicle  size  to  a  fuel  economy  standard.  As  a  result,  each 
manufacturer  will  have  its  own  fleet  average  fuel  economy  standard  based  on  its  own 
sales mix  of light trucks,  starting  in 2008. The slope of the function  was designed  in a 
way to disincentivise the upsizing of vehicles in order to achieve less stringent standards.  

In conclusion:  

•  The EU has done a lot: long-term standards with sufficient lead time, high fuel taxes 
to reduce demand for driving and energy consumption, differentiated taxes in order to 
ensure higher diesel penetration 

•  It  is  a  good  idea  to  shift  from  voluntary  to  mandatory  policy:  for  instance,  Canada 

envisages the same move, starting in 2010 

Looking  ahead,  the  EU  should  continue  with  long-term  targets.  It  is  possible  to  design 
the  policy  in  a  way  which  addresses  competitiveness  concerns  –  the  US  is  a  good 
example  here.  The  policy  and  any  additional fiscal  policies  should  promote  technology 
innovation and discourage increases in vehicle size, weight and power as it is difficult to 
reverse the trend.  

Session 2 : Statements by other stakeholders, Q and A 

In  his  statement,  Axel  Friedrich  (Umweltbundesamt,  UBA)  presented  some  thoughts 
about how reductions could be achieved through retrofit. A 125 KW (170 horse power) 
gasoline car was selected and through a number of measures with small CO2 reduction 
contribution  (such  as  transmission  with  long  gear  ratios,  downsized  engine,  start-stop 
function,  heat  storage,  mirror  substitution,  low  resistance  tyres),  the  CO2  emissions  of 

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the  basic  vehicle  were  brought  down  from  172  g  to  131  g  with  no  changes  in  horse 
power, safety etc. He informed participants about another retrofit project carried out by 
VOX-TV in cooperation with 9ff Dortmund. Most of the reduction came through weight 
reduction. The goal is to bring the Diesel Golf below 80g/km CO2. He suggested a limit 
for each vehicle model based on the area of the vehicle as nearly all manufacturers would 
have the same burden and stressed that weight is not the best parameter.  

In conclusion, he argued that:  

•  There is no need to develop new vehicles as this adjustment can be made on existing 

cars.  

•  Only exchange of parts and improvements are enough to meet the 130 g/km target in 

2012.  

According  to  Sophie  Dupressoir  (ETUC),  the  organisation  is  supportive  of  the 
Commission's proposals. The future regulation should be based on 3 key principles:  

•  It  should  help  the  European  industry  to  improve  its  long-term  competitiveness.  Fuel 
efficiency and CO2 emissions standards will be key future drivers for global vehicle 
markets,  and  especially  emerging  markets.  The  EU  automotive  industry  has  not 
stepped  up  innovative  efforts  on  hydrogen  or  hybrid  cars  to  the  same  extent  as 
international competitors have already done. The regulation should therefore include 
long-term  targets  in  order  to  trigger  the  necessary  innovation  and  investments  and 
bring significant competitive advantages to the automotive industry.  

•  The  deadline  of  2012  should  be  kept.  A  fair  burden  should  be  imposed  on  all 
industries as an advantage given to one industry would impose additional burden on 
others, including workers and consumers.  

•  The target should be set according to the polluter pays principle, rewarding the early 

movers while not threatening the viability of the high emissions car producers.  

An  open  European  social  dialogue  on  the  implementation  of  climate  change  policies 
should be established. 

Nikolaus Schmidt (EMF) commented on the contribution of the automotive industry to 
employment  in  Europe  (2.2  million  direct  jobs,  12  million  indirect).  It  is  therefore 
important  to  determine  framework  conditions  leading  to  growth,  innovation  and 
employment. This should be at the heart of industrial policy. The measures for fighting 
the climate change should include the transport sector. The European EU Commission's 
objective is supported, but serious discussions are needed on the timetable. He welcomed 
the principles on which the future framework should be based (competitively neutral and 
socially equitable and sustainable reduction targets which are equitable to the diversity of 
the  European  automobile  manufacturers  and  which  avoid  any  unjustified  distortion  of 
competition  between  automobile  manufacturers).  In  line  with  these  principles  a 
legislative approach should be shaped in a way that:  

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•  establishes targets for the further reduction of CO2 emissions for all kinds of cars (all 
segments  of  PC's  and  LCV's)  –  with  higher  reduction  targets  for  cars  with  higher 
weight and power.  

•  ensures that all types of cars can still be produced in the future 

•  minimizes the risk of job-losses and plant closures 

•  includes a control mechanism on the European level 

As  for  the  mechanism  of  implementation  of  the  target,  in  his  view  a  closed  emissions 
trading  system  will  not  fit  with  the  CO2  reduction  strategy,  as  it  is  not  competitively 
neutral.  He  suggested  the  establishment  of  a  European  fund  collecting  the  penalties, 
which  could  be  used  to  finance  measures  to  develop  an  integrated  and  inter-modular 
system in Europe – including R&D. 

Arnaud Duvielguerbigny (AEGPL), commented on the LPG (liquefied petroleum gas) 
positive contribution in terms of savings.  

LPG cars can be either brand new bi-fuelled cars or petrol-fuelled vehicles converted to 
LPG. About 4.5 million LPG-fuelled vehicles run on LPG in EU, supported by a network 
of 22,500 filling stations. 

The  current  fleet  of  LPG-fuelled  vehicles  saves  1.4  million  tones  of  CO2  per  annum 
(compared  to  petrol-fuelled  cars).  LPG  is  also  good  from  the  energy  diversification 
aspect, with less than 1.7 % imports coming from the Middle East. AEGPL would like to 
see an equal consideration given to all alternative fuels, that is to say the same kind of 
regulation for alternative gaseous fuels, LPG and Natural gas. In addition, they support 
the introduction of an instrument to allow car manufacturers selling bi-fuelled (petrol + 
LPG) vehicles to base their CO2 emissions declaration on the LPG mode. AEGPL agrees 
with  the  specific  target  and  the  timeline  set  by  the  Commission  in  its  Strategy,  and  is 
ready to contribute to the debate. 

According  to  Martin  Suenson  (EUROPIA),  an  integrated  approach  is  a  good  way 
forward.  He  expressed  some  sympathy  for  the  wish  to  have  a  target  that  could  be 
monitorable  and  assigned.  However,  other  soft  measures  such  as  infrastructure  or  eco-
driving  should  not  be  overlooked.  An  integrated  approach  demands  an  integrated  and 
holistic  impact  assessment.  There  are  secondary  effects  and  mutually  conflicting  goals 
that  must  be  understood  in  order  to  arrive  at  coherent  strategies  and  regulation.  He 
illustrated this point on with three examples: First, the increased dieselization will reduce 
the emissions of CO2 from cars, but will increase the CO2 emissions from refineries and 
will even lead to an overall increase in CO2 emissions if taken too far. Second, given a 
limited availability of biomass, if biomass is used for transportation fuels, it will not be 
available  for  other  CO2  emission  reducing  purposes,  e.g.  the  generation  of  heat  and 
power (where the CO2 avoidance potential is roughly double). Biomass and bio-fuels is 
being  mentioned  in  many  different  contexts  and  a  coherent  set  of  strategies  must  take 
account  of  the  total  availability  of  biomass  as  a  fuels  source.  Finally,  increasing 
environmental  specifications  for  fuels,  for  example  the  sulfur  content,  are  leading  to 
increased  processing  in  the  refineries  and  hence  increased  CO2  emissions  in  refineries, 
so holistic environmental regulation must recognize and balance these trade-offs. 

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Michela Vuerich (ANEC) stated that consumers could play a role when buying a new 
car, but need to be well informed and thus need comparable information. This could be 
achieved through harmonised and improved car labelling across the EU, with graphical 
displays and comparable energy efficiency grades. However, such a labelling scheme is 
of little use unless supported by mandatory car standards. High targets for car emissions 
should also be imposed. 

Joeri Thijs (Greenpeace) reacted to the statements of the industry representatives on the 
lead  time.  According  to  him,  the  lead  time has already been  there  for 12 years and the 
120g  target,  set  in  1995,  was  postponed  already  2  times.  He  claimed  that  today,  with 
even much more certainty and proof showing the urgency of measures to tackle climate 
change and the need for a strong reduction of CO2-emissions, the Commission plans to 
weaken again this 12 year old target (by imposing only a 130 g by vehicle improvement). 
According to Mr. Thijs, this is because the car industry is claiming that the 120g target is 
not  achievable  and  that  more  time  is  needed.  He  stated  that  not  only  did  the  industry 
already have a lead time of 12 years, but that it is also incorrect to say that this target is 
not achievable by 2012. 

A recent study available on www.cleangreencars.co.uk showed that if all models in each 
class  had  the  same  CO2-output  as  the  best  performing  models  in  their  own  class,  the 
target would already be almost reached today. This shows again that it is not unrealistic 
at  all  to  achieve  120g  by  2012.  Greenpeace  expects  the  EU  to  take  its  own  climate 
policies  serious,  and  expects  that  the  EU  will  set  a  binding  120-target  (by  vehicle 
measures only) for 2012 and ambitious long term targets. Finally, he pointed out that it 
would  be  outrageous  and  counterproductive  to  set  an  overambitious  EU  target  for 
biofuels  and  at  the  same  time  remain  much  less  ambitious  in  making  cars  more  fuel 
efficient. 

Jeroen Verhoeven (Friends of the Earth), reacted to ACEA's statement on competition 
issues.  In  FoE's  view,  competition  is  about  adopting  best  practices,  and  if  all  car 
manufacturers adopted existing best practices in every class, the target of 120 g could be 
reached  now.  H  drew  attention  to  the  role  of  car  advertising,  as  the  majority  of  the 
advertisements are promoting high CO2 emitting cars such as SUVs. Consequently, car 
advertisements failed to show the CO2 emissions of cars, which is a clear responsibility 
of the automotive industry. At the same time, a "green washing operation" is happening 
where high CO2 emitting cars are being advertised as environmentally friendly. Biofuels 
are also being used as a tool to green wash the trend to ever more powerful cars. As an 
example,  a  SAAB  flexi-fuel  car  which  is  running  on  ethanol  has  30  more  horsepower 
than  the  regular  version.  "Mr  Verhoeven  raised  the  question  whether  this  additional  30 
horsepower  is  necessary  and  logical,  especially  when  the  car  manufacturers  are 
simultaneously promoting the idea of “eco-driving”. Regarding energy efficiency, if the 
120g CO2/km target is replaced by a 130g CO2/km target, while counting on the use of 
biofuels, this would lead to using biofuels as a substitute for energy efficiency. On top of 
this, converting biomass into biofuels is not the most energy efficient use of biomass, and 
biomass is a scarce resource as well. Finally, he questioned how the proposed policy can 
be in line with the EU target to increase energy efficiency by 20% by 2020. 

Stefan  Singer  (WWF)  expressed  his  support  to  ideas  expressed  by  the  environmental 
NGOs  community  and  the  criticism  by  T&E  in  its  morning  presentation.  He  reiterated 
that  there  is  no  reason  for  further  delay  in  reaching  the  120  g  target.  Opportunities  for 

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reaching the target were there and it is logical if voluntary approaches have missed the 
target, it should now become mandatory. Eco-driving, rolling resistance or tyres pressure 
monitoring systems are certainly valuable elements and educational tools, which should 
be  made  mandatory  in  any  kind  of  system.  WWF  is  however  concerned  by  the  the 
question of who should be accountable if those activities became part of the regulation. 
Secondly,  WWF  is  in  favour  of  sustainable  biofuels,  but  is  concerned  if  they  count 
towards  the  target.  If  credits  are  generated  through  the  use  of  biofuels,  consideration 
should be given to what happens with debits from the use of dirty fuels (tar sands, CTL). 
Biofuels should be part of the policy on fuel quality and reward the fuel suppliers making 
them  accountable  for  rendering  biofuels  sustainable.  Finally,  concerning  the  transport, 
the  first  generation  of  biofuels  will  only  reduce  growth  of  emissions.  The  IPPC  report 
concludes,  90  %  of  emissions  reduction  should  come  from  reductions  in  the 
industrialized  countries.  The  transport  sector  should  therefore  strive  to  become  a  low 
carbon sector in order to achieve the objectives of halving transport emissions by 2020 or 
2025. 

Hermann Meyer (Volkswagen) commented on the short presentation from Mr Friedrich 
and underlined that it is positive that both Mr Friedrich and IKA work on the issues. The 
more  institutions  contribute  to  find  ways  to  increase  the  CO2  efficiency  of  cars,  the 
better.  However,  he  regretted  that  Volkswagen  was  not  consulted  properly  on  the 
presentation prior to the public hearing. He expressed caution as some of the results seem 
to be derived from the simulations, and not yet shown by vehicles themselves. He also 
explained that through changes to seats or the hood, severe safety considerations are at 
stake. Conclusive statements on safety impact can only be made after crash tests. Finally, 
whatever  changes  are  made  on  the  prototype,  it  does  not  mean  that  this  car  can  be 
produced in high volume and that this car can perform in all conditions. This would have 
to  be  thoroughly  investigated.  Volkswagen  is  prepared  to  discuss  the  results  with  Mr. 
Friedrich and the IKA in more detail in the future. 

Frank Van West (FIA) stated that the EU has a harmonized directive on labelling, but 
unfortunately  at  the  time  of  its  adoption  no  agreement  on  the  label  was  found  due  to 
subsidiarity considerations. As a result, 12 different consumption labels are used for the 
same  car  and  this  is  very  confusing.  He  informed  participants  about  ADAC  work  on 
labelling. In assignment of the Commission (DG Environment) the ADAC has produced 
a report which could be used as a basis for future harmonisation. In addition, ADAC has 
the  ecotest  database  with  200  car  models.  In  conclusion,  he  pleaded  for  a  legally 
harmonised label.  

Closing remarks 

Catherine Day (Secretary General) stressed that the Commission has not made up its 
mind  and  pointed  to  the  fact  that  the  many  issues  raised  are  interconnected.  A  holistic 
approach is needed.  

Peter Carl (DG for Environment) elaborated on the different responsibilities of various 
actors  responsible  for  the  implementation  of the  strategy.  Four  different  actors  have  an 
important role to play:  

•  The  European  institutions:  they  have  the  responsibility  for  presenting  the  proposals 

not only on core issues, but also on associated issues (labelling) 

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•  Member  States:  they  have  powerful  tools,  such  as  taxation  and  if  they  were  to  take 
quite significant measures, this would drive down the cost of the transformation of the 
EU industry.  

•  Manufacturers:  through  investment  in  new  technologies  and  research,  a  tremendous 
amount  can  be  achieved  by  the  industry  (slightly  smaller,  lighter  cars,  down  sized 
cars, advertising) 

•  Consumers: driving less, consuming less fuel 

Heinz  Zourek  (Director  General  for  Enterprise  and  Industry),  explained  that  the 
focus  of  the  session  was  on  the  hard  legislation,  but  the  contribution  of  labelling  or 
infrastructure  should  not  be  underestimated.  DG  ENTR  is  used  to  working  through  an 
approach  based  on  type  approval.  In  this  particular  case,  the  scenario  changes  from  a 
voluntary  to  a  mandatory  approach.  However,  there  is  no  experience  on  market 
surveillance.  Control  costs  should  not  overshoot  the  benefits.  He  emphasized  also  the 
importance of tyres. With the type-approval directive on tyres, tyres could be addressed 
in  a  comprehensive  manner  (not  only  CO2,  but  also  noise).  This  directive  might  have 
immediate benefits as it would address the fleet in use. 

Catherine  Day  (Secretary  General),  concluded  that  the  targets  and  the  timeline  are 
already decided and that the discussion should concentrate on the way to get there. She 
appreciated the usefulness of the meeting, which had enabled participants to make public 
their different views. The Commission will now have to look at the different options and 
weigh them up. Impact assessment is important for the Commission to make an informed 
choice  and  explain  to  others  the  Commission's  choice.  She  reassured  the  audience  that 
this  was  not  the  last  time  that  the  Commission  would  engage  collectively  with 
stakeholders. 

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ANNEX III: DETAILED RESULTS OF THE PUBLIC CONSULTATION 

Review of the EU strategy to reduce  
CO2 emissions and improve fuel efficiency from cars 

Report on the Public Consultation May – July 2007 

Stakeholder consultation 

Introduction 

A  public  consultation  was  carried  out  between  5  May  and  15  July,  2007  in  order  to 
gather  different  views  on  how  the  Commission’s  proposed  strategy  should  be 
implemented.  The  public  consultation  was  based  on  a  web-tool  developed  by  the 
Commission. All contributions were submitted electronically.  

The  Commission  did  not  provide  any  specific  questions  do  be  addressed,  but  indicated 
that  the  contributions  should  relate  to  reaching  the  130  g/km  objective  through 
improvements of vehicle technology. In particular, the Commission stated that it would 
welcome  further  input  for  its  impact  assessment  in  terms  of  costs  and  benefits  for  the 
implementation of the various elements of the proposed strategy. 

A  substantial  number  of  contributions  from  were  submitted.  The  total  number  of 
contributions was 2390, divided between the following general stakeholder groupings: 

•  Contributions from individuals38 : 2340 

•  Industry organisations39 : 23 

•  Governmental organisations : 4 

•  Non-governmental organisations40 : 23 

The  substantial  number  of  contributions  and  the  heterogeneous  nature  of  organisations 
within the same grouping makes it difficult to draw conclusions However, after having 
carefully  examined  all  contributions  some  general  trends  have  been  identified. 
Individuals  and  NGOs  mostly  argued  for  the  stricter  application  of  targets,  timeframes 
and  flexibility  in  order  to  ensure  the  environmental  outcome  of  the  regulatory 
framework. Industry organisations generally provided support for a less stringent target 
and more flexibility which they consider a more realistic approach. 

The following sections attempt to summarise the contributions to the public consultation 
with  respect  to  key  elements  of  the  Commission’s  revised  strategy  as  presented  in  the 
Communication.  It  should  be  kept  in  mind  that  a  number  of  contributions  go  against 

38 
39 

40 

2278 of these contributions were identical (but in different languages) 
A majority of which were car manufacturers, their suppliers, and industry associations organising 
these 
A majority of which were environmental NGOs, but also including consumer organisations, trade 
unions and industry associations not directly associated with the automotive industry 

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these  generalisations,  and  that  the  majority  of  contributions  only  address  a  few  of  the 
different elements.  

Reactions on the main aspects of the Commission’s communication 

Statutory targets 

The Commission’s preference for introducing statutory targets to reduce CO2 was widely 
supported.  The  vast  majority  of  contributions  addressing  this  issue  stated  that  a  new 
strategy  involving  legislation  is  needed  in  order  to  reach  the  Community  objectives. 
Representatives  of  the  automotive  industry  specifically  did  not  clearly  indicate  if  they 
support a statutory target, but acknowledged that a reviewed strategy is necessary despite 
their efforts under the voluntary commitments.  

Mandatory compliance in 2012 

The  contributions  expressed  diverging  views  on  the  feasibility  of  the  Community 
objective  to  reach  the  target  by  2012.  NGOs  (including  trade  unions  and  consumer 
organisations) and individuals showed general support for the suggested timeframe and 
underlined  that  the  industry  has  been  aware  of  the  2012  targets  at  least  since  the 
Commission’s previous strategy to reduce CO2 emissions from cars was adopted in 1995. 
Consequently,  they  argued  that  the  lead  time  necessary  for  the  industry  to  adapt 
production  and  product  ranges  is  sufficient.  Industry  organisations  on  the  other  hand 
strongly  argued  that  the  2012  timeframe  is  not  realistic,  especially  if  the  130  g/km 
objective is retained. The main reason for this view (as expressed in the contributions) is 
that the development and product cycle in the automotive sector demands more lead-time 
in order to introduce new technology. 

The integrated approach 

The integrated approach is, based on the assumption that further-reaching and less costly 
reductions  can  be  achieved  by  combining  improvements  in  vehicle  technology  with 
complementary measures, was widely embraced by the different stakeholders. However, 
there is a clear disagreement between the different stakeholder groupings with regard to 
how  the  burden  should  be  shared  between  the  different  elements  of  the  integrated 
approach. These issues are further addressed in the sections below. 

The 130 g/km objective to be met through improvements of vehicle technology 

Contributions showed diverging views with regard to the 130 g/km objective. NGOs and 
individuals widely expressed support for even tougher targets, such as a 120 g/km target 
to  be  met  by  improvements  in  vehicle  technology  alone.  Industry  organisations  on  the 
other  hand41  generally  indicated  that  the  130  g/km  target  is  unrealistic,  and  that  the 
overall objective of 120 g/km should be reached by a wider application of the integrated 
approach. 

Complementary measures to obtain further reductions by 10 g/km 

41 

Especially representatives of the automotive industry, including ACEA, JAMA and KAMA 

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Again,  the  views  of  NGOs  and  individuals  converge  on  the  view  that  complementary 
measures  should  not  count  towards  the  120  g/km  target.  Contributions  from  Industry 
organisations  generally  suggested  the  opposite,  indicating  that  the  complementary 
measures should indeed count towards the overall target, and consequently should result 
in a higher target to be reached by improvements in vehicle technology. 

As  regards  the  complementary  measures  which  should  form  part  of  the  Community 
strategy, a number of contributions pointed towards measures which were mentioned in 
the  Commission’s  Communication  as  possible  measures  at  the  Member  States  level. 
Examples  of  these  are  eco-driving  and  investment  in  road  infrastructure.  While  it  is 
difficult to generalise on this point, most stakeholders appeared to favour a broad use of 
complementary  measures.  Opinions  differed  however  on  the  extent  to  which  the 
complementary measures should affect the target to be met by improvements in vehicle 
technology. 

Method to set the target 

As regards the overall method to set 2012 targets, two main views emerged: individuals 
and the majority of NGOs generally expressed support for a uniform target to be applied 
to all cars or all manufacturer averages, while industry organisations generally argued for 
differentiated  targets  in  order  to  take  the  diversity  of  manufacturers  into  consideration 
(such  as  targets  set  by  a  utility  function).  A  relatively  smaller  number  of  contributions 
addressed issue of utility parameter to be used if a utility-based target function would be 
used.  Again,  the  views  diverge  between  NGOs  and  individuals  on  the  one  hand  and 
industry  organisations  on  the  other.  The  former  generally  argued  for  footprint  (or  pan 
area),  the  latter  for  weight.  The  main  arguments  expressed  for  weight  were  that  this 
parameter would provide for international convergence and a more equal burden-sharing 
between manufacturers. The main arguments put forward for footprint (or pan area) were 
that this parameter is more difficult to alter and that it would avoid perverse effects (such 
as manufacturers increasing weight in order to face a higher target). 

Flexibility, enforcement etc 

A relatively limited number of contributions addressed the issue of flexibility. The vast 
majority of contributions support a target to be met on average, i.e. not absolute targets 
that would prevent vehicles exceeding the target to be placed on the market. A majority 
of  contributions  also  implicitly  supported  the  possibility  for  manufacturers  to  be  held 
responsible for their average emissions rather than the emissions of each specific model. 

As  regards  emission  trading  between  manufacturers,  many  Industry  organisations 
addressing the issue argued against allowing for trading in the regulatory approach, while 
some  NGOs  in  particular  argued  for  allowing  this  possibility.  However,  some 
representatives  of  the  automotive  industry  suggested  that  the  inclusion  of  the  transport 
sector in the existing EU Emission Trading Scheme should be further evaluated, whereas 
NGOs tended to oppose this approach. 

A limited number of contributions also addressed the issue of enforcement. While many 
contributions  at  least  implicitly  acknowledged  that  fines  should  be  imposed  on 
manufacturers  in  case  of  non  compliance,  the  opinions  on  the  level  of  fines  were 
divergent.  NGOs  generally  argued  that  fines  must  be  set  at  levels  which  deter 

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manufacturers 
representatives of the automotive industry in particular were less explicit on the issue. 

from  non-compliance 

(i.e.  missing 

their  2012 

targets),  while 

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