28 Feb Approval and market surveillance of two- or three-wheeled motorcycles – Impact assessment of IMCO compromise amendments Presentation by London Economics

Overview  Introduction  Enhanced functional safety requirements  On-board diagnostic system (OBD)  Timetable for emission standards  Discussion 2 28 Feb 2012

Introduction 3 28 Feb 2012

Background  This study is an impact assessment of amendments proposed by the IMCO Committee to measures contained in the European Commission's proposal for a "Regulation on the approval and market surveillance of two- or three-wheeled vehicles and quadricycles“ [COM(2010) 542 final, 4 October 2010]  The IMCO amendments examined in the impact assessment cover 3 areas: 1. Mandatory fitting of anti-lock braking system (ABS) 2. Mandatory fitting of On-Board Diagnostic (OBD) system 3. Expedited introduction of subsequent stages of Euro emission standards  The impact assessments build upon the comprehensive impact assessment on the Proposal compiled by the European Commission, but is narrower in focus: The measures contained in the EC’s Proposal are taken as the baseline scenario Only the impacts of differences between the EC’s original proposal and the IMCO Compromise are considered 4 28 Feb 2012

Study approach  Review of the impact assessment on the EC’s original proposals [SEC(2010) 1152, 4 October 2010] and underlying documentation, in particular: Robinson, T. L., McCarthy, M., Pitcher, M., Gibson, T. and Visvikis, C. (2009). Evaluating the impact of possible new measures concerning category L vehicles. Report to the European Commission, DG Enterprise and Industry. (‘TRL Report’) Ntziachristos, L., Geivanidis, S., Samaras, Z., Xanthopoulos, A., Steven, H. and Bugsel, B. (2009). Study on possible new measures concerning motorcycle emissions. Final Report – Revised Version. (‘LAT Report’)  Consultations with stakeholders: the association of the European motorcycle industry (ACEM) individual motorcycle manufacturers and suppliers (Honda, Triumph, Bosch) the Federation of European Motorcyclists Associations (FEMA) the Association for Emissions Control by Catalyst (AECC) 5 28 Feb 2012

Common assumptions I  A number of common assumptions are used throughout the impact assessment to ensure consistency of the quantitative estimate for the Net Present Value (NPV) of the different impacts: discount rate of 4% (EC Impact Assessment Guidelines) price inflation of 2% per year from 2012 (as in the TRL/LAT reports) new registrations split 20:80 (constant) between new and existing types of vehicles (based on observations from manufacturers’/dealers’ websites and consultation with ACEM) NPVs computed as of 2012 for the period up to 2021 average per-vehicle motorcycles prices are based on observed prices of the 50 best- selling models (28% of the EU PTW market in 2011 ) 6 28 Feb 2012 Vehicle categoryL1-BL3-A1L3-A2/A3 Observations Average price per vehicle€1,690€2,837€8,994

Common assumptions II  Growth in new registrations: projected increases in registrations used for the EC impact assessment did not take into account the effect of the current economic crisis updated estimates from EMISIA foresee a decrease in registrations up to 2013 registrations never recover to current levels within the timeframe under consideration 7 28 Feb 2012 LAT Report (2009) Updated EMISIA estimates (2012)

Enhanced functional safety requirements 8 28 Feb 2012

Summary of the proposed measure Status quo (EC proposal) 9 28 Feb 2012 Mandatory ABS for new types in categories L3e- A2/A3 from 2017 Mandatory ABS and/or CBS for new types in category L3e-A1 from Commission proposal Proposed compromise L1e – A1 existing new existing new Commission proposal Proposed compromise L3e – A2/A3 existing new existing new 2021 CBS/ABS ABS

Summary of the proposed measure Proposed changes I Feb 2012 Introduction of ABS requirement for new types in categories A2/A3 one year earlier (2016) Commission proposal Proposed compromise L1e – A1 existing new existing new Commission proposal Proposed compromise L3e – A2/A3 existing new existing new 2021 CBS/ABS ABS

Summary of the proposed measure Proposed changes II Feb 2012 Introduction of ABS requirement for new types in categories A2/A3 one year earlier (2016) Extension of the ABS requirement to existing types in categories A2/A3 from Commission proposal Proposed compromise L1e – A1 existing new existing new Commission proposal Proposed compromise L3e – A2/A3 existing new existing new 2021 CBS/ABS ABS

Summary of the proposed measure Proposed changes III Feb 2012 Introduction of ABS requirement for new types in categories A2/A3 one year earlier (2016) Extension of the ABS requirement to existing types in categories A2/A3 from 2017 Introduction of equivalent ABS requirements for category A Commission proposal Proposed compromise L1e – A1 existing new existing new Commission proposal Proposed compromise L3e – A2/A3 existing new existing new 2021 CBS/ABS ABS

Main impacts Feb 2012  Main impacts were evaluated qualitatively based on existing evidence ImpactAssessment Manufacturer costsPotentially serious Environmental costsLikely negligible Demand effect of increased price of vehicles reduces quality of the vehicle stock Likely small in sub-categories A2/A3 Negative safety impacts Likely small except potentially for CBS substitution Avoidance or mitigation of accidents and casualties Significant, but more uncertain in sub- category A1 Insurance costs to consumersPotentially significant Increased demand for motorcyclesLikely small Revenue and employment in supplier industry Benefit dependent on multiplier effect, likely small

Additional assumptions I Feb 2012  New registration forecasts for vehicles in categories A1 and A2/A3 are: based on 2011 ACEM figures for new registrations of ‘motorcycles’ projected up to 2021 using EMISIA growth forecasts assuming a split of 30:70 between A1 and A2/A3 (as in the TRL report)  Cost of ABS/CBS: based on observed price differences (2011) between models with/without ABS assuming limited economies of scale -ABS: € 500 -CBS: € 250 cost figures are disputed: -European Association of Automotive Suppliers (CLEPA): €100-€150 after mandatory introduction due to economies of scale -sensitivity tests show this affects the qualitative results only if ABS effectiveness is very high

Additional assumptions II Feb 2012  Effectiveness of ABS/CBS: based on ‘estimated effectiveness of advanced braking systems for fatalities’ (‘best estimates’ from TRL report): -ABS: 18% -CBS: 8%  Deaths per 1,000 vehicles per vehicle category and braking system: based on casualty figures and current use of advanced braking systems from the TRL report assuming vehicles in categories A2 and A3 account of 80% of fatal accidents Vehicle categoryL3-A1L3-A2/A3 Deaths per 1,000 vehicles: ABS Deaths per 1,000 vehicles: CBS0.16- Deaths per 1,000 vehicles: no advanced braking system

Additional assumptions III Feb 2012  Cost of accidents: based on TRL report  Three scenarios for the effect of ABS/CBS where fatality is avoided: fatality mitigated to non-injury (best case) fatality mitigated to slight injury fatality mitigated to serious injury (worst case) Casualty typeValuation Fatal€1,000,000 Serious€100,000 Slight€15,000

Results I Categories L3-A2/A Feb 2012  The net cost of the proposed measure is between €747 million and €1.1 billion, depending on the assumed effectiveness of ABS  95% of the cost is due to the extension of the ABS requirement to existing types of vehicles in categories A2/A3  The difference in fatality rates between vehicles with and without ABS results in 383 fatalities either avoided or mitigated due to the proposed measure over the period  Under the most optimistic assumptions (all fatalities are avoided, resulting in costs of €1 million avoided in each case), the total costs avoided by the proposed measure are €380 million.

Results II Category L3-A Feb 2012  The net cost of the proposed measure ranges from €610 million to €761 million, depending on the assumed effectiveness of ABS  96% of the cost is due to the extension of the ABS requirement to existing types of vehicles from 2017  Per vehicle, the cost of ABS represents on average 18% of the price of a motorcycle in category L3e-A1  The difference in fatality rates between vehicles with and without ABS results in 155 fatalities either avoided or mitigated due to the proposed measure over the period  Under the most optimistic assumptions (all fatalities are avoided, resulting in costs of €1 million avoided in each case), the total costs avoided by the proposed measure are €153 million

On-board diagnostic (OBD) system Feb 2012

Summary of the proposed measure Status quo (EC proposal) Feb (t+2) 2017 (t+3) 2018 (t+4) 2019 (t+5) 2020 (t+6) 2021 (t+7) 2022 (t+8) Commission proposal Proposed compromise L3e existing new existing new L1Be existing new existing new Proposed compromise OBD I OBD II Only measures for categories L1B and L3 are analysed New motorcycles and mopeds have to be equipped with OBD I from 2017 New motorcycles and mopeds have to be equipped with OBD II from 2021

Summary of the proposed measure Proposed changes I Feb (t+2) 2017 (t+3) 2018 (t+4) 2019 (t+5) 2020 (t+6) 2021 (t+7) 2022 (t+8) Commission proposal Proposed compromise L3e existing new existing new L1Be existing new existing new Proposed compromise OBD I OBD II For new vehicle types in category L3e, the requirement for OBD I and OBD II will apply one year earlier: 2016 (OBD I) and 2020 (OBD II)

Summary of the proposed measure Proposed changes II Feb (t+2) 2017 (t+3) 2018 (t+4) 2019 (t+5) 2020 (t+6) 2021 (t+7) 2022 (t+8) Commission proposal Proposed compromise L3e existing new existing new L1Be existing new existing new Proposed compromise OBD I OBD II For new vehicle types in category L3e, the requirement for OBD I and OBD II will apply one year earlier: 2016 (OBD I) and 2020 (OBD II) For existing vehicle types in category L3e, the requirement for OBD I will apply from 2017 and for OBD II from 2021

Summary of the proposed measure Proposed changes III Feb (t+2) 2017 (t+3) 2018 (t+4) 2019 (t+5) 2020 (t+6) 2021 (t+7) 2022 (t+8) Commission proposal Proposed compromise L3e existing new existing new L1Be existing new existing new Proposed compromise OBD I OBD II For new vehicle types in category L3e, the requirement for OBD I and OBD II will apply one year earlier: 2016 (OBD I) and 2020 (OBD II) For existing vehicle types in category L3e, the requirement for OBD I will apply from 2017 and for OBD II from 2021 OBD II will not be required for vehicles in category L1Be Existing types of vehicles in category L1Be have to be fitted with OBD I from 2018

Main impacts Feb 2012  Main impacts were evaluated qualitatively based on existing evidence ImpactAssessment Manufacturer costs Relatively small for OBD I, larger for OBD II Costs for the aftermarketLikely small Reduction of vehicle emissionsLikely positive Safety benefitsLikely positive, but small Revenue and employment in the supplier industry and type approval authorities Benefit dependent on multiplier effect, likely small Consumer benefits due to timely/efficient repairs/servicing Positive, difficult to quantify Competition benefits in the aftermarket for L-category vehicles Uncertain

Additional assumptions Feb 2012  Cost of OBD 1: €11 per vehicle based on report for UK Department of Transport (2003)  Cost of OBD II: €46 per vehicle based on industry consultation: price up to €92 potential cost including oxygen sensors up to €100 Vehicle category*L1-BL3-A1 L3- A2/A3 Average price per vehicle (€)1,6902,8378,994 Cost of OBD I (€11) as % of average price 0.7%0.4%0.1% Cost of OBD I and II (€11+€46=€57) as % of average price 3.4%2.0%0.6%

Results Feb 2012  The proposed measure results in additional net costs of €130 million (NPV)  The main driver of the cost differential is the expansion of the OBD requirement to existing types of vehicles the extension of the requirement to fit OBD I to new types of motorcycles (category L3e) from 2016 results in additional costs of around €2.4 million the extension of the requirement to fit OBD I to existing types of motorcycles from 2017 results in additional costs of around €10.7 million per year the extension of the requirement to fit OBD II to new types from 2020 and existing types from 2021 results in additional costs of €12 million and €48 million, respectively the extension of the requirement to fit OBD I to existing types of mopeds (category L1Be) from 2018 results in additional costs of around €6.6 million per year the removal of the requirement fit OBD II to new types of mopeds (category L1Be) results in savings of around €7 million  The environmental benefits have not been quantified, but are considered small

Timetable for emission standards Feb 2012

Summary of the proposed measure Status quo (EC proposal) Feb 2012 Euro 3 for new types from 2014 and for existing types from 2015 Euro 4 for new types from 2017 and for existing types from 2018 Euro 5 for new types from 2020 and for existing types from Commission proposal Proposed compromise L2e-L7e existing new existing new 2021 Euro 3 Euro 4Euro 5

Summary of the proposed measure Proposed changes I Feb 2012 Removal of the Euro 3 step Commission proposal Proposed compromise L2e-L7e existing new existing new 2021 Euro 3 Euro 4Euro 5

Summary of the proposed measure Proposed changes II Feb 2012 Removal of the Euro 3 step Expedited introduction of Euro 4: 2016 for new types and 2017 for existing types Commission proposal Proposed compromise L2e-L7e existing new existing new 2021 Euro 3 Euro 4Euro 5

Main impacts Feb 2012  Main impacts were evaluated qualitatively based on existing evidence  Overall impacts appear in terms of costs and environmental benefits appear limited  The impact on the competitiveness of European motorcycle manufacturers could be substantial, but is difficult to predict and to quantify ImpactAssessment Manufacturer costs Likely moderate for Euro 4, but highly variable Reduction of vehicle emissionsSubstantial for new vehicles Increased competitiveness of European industry Potentially substantial Revenue and employment in the supplier industry and type approval authorities Benefit dependent on multiplier effect, likely small

Additional assumptions Feb 2012  Cost of Euro 4: €40-€70 + engine tuning/calibration costs, which apply per engine family based on TRL report scenario 3 (Euro 4 in the EC proposal) potential costs of IMCO requirements for Euro 4 could be higher (LAT scenario 4, with costs of €135-€225 + calibration costs per engine family) Vehicle categoryL1-BL3-A1L3-A2/A3 Observations Average price per vehicle (€)1,6902,8378,994 Cost of Euro 4 as % of average price3.0%1.8%0.6%

Current emissions performance of L-category vehicles Feb 2012  Compliance with Euro 3 and Euro 4 standards is already relatively widespread (~25%), especially for A2/A3 vehicles (based on type approval data from DE)  However, this does not take into account the durability requirement Emission performance by vehicle type % of compliant types (A2/A3) by year of approval

Results Feb 2012  The proposed measure results in additional costs of €16 million, assuming an average cost of Euro 4 of €50  Manufacturers argue the cost could be 4x as high (akin to LAT scenario 4)  The environmental benefits have not been quantified, but are considered small

Moritz Godel +44 (0) Feb 2012