1. Light Duty Vehicles and CO 2 The Policy Background Malcolm Fergusson Senior Fellow, IEEP ECCP II Conference CO 2 and Cars Working Group 24 October 2005

2. A Brief History 1990s: Fuel economy not improving 1993: EU ratifies Framework Convention on Climate Change 1995: Commission publishes passenger car CO 2 strategy target 120g/km by 2005 (or 2010 at latest) 1997: Carmakers threatened with legislation 1998/9: Voluntary Agreements with manufacturers’ associations 2000: Monitoring Mechanism (1753/2000) established 2001: CO 2 Labelling required (1999/94) 2005/6: Review of Passenger Car CO 2 Strategy

3. The ‘CO 2 Agreement’ with Carmakers Community target was 120g/km by 2005/2010 Commission negotiated with Associations Agreement reached on 140g/km ACEA by 2008 JAMA and KAMA by 2009 Interim targets 2003/4 Monitoring Mechanism (1753/2000) established Annual joint reports and Communication Meeting Community target by 2012? Associations have reported Now subject to Impact Assessment

4. Progress to Date

5. Next Steps with the Agreement 120g/km targets now under consideration ACEA maintains it cannot be done by technology alone - high cost Alternative of an ‘integrated approach’ Research for Commission to contribute to Impact Assessment to evaluate: 1.Further technical measures for cars 2.LPG and CNG 3.Taxation 4.Labelling 5.Eco-driving 6.Air conditioning systems 7.Vehicle and engine resistance 8.Public procurement 9.Promoting biofuels 10.Extending the system to light goods vehicles

6. Further Analysis for 120g/km Various technical reports produced Ricardo Carbon to hydrogen roadmaps 2003 Arthur D Little cost analysis 2003 German Aerospace Centre (DLR) 2004 JRC/CONCAWE/EUCAR Tank to wheel report 2003 Economic and business impact assessment For European Commission By IEEP/TNO/CAIR Used previous analyses on meeting 120g/km Further work now ongoing Integrated Approach in CARS21 WG Impact Assessment studies ECCP II LDVs and CO 2

7. What type of Instrument? Options reviewed by IEEP/TNO/CAIR A single limit for all new cars not practical Very costly or impossible for a few (excluded from market) No effect on the majority A number of possible target types Single emission target, eg 120g/km Target linked to ‘utility’ of vehicles Percentage reduction target, eg a 35% reduction for each manufacturer A number of possible instrument types Fixed emission limit value A pure bubble concept An averaging, banking and trading (ABT) scheme

8. Conclusions of IEEP/TNO/CAIR Study Costs to manufacturers €550 – 1000 per car Of moving from 140g/km to 120g/km Based on cautious cost assumptions Significantly less than ADL study Assumes no pass-through to consumer Flexibility of instrument used is important Flexibility reduces costs and avoids exclusions Affects impact on different manufacturers Also affects ‘fairness’ of measure Reduced fuel cost pays for much or all additional vehicle cost Allows cost pass-through to consumers Payback improves as oil price rises

9. Impact of Fuel Price on Consumer Cost Source: IEEP/TNO/CAIR Data: Polk Marketing Systems

10. CARS 21 – a ‘Sherpa’s View’ High Level Group addressing auto regulation Should conclude in November/December Likely to endorse Integrated Approach Advocate considering all policy measures in principle … but apply ‘policy filters’ Quantifiable Bankable Attributable Implementable Monitorable

11. TNO/IEEP/LAT Analysis Research to contribute to Impact Assessment Seeking input from Stakeholders For all 10 measures On costs and CO 2 reduction potential IA 2 An Integrated Approach … to Impact Assessment Work ongoing as part of broader process

12. Questions Arising What sort of target/instrument for 2012 for cars? Should light goods vehicles be included? What additional measures should be included? What other stakeholders? Oil industry? Member States? Others? How to monitor progress under IA?

13. Light Duty Vehicles and CO 2 The Policy Background Malcolm Fergusson Senior Fellow, IEEP ECCP II Conference CO 2 and Cars Working Group 24 October 2005