Following almost a year and a half of intense discussions, the new car CO2 standards are about to be set in stone with the formal approval of the European Parliament and national governments. These standards will require carmakers to reduce CO2 emissions from all new cars by 15% from 2025 and 37.5% from 2030. Alongside, the regulation incentivises carmakers to sell 15% of zero and low emission vehicles (ZLEV)1 from 2025, and 35% from 2030 onwards – offering a very generous reduction of up to 5% on their overall CO2 targets if they overshoot these sales benchmarks. As plug-in hybrid cars are counted less than 1, in reality higher shares of actual electric car sales are required to hit the benchmarks, e.g. around 17- 22% in 2025.
While the job of guaranteeing the fast transition to electric cars in Europe appears to be done, in reality what matters is how the new regulation will be implemented by the car industry. Notably, this analysis shows that the final rules agreed on how zero and low-emission cars are counted towards the regulation – i.e. the multiplier for plug-in hybrids, double-counting in some markets as well as the potential inclusion of Norway – leave much room for gaming and loopholes.
To show what difference implementation can make, the paper models the best case and worst case scenarios of how carmakers can use the three loopholes. The best case scenario will indeed bring up to 18% of well performing electric cars to Europe in 2025; this share will grow to 40% in 2030. The worst case, on the other hand, results in almost two million fewer electric cars being sold between 2025 and 2030. What’s more, half of all the electric car sales in the worst case – or over 11 million cars between 2025 and 2030 – are ‘compliance’ plug-in hybrids, often large SUVs with very limited electric range and high on-road CO2 emissions.
Firstly, the largest weakening by far comes from the higher multiplier agreed for plug-in hybrid cars which allows carmakers to easily hit and overshoot the ZLEV benchmarks by selling compliance cars, i.e. poorly performing models with CO2 emissions just below the 50g threshold. The worst case implementation would result in half of all the EVs needed to reach compliance – or 11% in 2025 and 26% in 2030 – being pure compliance cars. This would mean almost 1.7 million cars being sold annually from 2025, and almost 4 million in 2030, to achieve compliance at the minimum cost rather than drive real-world emissions down via improving plug-in vehicles. These often have CO2 emissions above 100g/km on the road and were not initially supposed to count towards the benchmarks, but were included at the behest of car manufacturing member states during the final negotiations.
Secondly, double-counting electric cars sold in 14 EU countries where the market is still nascent is another loophole to game the system: carmakers can register EVs in these markets to benefit from higher credits, only to resell the same cars in more mature EV markets shortly afterwards. For example, carmakers could game the system by double-counting an extra 100,000 EVs a year (that they intend to sell in more developed EV markets), resulting in around 160,000 fewer EVs sold each year between 2025- 2026, reducing to around 100,000 fewer sales annually in 2029/2030 as fewer countries become eligible for double-counting.
Finally, the potential inclusion of Norway in the car CO2 regulation – where all new cars are expected to be zero emission after 2025 – would weaken the regulation even further. Since carmakers have to achieve EU-wide compliance, selling 150,000 electric cars in Norway (the size of its market) without effort would mean fewer EVs are sold elsewhere in Europe. Compared to best case, this is estimated to reduce by 186,000 the EU-wide sales annually between 2025 and 2029, and around 142,000 fewer EVs in 2030.
While ZLEV benchmarks are voluntary, in reality they are key to compliance with the CO2 standards – overachieving them allows carmakers to reduce their overall CO2 targets by up to 5%, and most carmakers are expected to hit the CO2 targets by overachieving the benchmarks. Therefore the inflation of the benchmarks with fake or compliance cars will lead to a weaker regulation overall. In the worst-case scenario modelled by T&E, carmakers will be able to reduce their 15% CO2 reduction target down to 12.2% in 2025; while the 37.5% target is reduced by the maximum, or down to 34.4% in 2030. This reduces the already inadequate contribution of the car sector to the 2030 national climate goals. Coupled with uncertainty over the starting point for percentage reductions as carmakers manipulate the WLTP test results, this risks seriously undermining the contribution of the new cars regulation to meeting national climate targets.
What this shows is that a speedy roll-out of electric cars is not yet a given and there remain risks that the industry will continue to game the regulation and see electric cars as a necessary evil needed for compliance. However, with some like Volkswagen and Renault-Nissan clearly serious about the successful transition to emobility, it is crucial that the new European Commission and national governments do not loosen their guard and ensure robust implementation of the new car CO2 standards.
As a minimum, the incoming European Commission, supported by the new Parliament and national governments, should do the following:
- National governments should put in place targeted support and tax schemes that incentivise zeroemission vehicles (battery electric or fuel cell), and limit support for PHEVs to longer range (min 50km) and lower CO2 plug-in hybrids, as well as link PHEV purchase support to minimum e-charging availability;
- European and national vehicle authorities should annually monitor electric car registrations across the EU, and cancel the EV sales credits where gaming of the double-counting provisions is found, e.g. by reselling large numbers of EVs shortly after their first registration; governments should also put in place targeted support schemes to dis-incentivise imminent reselling;
- Sales of electric cars in countries where their share is significantly above the EU average (e.g. 50% in 2025) should not be counted towards the EU ZLEV benchmarks (with the detailed rules agreed during the 2023 review); in the absence of provisions on this Norway should not be allowed to join the post2020 CO2 targets;
- The Commission should use its new testing powers to independently test and monitor the emissions of new cars on the WLTP test, and ensure the gap between laboratory and real-world emissions remains constant after 2021. In coordination with climate and industry departments, it should launch an independent JRC-led testing authority, and provide it with adequate resources to test sufficient numbers of vehicles. The authority should issue guidance to both industry and type approval authorities, and take robust action, including fines and CO2 target adjustment, against carmakers found manipulating CO2 values.