ACEA

The current crisis is threefold in nature:

• Financial: a drastically limited access to credit; and high costs of credits if available, both for the manufactures, their suppliers and for potential buyers of cars and trucks
• Economic: a dramatic drop in demand for both passenger cars and commercial vehicles
• Structural:  low margins due to an increasingly complex and diverse product portfolio; the current recession presenting a more urgent need than ever to address overcapacity in our sector; and with an increasingly pressing demand to adapt our manufacturing, logistics, vehicles and R&D to meet environmental needs

Passenger car sales in Europe fell 7.8% in 2008, and 19.3% alone in the 4th quarter. Commercial vehicle registrations declined by 7.7% from January-November, and by 30.8% in November alone.

As a result, pressure on production and employment is mounting. Most manufacturers have acted responsibly by using existing flexibility arrangements with their workforce. Temporary contracts are not being renewed. If the situation does not improve within a reasonable timeframe, other steps will most likely be necessary.

The industry has already reacted swiftly and responsibly within the boundaries of existing instruments and economic viability and continues to do so:

• Production: manufacturers have and are adapting their output to the anticipated significant decrease in demand for vehicles
• Employment: manufacturers are readjusting their employment base in an as socially responsible way as possible, using the flexibility agreements at their disposal (extended vacations, taking weeks out of production, shortening working weeks, non-renewal of short-term contracts and non-filling in of vacancies), and in close contact with unions and governments
• Costs: manufacturers are cutting all discretionary costs by limiting travel and meetings, downsizing advertising and sponsorships, by insourcing activities, and much more
• Investments & R&D: as much as manufacturers want and need to keep up investments in strategic projects, they are forced to review their expenditures on new product programmes and R&D
• Marketing & sales: manufacturers are adjusting their products and marketing to the new constraints and demands of their customers
• Support for suppliers, whose access to credit is even more critical: manufacturers scrutinise the situation of their key suppliers on a daily basis and provide support to the extent they can

In short: manufacturers are doing what they have to do to come out of the current crisis in a strong way, ready to take on future challenges. To make sure that we do not enter a prolonged period of recession, with the inevitability of wider and more permanent loss of employment and competitive strength, EU governments and institutions need to act urgently.

Because the current circumstances are extraordinary. EU automakers are facing a significant decline in sales (at the same time that major regulatory programs are adding significant costs in terms of technology development, program integration and production). In addition, the credit crunch limits the manufacturers’ access to liquidity to sustain production and investments.

The auto industry is one of the key players in the EU economy, supporting the jobs of 12 million families. The multiplier effect of the 2.2 million direct employees at vehicle manufacturers and their suppliers is enormous. By definition, one job at a vehicle manufacturer ensures 4 more at suppliers and another 5 in related sectors and retail. The health of this sector contributes heavily to the situation of EU economy as a whole.

The industry is also the largest private investor in R&D in the EU and thereby a driver of innovation and economic growth. This is a strategic sector and should be supported.

The fall-out of the financial crisis hits auto manufacturers hard, as the credit crunch makes it more difficult for the sector to finance daily operations and, at the same time, also weakens demand for new cars. Consumers are increasingly hesitant to make large expenditures and find it more difficult to get their purchase financed.

European new passenger car registrations fell by 7.8% to 14,712,158 units in 2008, recording the sharpest decline since 1993. In the fourth quarter of 2008, registrations were down 19.3%.

The manufacturers have a model range that is well up to date and fuel-efficient. The drop in demand is clearly an effect of the financial and economic crises. In the firs half of this year, sales remained well on track. Our industry needs a functioning financial market, and governments can help by giving market incentives to restore consumer demand.

These initiatives are a positive start, although we believe that greater funds need to be allocated for this purpose. The EU industry expects the EU to swiftly concretise and substantiate its stimulus package and the criteria for funding of R&D and product programmes through the EIB. In addition, measures are needed to restore market demand and ensure fleet renewal.

The principal goal is to ensure further market acceptance of fuel-efficient technologies and to sustain future R&D. Reducing CO2 emissions from cars is expensive. There is not ‘one solution’; many incremental steps have to be taken, both concerning the engine and drive train and the design and shape of the cars. The investments involved are huge. Consumers need to be better informed, and ready to accept the technologies.

As an indication: the European Commission has done an impact assessment of its legislative proposal and calculated that, on average, the additional cost would be around EUR 1500 per car. Neither the industry nor the consumer has that kind of money right now.

Not at all. The industry is ready to meet the new CO2 legislation. All manufacturers have and will continue to make large efforts to produce low-CO2 vehicles; the evidence is in their product programmes.

However, we are currently faced with extraordinary circumstances that are unexpected in their scale, and governments therefore need to provide support.

Details of the package will still have to be worked out. But it is clear that the industry is not doing well—sales figures are dropping, prices of raw materials are rising and the overall cost of production is increasing. At some point, the industry may have to lower production capacity. It will be increasingly hard to invest in new technologies and that’s where government support can help.

No, it is a reflection of the extraordinary circumstances that are unexpected in their scale, with sharply deteriorating economic circumstances adding to the already high pressure on the industry’s competitiveness caused by legal requirement, in particular environmental ones.

It can afford them only when there is a supportive market for its products. Carmakers face increasingly hesitant consumers and governments need to stimulate the economy, relieve the credit crunch and restore consumer confidence. Only then will consumers have the means and the confidence to invest in new vehicles, and will manufacturers be able to sustain high levels of investment in future R&D.

The European automotive industry is of course closely following all efforts by governments around the world aimed at providing support to the automotive industry to deal with the serious credit crisis & economic downturn. However, our main priority is to obtain a clear and adapted response to the needs of the European automobile industry from the EU. In this extraordinarily difficult economic time, governments needs to focus on which policy measures make the most sense to attempt to lessen the serious impact that the financial services crisis is having on the real economy. 

As the automotive sector is increasingly feeling the challenges associated with the financial services crisis and resulting recession, governments of key auto-producing countries around the world are each looking at what are the appropriate policy measures to ensure the continued viability of this strategic industry. For example, Japan is considering special tax exemptions to stimulate the local vehicle market and promote clean cars.  Canada and the U.S. are considering bridge loans and/or additional assistance for research and development.  A number of European national governments have recently taken steps to support the automotive sector, including special tax initiatives in Germany, France and the UK.

At the EU level, we welcome the creation of a Clean Transport Facility at the European Investment Bank (EIB) to facilitate the necessary further investments in new CO2 reducing technologies and vehicles (4 billion euro annually between 2009 and 2012), and the specific automotive-related measures that can be taken within the EU economic stimulus package as agreed by the December EU summit.  This is a positive start, although greater funds will need to be allocated.

The EU industry is in a different position in terms of restructuring, product lines and market demand, regulatory environment. EU vehicle sales only began to crash in July of 2008, where they have been in significant decline in the US for more than a year and are now travelling at 30-40% below recent levels.  Unfortunately, EU sales forecasts are showing a similar downward trend line, so while we might hope that the recession will be shallower in the EU, it is premature to say that this will be the case.

In terms of vehicle markets, it is important to note that the US hardly have a diesel market for passenger cars. This is one of the reasons why the vehicle mix in both regions is so different. Another reason is the difference in petrol price. On average, because of taxation, petrol prices in the EU are two and a half times that of the US (approx US$5/US gallon compared to the current US average of about $1.80/gallon)  This drives quite a different mix of vehicles sold.

This is an indicative number, based on the size and importance of the industry and the costs for new technology and future R&D. The details will need to be worked out in collaboration with the relevant stakeholders in the weeks to come.

EU automakers are facing a significant decline in sales at the same time that major regulatory programs are adding significant costs in terms of technology development, program integration and production. Huge investments have been made already over the past decade and this level of investment needs to be sustained.

In the timeframe from 2009 to 2015, the auto sector must meet new requirements for emissions (Euro 5/6), fuel economy (CO2), Complementary measures (tyre-pressure monitoring, gear-shift indicator), mandatory electronic stability control, new refrigerant requirements, pedestrian protection phase 2, brake assist and daytime running lights.  This is adding billions of dollars of cost to the industry at a time when revenues are below breakeven for most companies.

In this context, we ask governments to do four things:  1) take immediate measures to stimulate auto sales; 2) provide EIB loans to facilitate new technology development and production with the EUR16 billion for all transport a good start but nowhere near enough; 3) not continue to layer on new regulatory requirements, 4) not give away further access to the European automarket to other auto-producing nations such as South Korea and in the Doha round while not gaining any better/reciprocal access to those markets for European producers.

The auto industry is one of the key players in the EU economy, supporting the jobs of 12 million families. The industry is the largest private investor in R&D in the EU. This is a strategic sector and should be supported.

Radically new, so-called ‘breakthrough’ technologies such as electric battery power and hydrogen to power cars will be crucial in the long-term to further reduce CO2 emissions. The legislation aims at encouraging the development of such technologies, despite the high costs involved, by giving supercredits for cars that emit less than 50g CO2/km until 2015.

A supercredit means that such a car counts more when it comes to reaching the CO2 target of a manufacturer’s entire fleet. In 2012, a car emitting less than 50g CO2/km will be counted as 3.5 cars. The supercredits will then be phased out until 2016, when cars with such extremely low emissions will be counted like all other cars.

The Directive defines companies producing between 10 000 and 300 000 units per year as niche manufacturers. These companies generally serve only small market segments, producing a smaller range of models. This is why their emission target is calculated in a different manner:  Niche manufacturers will need to reduce the average emissions of their fleet by 25% compared to the level of 2007.

The European automotive industry has identified multiple categories for eco-innovative car technologies: systems & components, running resistance, well-to-wheel efficiency, smart navigation and driver information. All categories contain numerous technology applications, from adaptive cruise-control and super efficient LED lights to robotised gearboxes and the storage and re-use of heat.

Some of these examples are readily available today; others are still in the development phase. Some are very simple, many very complex and new. Some offer modest, others substantial CO2 reduction potential. The Directive only recognizes those eco-innovations that make a verified contribution to CO2 reduction.

The target set by the EU is very ambitious and will require breakthroughs in technologies, a new refuelling infrastructure and a swift renewal of the car fleet on Europe’s roads. This will be a tough challenge, and all relevant actors will have to combine their efforts, including the fuel and energy sectors and policy makers.

It is essential that personal mobility remains affordable, to ensure that new technologies are accepted by the consumer. Market demand will be key in reaching today’s and future targets.

The industry will now first focus on the targets for 2012/15, but it has always been clear that emissions will have to be further reduced, beyond this date. Another reason for further fuel-efficiency is that fossil-based fuels will run out. All manufacturers are therefore developing various low-carbon solutions including renewable energies, hybrid engines and hydrogen.

The level of penalties remains disproportionate. The proposed 95 € per excess gramme of CO2 per car, would price a tonne of CO2 emitted by cars at up to 475€ or more than in any other sector. The Emission Trading Scheme price currently floats around 15 € per tonne and may evolve towards around 33 € per tonne, according to Commission estimates. The penalties for the car industry would also be significantly higher than any cartel fine paid in EU competition cases which concern illegal competition law infringements with huge damages for consumers.

There is no such thing as “one technological solution” to reduce CO2 emissions from cars. There are many options, and depending on consumer preferences and their geographical requirements, markets may demand a different approach. Legislators should not prescribe the industry which technologies to apply. The manufacturers are best equipped to find the most suitable solutions.

Furthermore, new vehicle technology alone cannot deliver the results society desires. All relevant actors have to work together: the vehicle industry, the fuel industry, policy makers and drivers. We call this an integrated approach. Reducing CO2 emissions from transport is a complex challenge that needs the involvement of all.

Last but not least, we need a market to accept and take-up the new technologies – and thereby making the objectives a reality - and this has, for a long time, not been the case. We see demand changing somewhat now, but with the economic circumstances, the overall drop in demand weighs much heavier.

It is important to ensure a supportive market environment, and governments can do a lot to help, for example with fiscal measures. Many countries have (only recently) taken such measures, but tax-schemes ought to be coordinated throughout the EU to sort the most effect.

The industry has been doing exactly that. But as costs are rising and will be rising further, the industry needs a supportive framework to sustain the necessary level of investment in R&D, engineering and new product programmes.

The industry is clearly committed to reducing CO2 emissions from cars and has, through improved vehicle technology only, reduced CO2 emissions from cars by an average 14% (1995 - 2007). That is more than any other industry has achieved so far. With this result, we also actually overachieve the EU objective of reducing CO2 emissions by 20% compared to the 1990 level.

Between 1995 and 2008, ACEA members have introduced more than 50 new CO2-reducing technologies into their vehicles. And the industry is determined to do more. The industry invests Euro 20 billion (4% of turnover) a year in research and development, a large amount of which is invested in improved fuel-efficiency and other technologies that enhance the environmental performance of cars.

Ultimately, the manufacturers need a market to accept and purchase the new technologies – thereby making the CO2 objectives a reality - and this has, for a long time, not been the case. We see demand changing somewhat now, but with the deteriorating economic circumstances, the overall drop in demand weighs much heavier.

A supportive market environment is a prerequisite for meeting the tough targets the industry faces, and governments can do a lot to help, for example with market incentives and fiscal measures. Many countries have (only recently) taken such measures, but tax-schemes ought to be coordinated throughout the EU to sort the most effect. The same is true for scrapping schemes for older vehicles.

Manufacturers have and will further try and absorb the additional cost by focussing on cost-cutting measures and restructuring. It is fundamental that they get support (low-interest loans, market incentives) to bridge the economic downturn and help sustain the transition to low-emission vehicles.

Vehicles have to remain affordable to consumers. In the current competitive market place, and with consumer spending under pressure, the trend in vehicle prices is rather downwards then up. In real terms, car prices have decreased by around 10% over the past decade. This trend is not likely to change.

The European Commission has calculated an average cost per car of around 1500 euro to comply with their CO2 proposal. In addition, there will be the costs for the 10gCO2/km ‘complementary measures’ (gear-shift indicators, tyre-pressure monitoring, low-rolling resistance tyres, mobile air-conditioning, biofuels).

The reductions beyond 2020 will be significantly more expensive, as they include electrification of vehicles and the use of hydrogen.

The European Commission has calculated an average costs per car of around EUR 1500 to comply with their CO2 proposal. Contrary to what the Commission often says, these figures have been corrected for the potential fuel savings from consumers. In other words, they do neither accurately reflect manufacturers’ costs, nor retail price effects. In addition, there will be the costs for the 10gCO2/km ‘complementary measures’ (gear-shift indicators, tyre-pressure monitoring, low-rolling resistance tyres, mobile air-conditioning, biofuels).

Working with an ‘average’ has its limitations anyway, and many other factors play an important role as well, such as market demand. Cost is a relative issue, depending in part on the feasibility to earn investments back. If a manufacturer cannot do so, there will be ‘costs’ in terms of loss if production and employment.

Manufacturers will be investing billions of euros again over the years to come as they have done over the past decade. In the current economic circumstances, it is fundamental they get support (low-interest loans, market incentives) to bridge the cycle and help sustain the transition to low-emission vehicles.

The CO2 targets are and have remained extremely tough. Therefore, it is important that the legislator has introduced some essential flexibility to match the legislative objectives with the nature of car manufacturing. The auto industry is characterised by 1) long development and production cycles and 2) its dependence on largely unpredictable factors including consumer preferences, market trends, economic developments and legal requirements in different fields. These can be instrumental to missing or meeting exact targets.

Over the past decade, the auto industry has been directing large investments towards the transition to a low-carbon economy, and the industry is committed to further contribute. It will not be easy to achieve low-carbon mobility anytime soon, as there is not ‘one’ solution, and zero-tailpipe emissions not always equal zero emissions: the source of the energy is of relevance too. All this will require enormous investments in many different technologies at the same time. The industry cannot do this on its own.

Today’s legislation focuses heavily on new technologies, and far too less on forcing a change in the market and reducing CO2-emission from existing vehicles as well as new cars, through intelligent infrastructure, eco-driving, alternative fuels and much more. Society now needs to focus its combined efforts on changing towards low-carbon solutions, and has to invest in the logistics and infrastructure requirements that come with it. This requires a partnership from policy makers, automotive and fuel industries, and other stakeholders on holistic and global scale.

This is simply not true. For the manufacturers, there is no such thing as ‘business as usual’. The industry is where it stands today because of tremendous efforts made over the past decade, and manufacturers will still have to make enormous investments in the years to come. New technologies have been developed over the past decade, and many more are to follow. Reflecting the long development and production cycles in vehicle manufacturing, these technologies have and will gradually sway the market.

A lot depends on price and consumer acceptance, though. That is where governments can help.

The European manufacturers are world leaders in clean and low-emission technologies and Europe already has the lowest emission levels of the globe. In order to continue progress and also keep this important industry in Europe, EU leaders now have to massively support their manufacturers to ensure further progress, and safeguard this strategic sector.

With the vote in the European Parliament now passed and the Council expected to follow this decision, the EU is set to adopt an extremely tough piece of legislation

The legislation forms part of the ambitious European energy and climate change package, to which the industry will continue to contribute. The auto industry is ready to meet the challenging CO2 legislation for passenger cars, despite the sudden dramatic economic downturn that severely limits our resources. Manufacturers do ask for governments to support the strategic auto sector in these extraordinary circumstances to ensure a vibrant, innovative and strategic sector in the heart of Europe.

The CO2 legislation gives the auto industry some essential flexibility to adjust its development and production cycles to the legal requirements and to limit the financial risks caused by largely unpredictable factors including consumer preferences, market trends, economic developments and legal requirements in different fields. However, and despite the modifications to the original proposal, the penalty of €95 per excess gramme of CO2 remains extremely high compared to the price of CO2 in other sectors.

The industry has to continue investing heavily in R&D and new product programs in order to reach the short-term targets. Furthermore, the long-term CO2 target set by the EU will require technological breakthroughs, new refueling infrastructure and a swift renewal of the car fleet on Europe’s roads.

The current economic situation hampers the European automobile industry’s ability to allocate the required resources. Apart from funds for R&D, the sector needs a functioning financial market, low-interest loans and a range of market incentives to restore consumer demand.

• Automakers will have to reduce CO2 emissions from new cars to 130 grams per kilometre by 2012/15, with an additional 10 gramme reduction coming from ‘complementary measures’ including a greater use of biofuels.
• 65 percent of new cars will have to comply with the emission requirements in 2012, 75 percent in 2013, 80 percent in 2014 and 100 percent in 2015.
• Eco-innovations will count for up to 7 grammes.
• There are special provisions for niche manufacturers.
• A new objective of just 95 grams per kilometre was fixed for 2020. This will be conditional to an impact assessment.
• Penalties will be imposed on a sliding scale. Manufacturers that exceed their target by more than 3 grams will pay 95 euro per excess gramme. Lesser transgressions will be charged between five and 25 euros. From 2019, penalties will always be 95 euro (review in 2013).
• In 2014, there will be an evaluation of the average mass (weight) development of cars over the previous three years; with a possible adjustment of the CO2 targets implemented in 2016. There will be a review every three years thereafter.

Biofuels are produced from biomass: plant material or biodegradable waste. Presently, the most commonly used biofuels (known collectively as “first-generation biofuels”) are:

• FAME (Fatty Acid Methyl Ester) blended in diesel and produced from either one or a mixture of different vegetable oils such as rape seed oil, sunflower seed oil, soybean oil or animal fats, and;
• ethanol blended in petrol (in the EU ethanol is mainly produced from grains with wheat as dominant feedstock, in Brazil the preferred feedstock is sugar cane and in the USA. this is corn).

Note that ACEA advises vehicle owners not to use pure vegetable oil in their engines.

In the EU, conventional diesel and petrol may already contain up to 5% of biodiesel and bioethanol respectively.

More research will be needed to introduce second-generation biofuels to the market. These fuels are mainly produced from non-food crops, wood or agricultural waste such as straw. Compared to first-generation biofuels, the second generation is expected to be better compatible with car engines and to save more greenhouse gases. When produced from agricultural waste, second-generation biofuels do not require additional land or fertilizers for growing crops. Greenhouse gas emissions from additional fertilizers or potential clearing of CO2-absorbing forests or wetlands can thus be avoided from the beginning.

The spike in commodity prices is not primarily related to biofuels.  It is more related to crop failures (drought), changes in lifestyle in China and India and other economic reforms (NAFTA) than biofuels growth (Source: OECD and UN’s Food and Agriculture Organisation (FAO) 2007 Outlook).  In the longer term, increased demand for biofuels and the reduction of food surpluses due to past policy reforms may keep prices above historic equilibrium levels during the next 10 years, but these higher commodity prices should bring economic prosperity to producer countries and lead to investment in farming infrastructure and efficiency improvements denied over the past decade or so. 

The FAO has calculated that today 41.88 million km2 of land are available for agriculture, although just 15.06 million km2 are in use, and only 0.11 million km2 are used for biofuels production today, which is no more than 1 % of the land actually in use.  United Nations figures show there to be around 2 billion hectares of degraded land globally that could be put into production: 25% in Africa, 25% in Asia, 25% in the Americas; the rest scattered around the world in places like Ukraine and Kazakhstan. This is land that has either been used for agriculture then abandoned or has been mismanaged or contaminated. The European Commission indicates that its 10% target could be reached with only 18% of all arable land available in the EU with 4% still under the ‘set-aside’ regime in the framework of the Common Agricultural Policy. 

Nevertheless, sustainability criteria for biofuels must be established to ensure that biofuels are produced without replacing food production. As second-generation biofuels can be made of waste material, their production can complement food production. It will be all the more important to further invest in R&D on these fuels to make them affordable and available on a large scale.

Carbon dioxide (CO2) emissions from a fuel depend not only on how it is burnt. In addition to the ‘tank-to-wheel’ emissions from driving a car, there are also “well-to-tank” emissions resulting from fuel production and its transportation to the consumer. Both categories add up to the overall ‘well-to-wheel’ emissions.

Note that the current legislative proposals at EU level talk about greenhouse gas (GHG) emissions which are defined as total CO2, nitrous oxide (N2O) and methane (CH4), the latter two expressed as CO2-equivalent.

Biofuels are made from (the waste of) plants that absorb CO2 while they grow. The use of biofuels can therefore lead to less greenhouse gas emissions overall than the use of non-replaceable fossil fuels. Depending on the crops and circumstances, CO2 savings can add up from 30 to 70%.  The European Commission’s legislative proposal on promoting the use of renewable energies states that biofuels must result in a saving of at least 35% GHG compared to conventional fuels if they are to receive financial support and to count towards meeting Member States’ GHG reduction targets. The biofuels that are available today can meet those targets. They can and should be produced sustainably and international standards and certification systems will help ensure this further.

The next generation of biofuels, or ‘second generation’ biofuels, will be produced from agricultural waste, their reduction potential is higher and they will be better compatible with existing car technology. It is all the more important that policies at EU and national level support their development. Until advanced biofuels become available, first generation biofuels still have a role to play in reducing CO2 emissions, provided that the right sustainability criteria are applied and that technical problems are addressed.

Currently, much of the biofuel used in Europe is imported, partly because of trade arrangements and tax policies that favour biofuel imports. Production capacities within the EU could be enlarged in the future to meet growing demand, for instance by using farmland that is currently “set aside” in the framework of the EU Common Agricultural Policy.

Overall, the European Commission has assessed that providing 10% of transport fuels in the form of biofuel by 2020 would “not overly stretch the land availability” in the EU.

It should also be noted that the EU has a surplus of petrol refining capacity and exports a lot of petrol, notably to the USA. The EU has a deficit of diesel and imports a lot. With the high percentage sales of diesel vehicles across the EU, it would make sense to encourage biodiesel to bridge the gap than supplementing an already large pool of petrol with biopetrol.

Biofuels are currently more expensive to produce than conventional fuels. Only tax cuts can make their end price competitive in relation to conventional mineral oil fuels. Stable and predictable support policies, including supportive tax policies, are crucial for promoting the further development of biofuels, notably second-generation biofuels that offer better technical compatibility with cars and higher sustainability.

Existing cars have been designed for fuels that meet the standards of the EU Fuels Directive in force (98/70/EC). The Directive provides for a maximum biofuel content of 5% in diesel or petrol. However, in March 2007, the European heads of state agreed to a target of 10% biofuels use in transport by 2020. This target would be achieved by blending higher levels of biofuels in petrol and diesel.

To help achieve this target, ACEA has committed that by 2010, all new European car models will run on B7 or E10.

However, a great number of cars used today will not run properly if fuelled with biofuel blends higher than 5% or on pure biofuels. Biofuels have different chemical and physical attributes than conventional fuels. If engine materials and fuel injection are not adapted to using biofuels or biofuel blends, cars can experience a variety of performance problems or even engine failure. The fuels of today must therefore remain available at the filling station and all fuels should be clearly labelled at the pump so the customer knows what he is buying.

In an engine, unburnt fuels will by-pass the piston rings and enter the lubricating oil in the engine sump. Normally this is not a problem with fuel hydrocarbons joining oil hydrocarbons (and the fuel evaporates). However, with biodiesel, the bio-components in the diesel entering the lubricating oil system will cause degradation in lubricating oil performance which will likely mean more frequent oil drain intervals. The higher the biodiesel blend, the greater the effect - the effect is increased for modern diesel engines that are equipped with particulate filters to meet more stringent emission standards. These filters require regeneration of the collected particulates and those systems using an additional controlled injection of fuel will show additional effects.

Consumers must continue to have access to today’s fuels for some time to come. Retrofitting their engines to be compatible with changes in fuel specifications is not affordable and not justified. The fuels of today should thus stay available, and all fuels should be clearly labelled at the pump.

In contrast to today’s biodiesel and bioethanol, cars will run well using higher blends of second-generation biofuels because the quality of advanced biofuels and compatibility with vehicles will be higher.

The current blends of up to 5% biofuels in diesel and petrol are compatible with existing cars. By 2010, all new European car models will run on B7 and E10.

However, a great number of cars used today will not run properly if fuelled with biofuel blends higher than 5% or on pure biofuels. Biofuels have different chemical and physical attributes than conventional fuels. If engine materials and fuel injection are not adapted to using biofuels or biofuel blends, cars can experience a variety of performance problems or even engine failure. The fuels of today must therefore remain available at the filling station and all fuels should be clearly labelled at the pump so the customer knows what he is buying.

In order to introduce biofuels on a larger scale, more research is needed and being conducted on the effects they can have on exhaust after-treatment systems, such as particulate matter filters and catalytic converters. Clear international standards for biofuel quality (blends and pure biofuels) setting appropriate specifications for all important performance parameters are also required. Some petrol cars, especially older vehicles in use today, cannot adapt to ethanol blends higher than the present maximum of 5% (E5). Using bioethanol in petrol in the form of ETBE (ethyl tert-butyl ether) will solve most of the technical problems mentioned and would make it possible to actually use higher biofuel blends in petrol.

In contrast to today’s biodiesel and bioethanol, cars will run well using higher blends of second-generation biofuels because the quality of advanced biofuels and compatibility with vehicles will be higher.

Pure vegetable oil can severely hamper combustion in an engine or even prevent it altogether. This has in part to do with it being very viscous, which makes it much more difficult to properly inject and combust vegetable oil in a cylinder, especially at low temperatures. Moreover, microbes, which easily grow in vegetable oil, can corrode tanks and prematurely plug fuel filters. This is why ACEA strongly advises against using pure vegetable oil in diesel or other combustion engines, unless they have been appropriately modified.

The European car manufacturers consider sustainable biofuels an essential part of an integrated approach to reducing CO2 emissions and have invested in engine adjustments to apply both today’s and future, higher, biofuel blends.

Such an ‘integrated approach’ to reduce CO2 emissions combines further improvements in vehicle technology with the use of alternative fuels (including biofuels), improvements in infrastructure and changes in driving style and consumer demand. Biofuels are an indispensable part of this strategy to efficiently cut CO2 emissions from cars.

Biofuels can be used by cars that are already on the roads and can therefore be applied to the vehicle ‘parc’ as a whole, without having to wait for new vehicle technology to dominate the fleet.

Today’s market fuel standards (EN228 and EN590) permit up to 5% ethanol in petrol and 5% FAME in diesel. These components ethanol and FAME are commonly referred to as “first-generation” biofuels, and European cars are capable of operating safely on such blended fuels. However, fuel producers supply fuels to the market that contain nowhere near the 5% permitted level of biofuels. A move to sell petrol and diesel with 5% biofuel could save at least 6 – 12 million tonnes of CO2 per annum.

Vehicle manufacturers want to ensure good performance of vehicles over their whole lifetime, and insist on good quality fuels being available for all vehicles in use. This includes good quality of the biofuel itself and when blended into petrol or diesel.

Many existing cars will experience performance problems if the level of biofuel exceeds the 5% levels. To cater for older vehicles that would not be compatible with these lower blends of biofuels, the ‘first-generation’ fuels of today must remain available at the pump and distinct labelling must be used at all filing stations so drivers know clearly what fuel is suitable for their vehicle.

Despite these concerns, and in order to provide a wider opportunity for sustainable first-generation biofuels, ACEA has announced that by 2010, all new models will be capable of running on petrol containing up to 10% ethanol and diesel containing up to 7% FAME subject to the quality of the pure biofuel and the final fuel blend being ‘fit for purpose’. However, it should be understood that adapting vehicles to higher biofuel blends does present technical challenges and ACEA does not recommend going beyond these levels.

The auto industry requests policy makers to ensure that all initiatives to change fuel standards in the future must be harmonised across the EU to ensure constant fuel quality across internal borders. Moreover, ACEA requests that the EU fuel standards be also applied widely outside the EU.

So-called “second-generation” biofuels can further reduce CO2 emissions and will also solve the technical problems associated with first generation biofuels. Second-generation biofuels are essentially paraffinic hydrocarbons, similar in nature to oil-based hydrocarbons like petrol and diesel. They are mainly produced from non-food crops, wood or agricultural waste such as straw.

Compared to first-generation biofuels, the second generation is expected to be better compatible with car engines and to save more greenhouse gases. When produced from agricultural waste, second-generation biofuels do not require additional land or fertilizers for growing crops. Greenhouse gas emissions from additional fertilizers or potential clearing of CO2-absorbing forests or wetlands can thus be avoided from the beginning.

European automakers conduct research on all alternative fuels, including second-generation biofuels, both individually and through their European Research Council EUCAR. EUCAR has established a working group on fuels, and contributed to the well-to-wheel analysis of biofuels, assessing their overall emissions including production and consumption.

While research on new fuels is crucial, first-generation biofuels will remain a solution for reducing CO2 emissions today, if the right sustainability criteria and robust technical standards are applied.  Much research is still needed to find the best fuel technologies for the future. It cannot be said at this point which one of them will prove to be the most efficient, environmentally friendly and economical. None of the options should be discarded today.

Both conventional fossil fuels and biofuels produce CO2 emissions when they are used in an engine. Biofuels, however, are made from plants that absorb CO2 while they grow. The use of biofuels can therefore lead to less greenhouse gas emissions overall than the use of fossil fuels.

Moreover, biofuels can help reduce Europe’s dependency on foreign oil imports - the crops for biofuels can be cultivated in Europe but it is likely that to reach the political targets being discussed in the EU, imports of biomass/biofuels will still be needed.

Blended biofuels can, for the most part, be delivered by the existing fuel infrastructure. Little investment is required compared to other alternative fuels. There may be a need to fine-tune the delivery infrastructure for pure biofuels.

Biofuels are produced from biomass: plant material or biodegradable waste. Presently, the most commonly used biofuels (known collectively as “first-generation biofuels”) are:

• FAME (Fatty Acid Methyl Ester) blended in diesel and produced from either one or a mixture of different vegetable oils such as rape seed oil, sunflower seed oil, soybean oil or animal fats, and;
• ethanol blended in petrol (in the EU ethanol is mainly produced from grains with wheat as dominant feedstock, in Brazil the preferred feedstock is sugar cane and in the USA this is corn).

Note that ACEA advises vehicle owners not to use pure vegetable oil in their engines.
 
Biofuels play a significant role in reducing CO2-emissions and they can be produced in a sustainable and sensible way on an industrial basis. Currently, EU legislation is being prepared to lay down sustainability criteria for all biofuels and renewable energy pathways.

In the EU, diesel and petrol may contain up to 5% FAME and ethanol respectively. Such blends are referred to by using acronyms, i.e. B5 for 5% FAME blended into diesel and E5 for 5% ethanol blended into petrol. The neat biofuels (i.e. 100% FAME or 100% ethanol) are governed by their own international quality standards.

The next step will be the introduction of “second-generation” biofuels onto the market and research & development is currently underway to make their production processes commercially viable. Second-generation biofuels are mainly produced from non-food crops, wood or agricultural waste such as straw. Compared to first-generation biofuels, the second generation is expected to save more greenhouse gas emissions. Since second-generation biofuels are essentially a hydrocarbon product, just like petrol and diesel, they will be far more compatible for use in all vehicles.

The industry recognises the need for modernising the current EU framework on CO2 information and labelling and is taking active part in the debate on how to best inform car buyers, whether in ads or through a comprehensive and workable labelling scheme.  The industry supports, therefore, a EU-wide harmonised car labelling scheme, including a system for colour-coding, which ought to be clear and easy to understand by consumers.

Apart from the supplying of CO2-cutting technologies, which the industry is doing, informing consumers about product innovation, building awareness and encouraging consumer acceptance of new models will all be essential to meet fuel efficiency standards. CO2-related taxation of cars and of alternative fuels, in a harmonised manner, also has an important role to play.

Consumption patterns will decide the faith of any environmental policy. The code is meant to support the EU strategy to reduce CO2 emissions from passenger cars to which our industry already contributes significantly with key technological innovations and investments. The automotive industry is looking to establish a comprehensive code of good praxis for car advertising, with the aim to improving the provision of CO2 information and helping to promote responsible driving.

Following common practice in all sectors, car industry ads are already bound by the Code of Advertising and Marketing Communication Practice, which was drafted by the International Chambers of Commerce (ICC). The additional code of good practice for car ads would build upon these rules. In a majority of EU member states similar additional codes already cover road safety issues.

ACEA endorses implementation and administration of the car advertising code at a national level, given the national nature of advertising and the existence of credible national, independent advertising-standard bodies set up by the national advertising industries.

The advertising code would be applicable to passenger car advertising in the European Union. The requirements in the code cover environmental claims in advertising, promotions, sponsorships, direct marketing and other marketing tools. These claims have to be reasonable and verifiable.

The code also concerns driver behaviour in advertisements and the way of providing information on CO2 emissions in printed ads and on manufacturers’ websites. It would stipulate issues that are in most cases already common practice, such as, for example, that manufacturers should refrain from encouraging irresponsible behaviour.

That would depend on the content. The current Labelling directive already legislates advertising partly. We will be closely working with the EU legislators to help ensure a sound and effective revision of this directive.

The European auto industry is fully committed to reducing CO2 emissions from cars. Improved car technology has delivered significant results over the past decade and will continue to be a major source of further CO2 reduction. New car technology, however, will not bring sufficient results without accompanying efforts, in particular to shape consumer demand.

With passenger cars representing 12% of CO2 reductions in the EU, and an average car age of 8 years (EU-15), just around 10% of all cars on the road are renewed annually. Consumers hold the final key. The car industry, therefore, endorses a harmonised CO2-related taxation of cars and of alternative fuels within an integrated approach, combining the efforts of the car industry, fuel industry, policy makers and drivers. A functioning labelling system is part of this.

Some NGOs have indeed claimed that a majority of the current car advertising were ‘illegal’ because of insufficient information about CO2 emissions. They therefore denounce a self-regulatory system.

However, car manufacturers meet their obligation to publish CO2 emissions information in their ads, which is a requirement of the current EU Labelling Directive.

As the CO2 emissions performance of vehicles is gaining relevance for consumers, manufacturers increasingly give information about CO2 emissions in a more prominent way. This reflects both a market demand and the broader societal debate about the importance of reducing CO2 emissions from households, transport, industrial and energy production and other sectors. The car industry is committed to reducing CO2 emissions from its vehicles and will play its part.

ACEA endorses implementation of the car advertising code at a national level, given the national nature of advertising and the existence of credible national, independent advertising standard bodies set up by the national advertising industries. In a majority of EU member states similar additional codes already cover road safety issues. These self-regulatory systems usually work very well.

No, and it is of no relevance as the requirement already exists today. Furthermore, the industry is committed to reducing CO2 emissions and knows that consumer information plays an important role in this. However, care needs to be taken in regulating how information – on whatever topic – should be conveyed to the consumer: different communication channels will be more or less effective for different types and levels of information. There is a difference between reading a magazine ad and being advised in a car dealership. As far as advertising is concerned, not all advertising is automatically suitable as a carrier of information.

If such a proposal would be made, it would have to be looked at very carefully. Different communication channels will be more or less effective for different types and levels of information. There is a difference between watching an ad on TV and being advised in a car dealership. Advertising is not automatically the most suitable option for carrying in-depth or detailed information.

Advertising and marketing communications take many forms. Some have limited capacity for the provision of detailed technical information about the product. Imposing a standard 20% minimum space requirement for one particular element of information (CO2 emissions) on all forms of advertising, as the EP has suggested, risks discouraging car advertising rather than enabling better informed consumer choices. Furthermore, advertising is an important source of income for the media in general and one of the pillars under the sustained freedom of the press.

To be of most value to the consumer, information such as CO2 emissions and fuel consumption data is best provided in a more targeted way that reflects how consumers make a purchasing decision. There are important but distinct roles for product labels, car manufacturers’ websites, sales brochures and other marketing communications.

The 1998 Commitment runs until 2008 and the monitoring report covering 2008 will be ready in 2009 or 2010, depending on the European Commission’s time schedule. The most recent figures available cover the year 2004.

Investigation urged: The European car manufacturers and the Japanese and Korean associations have urged the Commission to investigate and take into account the impact of external factors that have negatively impacted the industry’s achievements, since only this will lead to a full and fair evaluation and assessment of the 1998 Commitment. Previous monitoring reports did not do so, despite the conditions in the 1998 agreement (see also the previous questions on the Commitment and the external factors).

31. Has the current Commitment still value now a legislative framework has been announced?

The 1998 Commitment from the car industry is of critical importance because it demonstrated urgent action in relation to the Kyoto Protocol.  The Commitment enabled the Commission to move more quickly on the Protocol than within a legislative context. The industry wanted to show that it takes climate change seriously.

Key results: The result has been a cut of some 40 million tonnes of CO2 a year in contribution to the emissions savings required to meeting the EU Kyoto Protocol targets. The current Commitment remains a valuable instrument. Its results need to be assessed on the basis of its full concept and content, including elements such as regulation, demand and economic circumstances, as is stipulated in the Commitment text.

Respect demanded: ACEA urges the European Commission legislators to respect the content of the Commitment, particularly in light of the putting together of a revised EU strategy for CO2 and cars and the announced legislative framework for the car industry.

 
• Regulation: the car   industry is a heavy regulated industry. Several regulatory developments,  particularly regarding safety and air pollution, have significantly hampered   the reduction of CO2 emissions.
• Weak demand for CO2 efficiency: A majority of consumers do not want to pay for fuel-efficient   solutions: they have not defined this a priority (yet). Several highly   CO2-efficient cars, brought into the market in line with the Commitment, met   with very low demand despite considerable marketing efforts. CO2-efficient   applications are also confronted with hesitance. A good example is   “Stop-Start” technology, a first-level of hybridisation, offering a high   cost-efficiency ratio and a reduction of CO2 emissions by 5% - 8%, but   customers have been sluggish to accept.
• Growing demand for larger and safer cars: consumer preferences have moved in the opposite direction with   respect to CO2 reduction, due to factors such as the increasingly dense   traffic, changes in lifestyle, demographic trends and and driver physique.
   
  • In many countries, the population shift from towns   to rural areas has resulted in longer commuting distances to work. Parents   choose to bring their children to increasingly distant schools  
  • Safety perceptions and an ageing driver population   have boosted demand for higher driving position  
  • The European car market is highly competitive and   manufacturers have to respond to changes in demand in order to continue   their operations at the desired economic levels  
  • Demand for safer, larger, multi-purpose and more comfortable cars has added weight to vehicles and reduced their aerodynamic performance, reversing significantly the CO2-emission reductions achieved through technological advances
   

• Economic circumstances:ACEA   and the Commission agree that the performance of the automotive industry and   its capacity to sell and invest in innovations depends on a strong and healthy
    macro-economy. Since 2001 however, European economic growth has been weak.  ACEA car sales fell more than 6,4% between 2001 and 2004.
   

   
  • In 2003 the Commission acknowledged “if these   conditions continue over a longer period it may affect industry’s   possibilities to get new technology to market”. Falling demand has been   accompanied by a continued decline in real car prices.  
  • The mounting regulatory burden has further weakened   the financial position of manufacturers in Europe.  
  • Unfavourable exchange rate movements have undercut international competitiveness. Profit margins, that underpin investments in research and new products, are now thinner than for many years.
   

   

• Technology: The use of   gasoline direct injection, a technology with high potential at the time the   Commitment was signed, has been delayed due to unforeseen technical   complexities and insufficient fuel quality; CO2 reduction through vehicle   technology has physical limits; the cost of further CO2 reductions through   vehicle technology is increasing rapidly, with increasingly limited results

The 1998 Commitment was the outcome of concise, intensive negotiations between the automotive industry’s trade association, ACEA, and the European Commission’s directorate-general Environment. Its most highlighted feature is the agreement to reduce CO2 emissions from passenger cars to 140 g CO2/km by 2008 through vehicle technology mainly.

Less known: Much less known is that the Commitment is part of a three-pillar strategy of the EU Community, with the longer-term goal of reducing car CO2 emissions to 120 gCO2/km by 2012, by means of a more comprehensive package of measures besides vehicle technology.

Other pillars: The other two pillars were meant to shape consumer demand through taxation measures and a labeling scheme informing consumers. As the European Commission has now repeatedly acknowledged, only the first pillar - the 1998 Commitment - has yielded real results, the other two have not. Regrettably, this has negatively impacted the achievements of the car industry.

1998 Commitment objectives: The voluntary agreement involves a number of objectives, notably to collectively achieve, “mainly by technological developments and market changes linked to these developments”, a CO2 emission target of 140 g/km by 2008 for the average of new cars sold in the EU. Other objectives were the launch of new car models emitting 120 g/km or less by 2000, achieving an intermediate CO2-emission target of 165-170 g/km CO2 by 2003, the review of the potential for additional CO2 reductions until 2012, and setting up a joint monitoring process with the Commission.

1998 Commitment conditions:
The 1998 agreement stipulates explicitly (click here to find what has exactly been agreed) that external factors, such as regulation, market changes and the economic environment may influence the progress in CO2 reduction and states that these factors (see also the question on external factors) should be taken into account when assessing the Commitment and the performance of the car industry. This has not been the case up till now.

The European car industry has signed an agreement in 1998 to reduce CO2 emissions from cars as a sign of its commitment to contribute to tackling climate change. The car industry has delivered on its voluntary commitment (an average cut in CO2 emissions from new cars by 13% between 1995 and 2004, registered by the latest EU Monitoring Report) and will continue to make substantial efforts. But the exact target of 140 gCO2/km by 2008 will be difficult to achieve, because there are numerous factors that have negatively influenced the efforts of the industry.

Fair assessment due: The 1998 Commitment, which was both signed by the industry and the European Commission, recognised explicitly that such external factors could occur and stipulates that counter-productive effects have to be taken into account when assessing the results of the Commitment. This now needs to be done to get a clear and fair picture of past achievements and, more importantly, incorporate the findings into future policy.

The results: The most recent Monitoring Report, delivering 2004 data, shows the ACEA new fleet average was 161g/km, down from 185 in 1995.

 
• As a proportion of total ACEA registrations, the   percentage of cars with CO2 emissions of more than 160 g CO2/km decreased to   36.4 from 80.8 in 1995.  
• The volume and share of cars emitting 140 gCO2/km or   less (petrol + diesel) totalled 29.6 % of new registrations, up from 2.6% in   1995.  
• Sales of models emitting less than 120g/km came close   to 1 million cars, or about 8%;  
• These figures do not take external developments into account.

The counter-productive effects: The achievements have been realised through technological advances only, and;

 
• Without the backing from customer demand for   fuel-efficiency and  
• Against a trend towards larger, safer cars.  
• The industry efforts were also hampered by EU regulations concerning air quality and safety, making cars heavier and larger (see also the question on external factors).

Need for comprehensive approach: These circumstances need to be addressed. The focus on vehicle technology alone to reduce CO2 emissions from cars, as - again - expressed in the February 2007 CO2 strategy proposal from the European Commission, makes further progress increasingly challenging. Needed is a combination of efforts by all relevant actors involved: car industry, fuel industry, policy makers and drivers.

The Japanese government has set new targets for CO2 emission reductions from cars in 2006. For the automotive industry, the vehicle technology target has been set at 138 gCO2/km by 2015, within a system based on a “top-runner” approach whereby future standards for each vehicle sector are based on the best current performer.

Planning security: The 138 by 2015 target is ambitious, but at least there is clear respect for the need for lead-time and planning security for the industry. For comparison: the EU is aiming at setting an even more ambitious target (130 gCO2/km) by 2012, without the details being known before 2009 at the earliest.

Integrated approach: Significantly, Japan has decided to meet its passenger car CO2 goals through an integrated approach, with 52% of reduction coming from measures other than vehicle technology and 48% from vehicle technology. For example, the Japanese government counts 28 million tonnes of CO2 reductions through infrastructure adjustments such as dynamic traffic lights, lower road rolling resistance, and others. This approach affects the whole car fleet.

CO2 efficient taxation: Japan offers tax incentives (accelerated depreciation or a tax deduction) for the purchase of low-emission vehicles and for fuel-efficient vehicles (deduction from the pre-purchase tax price). Current auto-related taxes in Japan include consumption tax and automobile acquisition tax levied at the time of purchase, and motor vehicle weight tax and a tax (lighter vehicle taxes for light cars) levied on vehicles periodically during the period of possession. As for vehicles in use, gasoline tax and local road tax for gasoline-powered vehicles and light oil delivery tax for diesel vehicles are imposed in addition to the consumption tax on fuel consumption.

The State of California carries the strictest policy framework in the USA. The California rules came into force in January 2006 and specify 201 gCO2/km by 2009 for passenger cars, 141 gCO2/km by 2013 and 127 gCO2/km by 2016.

Debits and credits: By 2016, greenhouse gas emissions from lighter vehicles will be cut by one-third, while greenhouse gas emissions from heavier vehicles will be cut by about one-quarter. Manufacturers earn debits for falling short of the requirements, and have up to 5 years to earn enough credits to erase the debit, after which they will be subject to civil penalties.

Other states follow: The California greenhouse gas emission regulation is being adopted by a growing number of states on the East- and the Pacific-Coast, including New York, New Jersey, Massachusetts, Connecticut, Maine, Rhode Island, Vermont, Oregon, and Washington.

It is difficult to compare the regulation in California with practice in Europe as the air quality emissions standards are very challenging and the test cycles (needed for registration of cars) are different. Also, California all but bans diesels from its market and the car fleet is therefore dominated by gasoline cars, with fuel prices a fraction of those in Europe. Differences also include customer demand for automatic transmissions and larger engines than those preferred by European cosnumers.

CO2 standards in the US and the average CO2 emission level from the US car fleet are incomparable with those in the EU. Both standards and average emissions are significantly higher. One of the main reasons for this is almost non-existent diesel market in the US. The lower fuel price is another factor.

Political shift: With the shift to a Democratic control of Congress, energy issues and climate change are getting substantial attention in Washington. Both the House and the Senate want to pass legislation that will help solve energy security by reducing dependence on foreign oil (60% of oil is imported), and reduce the impact of greenhouse gasses on climate change.

CAFE Programme: The American president has called for fuel-economy increases that would reduce gasoline consumption by 8.5 billion gallons in 2017 (Administration fact sheets estimated that a 4% increase in car and light truck CAFE levels would be necessary). The CAFE program regulates fleet fuel consumption and was enacted by Congress in 1975, originally in respond to the oil crisis then. As a result, new passenger cars now consume on average less than half of the fuel they needed 30 years ago.

Mileage increase: At the same time, however, gasoline consumption has increased and oil imports have doubled. This is largely due to the huge increase in miles traveled each year and the larger size of the vehicle fleet. Several Representatives of Congress have now proposed significant CAFE increases by 2017-2020. According to the Administration’s own internal analysis, the proposed 4% per year increase in fuel economy would cost the automotive industry over a $100 billion and increase the average price of a passenger car by $1,400 and a light truck by $1,900.

Alternative fuels: Besides an increase in CAFE standards, and in the absence of a mature market for diesel cars in the US, there is a continued strong push for ethanol and other CO2-cutting technologies such as hybrids and plug-in electric vehicles. At present there are 6 million E85 FlexFuel vehicles on the road and the automotive Big Three have committed to doubling their FlexFuel car production by 2010 and further increasing to 50% of their annual vehicle production by 2012—provided the fuel and distribution infrastructure are also developed.

Infrastructure effort needed: Unfortunately, a major problem remains the E85 infrastructure, as currently there are only 1,200 E85 pumps available in the US. Ethanol and second-generation cellulosic ethanol, are major elements of the energy bills that are currently being promoted in both the House and Senate. The president’s goal is to get to 35 billion gallons of biofuels by 2017.

Other sectors than automotive: The automotive industry is not the only point of focus. Congress is also considering introducing a greenhouse gas cap-and-trade system that resembles the European Emissions Trading Scheme. The discussions are still ongoing and a lot of questions remain to be answered, in particular the extent of emission reductions, the timing, the allocation of allowances (free or auction), the point of regulation (upstream/hybrid/downstream) and the scope (economy-wide versus sector specific).

Global context: Furthermore, there is a strong majority that believes that the US should only introduce a mandatory cap-and-trade system if there are strong guarantees that developing countries, such as China and India that will soon become the largest emitters, will introduce similar constraints on their economy in the near future.

Yes. Within the European Climate Change Programme, the independent scientific institute TNO assessed in 2006 the costs and CO2 reduction potential of different measures, including vehicle technology, biofuels and infrastructure (click here to review the study) The costs of moving towards 120 gCO2/km by 2012 through vehicle technology were calculated to be around Euro 3600 on average per vehicle. The costs of going to 130 are still prohibitively high with around euro 3000 per vehicle, endangering production in Europe.

Societal costs: Taking into account the price of technology and the fuel savings for consumers, the TNO institute set the societal costs of emission cuts through vehicle technology at between â?¬132 and â?¬233 per reduced tonne of CO2, depending on the oil price. This is up to ten times more expensive than similar or even more effective measures such as an increased use of biofuels and adopting an economic driving style..

Cost-effectiveness is key: The most relevant question is: what is the most cost-effective way to achieve the maximum result in reducing CO2 emissions from cars? Cost-analysis of independent researchers shows that reducing CO2-emissions through vehicle technology only is most expensive and least cost-effective for the industry and for society as a whole, that is, including the environment. For less money, larger CO2-emission reductions can be achieved.

Combining efforts: That is why the industry proposes to combine different methods, including changing driver behaviour, infrastructure measures, alternative fuels, CO2-related taxation and vehicle technology. The industry is not walking away from its responsibility. Climate change is a serious problem, which needs to be tackled together.

Passenger cars contribute to 12% of man-made CO2 in Europe, according to 2004 figures from the European Commission concerning the EU-25. The share of transport is 26%, of energy plants 39%, of industry 16% and of households 19%. On a global scale, passenger cars emit 5% of man-made CO2, according to figures from the European Commission and the IPCC. Within that global share, the European passenger car fleet accounts for 2%.

Emissions come from usage: Despite the fact that new cars emit significantly less CO2, emissions from road transport keep rising. This is due to increasing freight transport, the aging car fleet, a lack of traffic management and increased mileage. Between 1995 and 2003, motorists in the EU-25 increased their annual mileage by 16.4%.

Aging car fleet: Furthermore, the ownership of cars rises faster than the sales of newly produced cars. In the biggest EU markets, for every new car leaving a dealership, two second-hand cars change owner. The average age of cars in the EU-15 is now 8 years and up to 14 in the new EU Member States, to the detriment of road safety improvements and the environmental performance of the car fleet.

Need for combining efforts: It is obvious that a strategy to reduce CO2 emissions from cars should not only focus on new cars and on vehicle technology. Only a comprehensive approach, including alternative fuels, infrastructure, policy makers and drivers, and taxation, can result in effectively reducing CO2 emissions from passenger car traffic. Climate change is a complex and global problem that can only be tackled when efforts are combined.

Cars emit CO2 when burning fossil fuels, such as petrol, diesel or gas. This means the less fossil fuel a car uses, the less CO2 is produced. Hence, fossil-fuel economy is a major key to reducing CO2 emissions from cars. Fuel-economy, or fuel-efficiency when calculated in kilometres per litre, can be achieved in several ways.

 
• Technology-linked solutions, such as improved engine   efficiency, vehicle weight reduction or better aerodynamics, and, on the   longer term, engines on non-fossil fuels like hydrogen
 
• Fuel based solutions, using low or even zero carbon fuels
 
• Infrastructure related solutions, ensuring traffic   flows and avoiding congestion
 
• Car use related solutions, concerning means of transport, choice of car, “eco-driving” or driving style, and the amount of kilometres driven.

Emission sources: Man-made CO2 emissions account for 3.5% of the total CO2 produced naturally and by man, and of this, globally, 25% is caused by emissions from power stations, 23% from domestic activities and 26% from transport, according to the European Commission. In Europe, passenger cars contribute 12% of man-made CO2.

Road Transport: Although new cars now emit significantly less CO2, road transport (passenger cars and commercial vehicles) remains one of the few sectors where emissions keep rising. This is due to the growth of freight transport, of vehicle ownership and of increased mileage. In EU-25, between 1995 and 2003, motorists increased their annual mileage by 16.4%. It is obvious that only a comprehensive approach can cost-effectively address this reality. Climate change is a complex and global problem that can only be tackled when efforts are combined, efforts from the car industry, the fuel industry, policy makers and drivers.

CO2 is a naturally occurring gas present in the earth’s atmosphere.  It is colourless, inert and slightly acid.  CO2 emissions occur naturally in the sea and landmass - and very visibly from volcanoes and forest fires. CO2 emissions are also man-made, for example by burning fossil fuels in combustion engines from cars.

Euro standards: CO2 emissions are not to be confused with polluting emissions from cars formed during the combustion process, like carbon monoxide (CO), nitrogen oxides (NOx), hydrocarbons (HC) and diesel particulates (PM). These emissions are harmful, even toxic. They are regulated by emission standards known as Euro standards or as air quality measures.

Human CO2-emission sources: Power stations, central heating and industrial boilers are examples of sources of CO2 from industry; road vehicles, aviation and shipping from the transport sector. According to IPCC figures, man-made CO2 emissions account for 3.5% of the total CO2 produced naturally and by man and of this, globally, 25% is caused by emissions from power stations, 23% from domestic activities and 26% from transport. Within that global share, the European passenger car fleet accounts for 2%.

EU figures: Passenger cars contribute to 12% of man-made CO2 in Europe, according to 2004 figures from the European Commission concerning the EU-25. The share of transport is 26%, of energy plants 39%, of industry 16% and of households 19%.

The industry invests Euro 20 billion (4% of turnover) per year in research and development, and much of this spending contributes to reducing the environmental impact of cars, including CO2 emissions.

More than 50 new technologies:
Between 1995 and 2008, ACEA members will have introduced more than 50 new technologies into their vehicles, and many more are in the pipeline (click here for a full list). The European car industry’s R&D activities underscore its pursuit of an active CO2 reduction agenda based partly on technological advance.

No single solution: There is no single solution, to achieve further progress in reducing CO2 emissions from cars.  The industry has designed and engineered a wide variety of measures to reduce further CO2 emissions. There are two broad categories of action to explore: refining conventional technologies and developing alternative technologies. Further improvements are being made in other areas, for example reducing the aerodynamic drag of cars, rolling resistance and mass (weight) of cars by using light-weight materials.

Some examples: Important specific developments are the progressive introduction of GDI (gasoline direct injection) engines, further refinements to common rail diesel engines, improved engine thermal management (including faster warm-up), variable valve control, 6-speed automatic, semi-automatic and manual gearboxes, the use of low friction oils for engines and gearboxes, the use of continuously variable transmissions, electric power steering and engine cylinder deactivation.

Alternative technologies: Alternative technologies are also maturing as conventional engineering solutions become harder to find and more costly to implement. The industry is developing hybrid vehicles and combustion and fuel-cell hydrogen engines in various forms. They will be among the main solutions to cutting CO2 in the long-term future. The use of alternative fuels is another essential development, and engines need to be adjusted accordingly. (See also the question on biofuels)

Pre-competitive research: The vast majority of R&D effort is done independently, with each manufacturer pursuing its own initiatives. The desire to achieve a competitive advantage is
strong in this area. At the same time, EUCAR, the R&D organisation of the European vehicle manufacturers, contributes to the development of new technologies for CO2 reduction by setting up collaborative, pre-competitive research projects co-funded within the EU Sixth and future Seventh Framework Programme.

Key area CO2: The EUCAR programme reflects the research interests of the participating companies and involves key areas of R&D activity. Concerning CO2 emissions, these key areas are:

 
• Conventional Powertrain (based on conventional and   alternative fuels);  
• Alternative Powertrain (energy management such as   hybrid ICE/electric, fuel cells and hydrogen combustion engines respectively);   
• Materials (e.g. high strength, low weight material);  
• Aerodynamics;  
• Improved energy efficiency of car components (e.g.  powersteering, air conditioning, alternator);  
• Driver information devices

All European car manufacturers have been involved in the research and development of hybrid engines for some time and several have models that are either already on the market or close to market introduction (the first manufacturer to produce a hybrid car was Audi in 1997). However, hybrid cars are far from being the only solution to reduce CO2 emissions from cars.

Two sides of a hybrid: Hybrids are particularly suitable for stop-start city driving, but are not fuel-efficient over longer distances and during motorway driving. This is a result of the nature of a hybrid powertrain. A hybrid car has two engines, an electrical one and a combustion engine. Put in a simplified way, a hybrid car recovers energy during deceleration and braking and stores it in a battery. The battery then releases energy to 1) drive in electric mode (when there is a relatively low driver demand for power) or to 2) boost power to the wheels when the driver demands more power, e.g. higher acceleration or going up a hill.

All depends on usage: In a country that is very urbanised, such as Japan, or for vehicles whose main use is for city driving, a hybrid car is very suitable. Indeed, several public transport companies have opted for hybrid buses and local courier services are doing the same. However, when assessed over longer distances, the use of the combustion engine as the main source of power results in higher CO2 emissions.

Clean diesel: In such cases, clean diesel vehicles are more fuel-efficient and therefore better overall for the environment. Diesel cars are also affordable to most consumers since hybrids are still a relatively expensive technology. The European car industry is developing and investing in many technologies at the same time. One of the technological possibilities they are exploring is a hybrid diesel car, combining the best of both worlds, at least in the shorter term. Longer term possibilities are hydrogen and fuel cell engines. But there are many more.

Combinations likely: It is impossible to say today which technology will prove to be the most viable. Most likely, the future will see a number of technological combinations entering the market, perhaps tailored for different usage, driving locations or circumstances and consumer preference.

There is no single solution, to achieve further progress in reducing CO2 emissions from cars.  The industry has designed and engineered a wide variety of measures to reduce further CO2 emissions. There are two broad categories of action to explore: refining conventional technologies and developing alternative technologies. Further improvements are being made in other areas, for example reducing the aerodynamic drag of cars, rolling resistance and mass (weight) of cars by using light-weight materials.
Some examples: Important specific developments are the progressive introduction of GDI (gasoline direct injection) engines, further refinements to common rail diesel engines, improved engine thermal management (including faster warm-up), variable valve control, 6-speed automatic, semi-automatic and manual gearboxes, the use of low friction oils for engines and gearboxes, the use of continuously variable transmissions, electric power steering and engine cylinder deactivation.
Alternative technologies: Alternative technologies are also maturing as conventional engineering solutions become harder to find and more costly to implement. The industry is developing hybrid vehicles and combustion and fuel-cell hydrogen engines in various forms. They will be among the main solutions to cutting CO2 in the long-term future. The use of alternative fuels is another essential development, and engines need to be adjusted accordingly. (See also the question on biofuels)
Pre-competitive research: The vast majority of R&D effort is done independently, with each manufacturer pursuing its own initiatives. The desire to achieve a competitive advantage is
strong in this area. At the same time, EUCAR, the R&D organisation of the European vehicle manufacturers, contributes to the development of new technologies for CO2 reduction by setting up collaborative, pre-competitive research projects co-funded within the EU Sixth and future Seventh Framework Programme.
Key area CO2: The EUCAR programme reflects the research interests of the participating companies and involves key areas of R&D activity. Concerning CO2 emissions, these key areas are:

 
• Conventional Powertrain (based on conventional and   alternative fuels);  
• Alternative Powertrain (energy management such as   hybrid ICE/electric, fuel cells and hydrogen combustion engines respectively);   
• Materials (e.g. high strength, low weight material);  
• Aerodynamics;  
• Improved energy efficiency of car components (e.g.  powersteering, air conditioning, alternator);  
• Driver information devices

On 13 January 2005, Commission Vice-President Günter Verheugen launched a High-Level Group on the Competitiveness of the Automotive Industry: CARS 21. The group brought together representatives of the European Commission, European Parliament, Member States, manufacturers, environmentalists, trade unions, consumers, suppliers and the oil industry in a constructive multi-stakeholder dialogue.

Strenghtening competitiveness: Its aim was to make recommendations concerning the public policy and regulatory framework of the European automotive industry “that enhancs global competitiveness and employment while sustaining further progress in safety and environmental performance at a price affordable to the consumer”. CARS 21 was a crucial recognition of the fact that regulation does affect the competitiveness of the industry, and that this should be minimised as much as possible in the interest of European society as a whole.

Roadmap: On 12 December 2005, CARS 21 adopted its final report and a roadmap identifying the public policy measures for the next ten years. Vice-President Verheugen said: “The European car industry is world class. This is why it deserves a world-class policy framework to develop its full potential. Today’s recommendations will contribute to a vibrant and dynamic European automotive industry, which produces and sells clean and safe cars world-wide”.

Recommendations: The main recommendations were:

 
• Simplification and better regulation: a set of better   regulation principles, including impact assessment and cost-effectiveness as a guiding principle, and the replacement of 38 EU directives by UNECE   regulations.
 
• Promoting the environment: CARS 21 endorses an Integrated Approach to CO2 reductions that incorporates a range of policies covering vehicles, infrastructure measures, driver behaviour, etc. It also   stresses the importance of alternative fuels as one of the main options for reducing road transport CO2 emissions. It highlights that the responsibility for CO2 reductions from the road transport sector cannot rest with the automotive industry alone.
 
• Improving road safety: an integrated approach involving vehicle technology, infrastructure and the road user is recommended for improving road safety.
 
• Better market access in third countries: opportunities presented by multilateral and bilateral trade negotiations should be seized to increase the competitiveness of EU industry.

Follow-up: In February 2007, the Commission came forward with a Communication on the follow-up to the CARS 21 recommendations, which was sent to Council and Parliament. Regrettably, all main recommendations were watered down and the roadmap was not included. The CO2 dossier will be the first true test to see how serious the EU takes its “better regulation” principles and the Lisbon Agenda.

Engine of Europe: The automotive sector is key to the European economy, with at least 12 million employees and their families depending on manufacturing, research and development of vehicles in Europe. The industry invests 5% of its turnover (â?¬20 billion) in research and development, which makes it the largest EU industrial R&D investor in absolute terms.

Future Prosperity: Moreover, the sector highly contributes to the government revenues: in 2005 taxes associated with purchase and use of motor vehicles amounted to â?¬360 billion, equivalent to 3.5% of the EU15 gross domestic product. The car industry is essential for sustaining and improving the competitiveness of the European Union and ensuring future prosperity of its citizens. There is a clear need to establish a policy framework that fosters the EU automotive sector.

All thirteen members of the European Automobile Manufacturers Association are fully aware of and share public concern on climate change. All thirteen are committed to contribute to solving the problem. The European manufacturers each have put numerous fuel-efficient cars on the market, with many more in the pipeline. They invest on average 4% of turnover in R&D and a large part of the efforts is focused on improving their vehicles’ environmental performance.

Emission trading is one of many possibilities to help reducing CO2 emissions from cars and all options need to be further reflected on, based on proper and transparent impact assessments. The industry believes that an integrated approach including CO2 related taxation will achieve cost-effective results, since it will involve everybody concerned.

Yes. In the industry’s view, product diversity and consumer choice need to be preserved. CO2-related taxation of cars and of alternative fuels offers the possibility of limiting CO2-emissions without forcing the industry or consumers into a straitjacket.

Shaping demand: CO2-based taxation of cars and of alternative fuels has a significant CO2 reduction potential by shaping consumer demand and setting economic incentives to which vehicle manufacturers and fuel suppliers will respond. A CO2-based taxation system raises customer awareness and gives a political signal that society attaches a priority to reducing CO2 emissions.

Significant potential: Recent experiences in some EU member states (the UK, the Netherlands and Sweden, for example) show that consistent taxation measures can have a significant influence
on consumer behaviour and demand. Currently, eleven EU Member States (Austria, Belgium, Cyprus, Denmark, France, Italy, Luxembourg, The Netherlands, Portugal, Sweden, UK) have elements in their car and/or fuel taxation systems that are totally or partly based on the car’s CO2 emissions and /or fuel consumption (click here for a full overview                                                    ). The number of Member States with CO2-related taxation schemes is rising; a year ago they were only nine.

No clear market signal yet: the current systems differ strongly across the EU and therefore fail to send clear market signals. Manufacturers face a fragmented EU market and are unable to exploit economies of scale.

ACEA proposes: The European car manufactures advocates a harmonised taxation of cars and of alternative fuels in the EU and has defined clear principles:

 
• All existing car taxes/fees should be substituted by   circulation tax to send simple and clear signals to consumers;
 
• CO2 should be the key criterion for taxation to   provide incentives to buy lower CO2 emitting cars;
 
• Taxation should be technology-neutral to allow competition for the best solutions;
 
• There should be no discrimination against certain types, segments or classes of vehicles;
 
• Their should be a linear proportionality to emitted CO2 g/km without cap, or in other words: every gram of CO2 emitted should be   taxed the same, to avoid arbitrary thresholds;
 
• Tax revisions should be budget neutral in transition from old to new schemes and should be adjusted over time to ensure budget neutrality.

CO2-related taxation of alternative fuels should be based on the following principles:

 
• CO2 performance should be the main criterion, thus   providing incentives for CO2 reductions
 
• Taxation of conventional fuels should provide a maximum ceiling. The tax rate for alternative fuel should then be lowered according to the CO2 advantage of the alternative fuel in question  
• Certification of alternative fuels will be required to indicate their net CO2 performance
 
• The tax rate of an alternative fuel should be proportionate to the net CO2 emissions compared to the conventional fuel it substitutes

The European car industry is in favour of the use of biofuels because these fuels can significantly help reducing CO2 emissions from cars. Car manufacturers have made considerable efforts to develop and adjust engines in order to use different kinds of alternative and biofuels, or a combination of lubricants, and already offer a wide range of alternative-fuelled vehicles.

Role underestimated: The importance of alternative fuels has long been underestimated, and still doesn’t seem to get the prominent place in CO2-related policies it should have. There also is a clear need for CO2-related taxation of cars and of alternative fuels to increase demand for CO2-efficient “solutions” - cars, technologies and fuels.

Availability: Most importantly, alternative fuels should be developed and made available on a much larger scale. The market penetration of certain fuel-efficiency technologies is dependent on the existence of an appropriate infrastructure. ACEA manufacturers already offer a wide range of alternative-fuelled vehicles, but a much higher volume could have been sold if appropriate fuels infrastructure had existed.

EU market: Due to national differences in infrastructure for alternative fuels, European-wide markets for alternative-fuel vehicles do not exist and manufacturers currently cannot exploit economies of scale. For example, CNG (compressed natural gas) vehicles cannot be launched in many national markets due to a lack of fuel supply infrastructure.

Adjusting engines: From a technology point of view, the automotive industry does need enough time to adjust engines and particulate matter filters to higher biofuel blending requirements in order to reduce the negative effects of blending for the car’s engine and for the vehicle’s fuel-efficiency.

Labeling at the pump: The industry also stresses the need for a separate availability of “old” fuels (up till 5,75% bio blending) for some time to come, to enable filling-up of the existing car fleet with fuel that is appropriate for their engines. Higher blending changes the substance of the fuel and neither engines nor particulate matter filters are currently designed for this: they would risk clogging or have to be serviced much more often.

Fuel-efficient driving (”Eco-driving”) can significantly reduce fuel consumption and lower CO2 emissions. Slightly changes in driving style enable drivers to exploit fully the fuel-efficiency potential of modern technologies. Eco-driving is easy to apply.

 
• Shift into a higher gear early; maintain a steady   speed at highest possible gear; look ahead and anticipate traffic flow; switch off the engine at short stops
 
• Check and adjust the tyre pressure regularly
 
• Make use of in-car fuel saving devices such as on-board computers and dynamic navigators to avoid congestion
 
• Get rid of surplus weight and unused roof racks

Highly cost-effective: Eco-driving training leads to a reduction in fuel consumption of up to 25 % after training, with a significant long-term effects of 7% under every-day driving conditions.

Reduction potential: The European Climate Change Programme calculated that the reduction potential of CO2 emissions from eco-driving would be in the range of 50 million tons of CO2-emissions in Europe by 2010. Other research also clearly indicates that eco-driving is a highly cost-effective way to reduce CO2 emissions. The independent research institute TNO estimates a negative cost to society (cost savings) of up to 128 euro per tonne CO2 saved (click here for the full study).

Drivers training: Drivers’ training proves to be very important. It could be part of the learning package for new drivers and could also cover experienced drivers. Driving schools and professional driving instructors can contribute significantly.

Infrastructure measures have an enormous potential to reduce CO2 emissions. Cars that are stuck in traffic jams or have to break for every traffic light simply waste fuel. Reducing road congestion through a variety of measures, including better road design and adoption of intelligent traffic management technologies, is an effective means of reducing CO2.

Some examples: ACEA investigated the yearly CO2 reduction potential and costs of substituting 50% of current traffic lights with modern dynamic traffic lights, which generate an optimal traffic flow by adjusting to traffic conditions. Annual savings of 2.4 million tonnes CO2 are possible, around 16% of the aimed reduction from cars. Differences in road surface can lead to reductions in rolling resistance of up to 40%, corresponding to approximately 5% of CO2 reductions.

Japan leads the way: A recent study in Japan used road traffic information to track the impact of traffic-flow improvement on CO2 reduction. The trial studied the “Oji section” of the Tokyo Metropolitan Expressway, opened in December 2002, and found that the new road has reduced annual CO2 emissions in central Tokyo by between 22,000 and 31,000 tons. This reduction corresponds to the annual gasoline consumption of approximately 10,000 passenger cars. In its recently adopted CO2 strategy, Japan allocates 52% of the aimed CO2-reductions from cars to infrastructure measures (see also the question on the situation in Japan).

The 1998 Commitment has delivered results with a reduction of 13% CO2-emissions by 2004, despite unfavourable circumstances. The two other elements of the EU strategy to tackle CO2-emissions of passenger cars, CO2-related taxation and informing consumers about fuel efficiency through “labeling” of cars, have not contributed (see the Commission’s proposal on CO2). The Commission proposed a Directive on car taxation, with a ecommendation to relate 50% of car tax revenues to emissions of CO2, in 2005. The Labelling Directive, evaluated last year, will be redesigned due to a lack of results.

Retreat from focus on technology: The European car industry will continue to contribute to reducing CO2 emissions from cars, there is no question about that. But more than ever, combined efforts of many parties and demand-related measures are essential to complement technology efforts and keep making further progress in cutting CO2 from cars. ACEA proposes an integrated approach to address the complex challenge of reducing CO2 emissions.

Integrated approach: Such a comprehensive approach would involve, amongst others: increasing the availability of alternative fuels, influencing consumer and driver behaviour, adjusting infrastructure and continuing research and development into vehicle technology. Essential part of such an approach is a harmonised CO2-related taxation of cars and alternative fuels to support demand for fuel-efficient solutions (see also the question on CO2-related taxation).

Combining efforts, involving all: Taking an integrated approach has been recommended by the High-level Group on CARS 21, set-up by the European Commission in January 2005 to improve the car industry’s competitiveness while at the same time fostering other important dimensions of society also, such as employment, road safety and environment.

Broad endorsement: The Energy Efficiency Action Plan of the Commission, published in October 2006, also embraced a comprehensive and consistent approach as most effective. The European
Conference of Ministers of Transport (ECMT) released a report in January 2007, clearly supporting all elements of the Integrated Approach, defining CO2-related taxation a “top priority” for Europe (link to ECMT

Politically, it might be seen the better opportunity to target the car industry. It is not, as independent impact assessments have shown (click here to find the independent assessments). It is to the benefit of both the environment and the economy to follow an Integrated Approach including taxation measures. Politically, this may not be the easiest way; it certainly is the more sustainable route to combating climate change.

The European car manufacturers are world leaders in many fields of expertise, based on a long tradition of innovation and fulfilling consumer demand. The industry continuously strives to remain at the top. Preserving the environment has a high priority, as have improving road safety and other important areas of development. That is precisely why the European manufacturers form one of the most stable pillars of the EU economy, providing employment to 2 million people and supporting the jobs of 10 million other workers in the EU.

Market demand lacking: New markets and jobs are only created when there is a clear demand and economic logic to back this development. Up till now, this is not the case where fuel-efficiency is concerned. The EU strategy to reduce CO2 emissions from cars has acknowledged from the outset that measures are needed to influence consumer demand. Consumers have to be made aware of available fuel-efficient solutions, like CO2-cutting technology, a revised driving style or using alternative fuels. And consumer behaviour can be influenced through CO2-related taxation.

Policies did not deliver:
However, no consistent policy is in place yet and focus has remained on the supplying of new vehicle technology. Where the ACEA voluntary Commitment from 1998 has delivered real results with a 13% reduction in car CO2 emissions, the other two “pillars” of the EU Strategy, taxation and labeling, have not yielded results (find here what the European Commission says about this). This has to change.

Adaptation without prescription: The industry urges the putting into place of a harmonised CO2-related taxation system for cars and for alternative fuels. Increased demand for fuel-efficiency will create a more balanced situation for the car industry, allowing it to adapt to a changing market without prescribing which technology to use and with clear opportunities to invest and further innovate. Market forces will direct investments and shape the environmental results, providing for larger cost-effective CO2-emmission reductions and safeguarding further growth and jobs in Europe.

That is likely, because of the fierce competition between manufacturers in Europe and abroad. The industry will be forced to look at cost cuttings because consumers will not want to pay much extra or will not be able to afford to, and competitors from other regions have a different cost-base.

Damaging for the economy:
Opting for vehicle technology as the main measure to achieve further progress in reducing CO2 emissions from cars is the most expensive and least-effective strategy possible, as is clearly shown by data generated for the European Climate Change Programme (ECCP). Putting the burden on the automotive sector alone is damaging for the European economy. The Commission’s original impact assessment predicted a rise in production costs, the loss of jobs, an increase in imports and decrease in exports and moving of manufacturing out of the EU with Russia being a possible attractive “alternative”.

Especially in Europe: Due to all uncertainties at this stage, it is impossible to quantify the exact consequences. But the automotive industry employs 2 million people in the EU and another 10 million European jobs depend on the sector. There are likely to be serious implications. European producers are especially vulnerable, since other regions have lower production costs. The European manufacturers have to sell cars profitable in the EU, since it is their home market: they cannot afford to lose money where they sell on average 75% of all their cars.

Safeguard diversity: Last but not least, the diversity of the industry in Europe provides a clear competitive advantage in the global market place. This diversity should be safeguarded, as was recognized in the original EU strategy on CO2 and cars from 1998. Putting the industry into a legislative straitjacket could have severe consequences for EU regions, possibly countries.

All adjustments cost money and in this case several thousand euros per car are involved. Within the European Climate Change Programme, the independent scientific institute TNO assessed in 2006 the costs and CO2 reduction potential of different measures, including vehicle technology, biofuels and infrastructure (click here for a link to the ECCP/TNO findings).

3000 euro per car: The costs of moving towards 120 gCO2/km by 2012 through vehicle technology were calculated to be around Euro 3600 on average per vehicle. The costs of reaching 130 are not significantly lower with up to euro 3000 per vehicle, endangering production in Europe.

Societal costs: Taking into account the price of technology and the fuel savings for consumers, the TNO institute set the societal costs of emission cuts through vehicle technology at between €132 and €233 per reduced tonne of CO2, depending on the oil price. This is up to ten times more expensive than similarly or even more effective measures such as an increasing use of biofuels or adopting an economic driving style. Much larger CO2 emissions could be achieved at lower costs.

Need for cost-effectiveness: The most relevant question is: what is the most cost-effective way to reduce CO2 emissions from cars. Cost-analysis of independent researchers shows that reducing CO2-emissions through vehicle technology only is the most expensive and least cost-effective strategy for the industry and for society as a whole, that is, including the environment.

Combining efforts: That is why the industry proposes to combine different methods, including changing driver behaviour, infrastructure measures, alternative fuels, CO2-related taxation and vehicle technology. The industry is not walking away from its responsibility. Climate change is a serious problem, which needs a combined effort to control.

True, this objective has been long known and the car industry fully supports the EU in its aim. The objective of 120 by 2012 was, however, never set as a target for vehicle technology only.

Different pillars: The 1998
Commitment from the car industry was designed as one of three “pillars” to achieve the overarching goal of 120 by 2012. The car industry agreed on a target of 140 by 2008 through technological adjustments mainly; whilst the other two other “pillars”, taxation and labeling, would help shape consumer demand for fuel-efficiency. It is one thing that these two other pillars did not yield any results (see the Commission’s statement on this), to the detriment of the achievements of the car industry, who did deliver significant CO2-reductions (see also the questions on the Commitment).

Multi-base effort: More importantly, the final 120 by 2012 target was clearly set to be met through a combination of measures. This strategy reflected the foreseeable technological limits, the need to include the existing car fleet and improve infrastructure, and the obvious demand challenge: cars are bought and driven by consumers.

Fair assessment overdue: The European Commission has opted for a different procedure. Firstly, it has not fairly and fully assessed the results from the 1998 Commitment. Progress under the Commitment could have been larger had there not been the counter-productive effects of EU regulations concerning safety and air quality, a trend towards larger, heavier cars, low demand for fuel-efficiency and other factors. These elements should all be taken into account, as is stipulated in the 1998 Commitment. Significantly: the Commission signed the Commitment as well.

Cost-effectiveness: Secondly, the CARS21 group, which convened in 2005 and included the Commissioners Dimas, Barrot and Verheugen plus representatives from the car industry, national governments, the European Parliament and other stakeholders, has concluded that an integrated approach should be followed to further reducing CO2 emissions from cars. Such an approach would ensure that environmental and economic interest are balanced, that all relevant actors are involved, and the guiding principle would be cost-effectiveness.

“Better regulation”: The CARS21 recommendations were fully in line with the “better regulation” agenda of the Barroso Commission, aimed at strengthening the industry’s global competitiveness and economic growth in Europe. The current CO2 proposal is not in line with this goal. The accompanying impact assessment clearly shows the proposed strategy is neither cost-effective nor balanced. Jobs are at risk; more can be done for the environment at lower costs to society.

Burden sharing: The car industry believes it is unacceptable to be confronted with a Commission proposal on CO2 emissions from cars that puts the burden mainly on the vehicle manufacturers, focusing - again - mainly on vehicle technology, denying the complex and global nature of climate change and the important role others can play

Realism needed: A vehicle technology related target of 120 by 2012 was never envisaged for sound reasons. Even a 130 target is neither feasible nor realistic: the cars of 2012 are on the drawing tables today, or already out as prototypes. Engine adjustments are hugely complicated and expensive operations. The car industry needs long term planning security and a sound policy framework to base investment decisions on.  The correct target for reductions through vehicle technology cannot be set without a proper impact assessment.

Put it right: The EU objective of 120 by 2012 is possible if the right measures are put in place and all parties are involved: car industry, fuel industry, policy makers (to adjust infrastructure and introduce CO2-related taxation) and drivers/consumers. That is the challenge Europe faces.

No. The industry is clearly committed to reducing CO2 emissions from cars and has signed a voluntary agreement to contribute to the EU Kyoto protocol objectives already in 1998. This agreement has, through improved vehicle technology only, reduced CO2 emissions from cars by an average 13%.

Dozens of new technologies:
The industry invests Euro 20 billion (4% of turnover) a year in research and development, a large amount of which is invested in improved fuel-efficiency and other technologies that enhance the environmental performance of cars. Between 1995 and 2008, ACEA members will have introduced more than 50 new technologies into their vehicles (click here for a full list).

Slow market take-up:
Developing engines and vehicles needs ample preparation, up to 5 years at minimum. New technologies often need even longer to enfold their full market potential. A car in Western Europe is on average 8 years old, and up to 14 years in the news EU Member States. Furthermore, a majority of consumers do not (yet) want to pay for fuel-efficient solutions: they have not defined this a priority. Several highly CO2-efficient cars, brought into the market in line with the Commitment, met with very low demand despite considerable marketing efforts (click here for a full list). Various CO2-efficient applications, such as the stop-and-go feature, are also confronted with hesitance by consumers.

Counter-productive trends: Significantly, consumer preferences have moved in the opposite direction over the past years with respect to CO2 reduction. Buyers have opted for larger and safer cars, due to factors such as an increasingly dense traffic, changes in lifestyle, demographic trends and driver physique.                           

Counter-productive EU regulation: Together with EU regulations on safety and air quality, this has had a huge impact on cars: within car segments, models have increased by an average 16% in weigth. Today, cars are an additional 20 cm longer, mainly as a consequence of pedestrian safety measures.

The car industry is not against a legislative framework but believes such a framework, like any other EU regulation, should be based on a comprehensive impact assessment with cost-effectiveness as guiding principle. Only then will become clear how the cost burden should and can be divided over vehicle technology and other measures, such as the use of biofuels, infrastructure adjustments, eco-driving and influencing consumer demand through CO2-related taxation.

Need for comprehensive approach: With such a comprehensive approach, measures will not only affect new cars, but also existing cars on the roads or, in other words, traffic as a whole. It is important to realise that as emissions from new cars have decreased significantly, the bulk of CO2 emissions comes from the existing car fleet, a lack of traffic management and a continuous rise in mileage.

Learn from experiences: Furthermore, it is important to learn from previous experiences, in particular the 1998 ACEA Commitment on reducing CO2 emissions. Between 1995 and 2004, emissions from new cars have decreased by 13% through vehicle technology only. But these results could have been better, had there not been the counter-productive effect of EU regulations, a weak demand for fuel-efficiency and consumer preference for larger and safer cars.

Increased weight and volume: Cars have become heavier and larger within their own, different model segments, due to regulations on safety, air quality and others, and due to consumer preferences. Often commuting longer distances, drivers want safer, more comfortable cars. Also, leisure usage of vehicles has gained importance and an aging population appreciates a higher driving position, to name just a few trends. The added weight and volume have significantly limited fuel-efficiency improvements.

Full evaluation urged: The results of the current Commitment need to be fully analysed and the counter-productive effects need to be taken into account. This was agreed in the 1998 Commitment and signed by both the industry and the European Commission.

Fully committed: The European car manufacturers are fully aware of the challenges of climate change. They are actively contributing to reducing CO2 emissions from cars and they will continue to do so. It is crucial for the future of the industry, however, that the most cost-effective approach is selected to further reducing CO2 emissions from cars.
Putting the focus on vehicle technology only, is a strategy that is known to be the most expensive and least cost-effective available, as is clearly shown by independent data generated for the European Climate Change Programme (ECCP) (click here to find the ECCP findings).

Sharing efforts: A cost-effective approach involves further improvement of vehicle technology in combination with efforts from other relevant parties - the fuel industry, policy makers and drivers - and introducing CO2-related taxation to influence consumer demand for CO2-efficient solutions. Sharing efforts and responsibilities will result in larger cost-effective CO2-emission reductions from road transport. This has been recognised by many parties, including the CARS21 group, the European Commission in its EU Energy Efficiency Action Plan, and the European Conference of Transport Ministers.

Cost-effectiveness key: A cost-effective approach benefits both the environment and the economy because larger CO2-reductions are possible at lower costs. Such an approach will safeguard jobs and production in Europe, which is essential for the future wealth and innovative strength of the EU. It will also keep cars affordable, which is needed for the renewal of Europe’s car fleet and the overall improvement of the environmental performance of the vehicles on the roads.

Feasible nor doable: The car industry supports the EU objective of reducing CO2 emissions from cars to 120 gCO2/km. But the Commission’s proposed target - achieving 130 gCO2/km by the year 2012 through vehicle technology is neither feasible from a cost perspective nor from a practical point of view: the cars of 2012 are on the drawing table today. The announced legislative framework, determining the cars of 2012 and beyond, will however not be ready before 2009.