Environmental protection regulations

The specific emission limits for all new passenger car and light commercial vehicle models and the fleet targets calculated from the individual vehicle data for brands and groups in the 28 EU member states for the period up to 2019 are set out in EC Regulation No 443/2009 on CO₂ emissions from passenger cars and EU Regulation No 510/2011 on light commercial vehicles of up to 3.5 tonnes, in effect since April 2009 and June 2011 respectively. The regulations are an important component of European climate protection legislation and therefore form the key regulatory framework for product design and marketing by all vehicle manufacturers operating in the European markets.

From 2012 onwards, the average CO₂ emissions of manufacturers’ new European passenger car fleets may not exceed the figure of 130 g CO₂/km. Compliance with this requirement was introduced in phases: in 2015 the entire fleet had to meet this limit. EU Regulation No 333/2014, which was adopted in 2014, states that, from 2021 onwards, the emissions of European passenger car fleets may be no higher than just 95 g CO₂/km.

The EU’s CO₂ regulation for light commercial vehicles requires limits to be met from 2014 onwards, with targets being phased in over the period to 2017: the average CO₂ emissions of new vehicle registrations in Europe may not exceed the figure of 175 g CO₂/km, a target required to be met by 75% of the fleet in 2015 and 80% of the fleet in 2016. From 2020 onwards, the limit under EU Regulation No 253/2014, which was adopted in 2014, is 147 g CO₂/km. Like the regulations for passenger cars, the CO₂ regulations for light commercial vehicles provide for exceptions to be made, for example by offering relief for technical innovations in the vehicle.

The European Commission intends to define the CO₂ regime for the period after 2020 by the end of 2016. Politicians are already discussing reduction targets for the transport sector for the period to 2050, such as the 60% reduction in greenhouse gas emissions from 1990 levels cited in the EU White Paper on transport published in March 2011. It will only be possible to meet these long-term goals by also making extensive use of nonfossil sources of energy, in particular in the form of renewable electricity.

At the same time, regulations governing fleet fuel consumption are also being developed or introduced outside the EU28, for example in India, Japan, Canada, Mexico, Saudi Arabia, Switzerland, South Korea and Taiwan. Brazil has introduced a fleet efficiency target as part of a voluntary program for granting a tax advantage. To achieve a 30% tax advantage, vehicle manufacturers are required to achieve, among other things, average fleet efficiency of around 1.82 megajoules/km by 2017. The fuel consumption regulations in China for the period 2012–2015 (Phase III) with a fleet target of 6.9 liters/100 km in the year under review, will progress to Phase IV for the period 2016–2020, with a target of 5.0 liters/100 km at the end of this period. Due to the extension of greenhouse gas legislation in the USA, uniform fuel consumption and greenhouse gas rules will continue to apply in all states of the USA in the period from 2017 to 2025. The law was signed by the US president back in mid-2012.

The increase in fleet-based CO₂ and consumption regulations means that it is necessary to use the latest mobility technologies in all key markets worldwide. Electrified and pure-play electric drives will also become increasingly common. The Volkswagen Group closely coordinates technology and product planning with its brands so as to avoid breaches of fleet fuel consumption limits, which would entail severe sanctions. Volkswagen continues to regard diesel technology as an important element in the fulfillment of CO₂ emissions targets.

In principle, the EU legislation permits some flexibility. For example:

• Excess emissions and emission shortfalls may be offset between vehicle models within a fleet of new vehicles
• Emission pools may be formed
• Relief may be provided in the form of credits that are granted for additional innovative technologies (eco-innovations) contained in the vehicle and that apply outside the test cycle
• Special rules are in place for small series producers and niche manufacturers
• Particularly efficient vehicles qualify for super-credits.

Whether the Group meets its targets, however, depends crucially on its technological and financial capabilities, which are reflected, among other things, in our drivetrain and fuel strategy.

The European Commission and UNECE (United Nations Economic Commission for Europe) are currently working to introduce a globally harmonized driving cycle.

The most important European regulations also include Real Driving Emissions (RDE) for passenger cars and light commercial vehicles. The regulation is expected to be finalized by mid-2016 and is intended to set limits for nitrogen oxide and particulate emissions in the EU effective from September 2017. These limits must be complied with in real road traffic. This means the RDE test procedure differs fundamentally from the Euro 6 standard still in force, which stipulates that the limits are compulsory for testing. The RDE regulation is intended primarily to improve air quality in urban areas and areas close to traffic. It will lead to stricter requirements for exhaust gas aftertreatment for passenger cars and light commercial vehicles.

The other main EU regulations affecting the automotive industry include

• EU Directive 2007/46/EC establishing a framework for the approval of motor vehicles
• EU Directive 2009/33/EC on the promotion of clean and energy-efficient road transport vehicles (Green Procurement Directive)
• EU Directive 2006/40/EC relating to emissions from air-conditioning systems in motor vehicles
• The Passenger car energy consumption labeling Directive 1999/94/EC
• The Fuel Quality Directive (FQD) 2009/30/EC updating the fuel quality specifications and introducing energy efficiency specifications for fuel production
• The Renewable Energy Directive (RED) 2009/28/EC introducing sustainability criteria
• The Revised Energy Taxation Directive 2003/96/EC updating the minimum tax rates for all energy products and power.

The implementation of the above-mentioned directives by the EU member states serves to support the CO₂ regulations in Europe. As well as vehicle manufacturers, they are also aimed at the mineral oil industry, for example. Vehicle taxes based on CO₂ emissions are having a similar steering effect; many EU member states have already incorporated CO₂ elements into their rules on vehicle taxation.

Heavy commercial vehicles first put into operation from 2014 onwards are already subject to the stricter emission requirements under the Euro 6 standard in accordance with EU Regulation No 582/2011. The EU is also preparing a further CO₂ regulation for heavy commercial vehicles at the same time as the CO₂ legislation for passenger cars and light commercial vehicles. Simply setting an overarching limit for these vehicles – like that in place for passenger cars and light commercial vehicles – is just one option for these vehicles and would require an extremely complex set of rules because of the wide range of variants. With the support of independent scientific institutions and the European Automobile Manufacturers’ Association (ACEA), the European Commission is currently preparing a simulation-based method called VECTO (Vehicle Energy Consumption Calculation Tool), which can be used to determine the CO₂ emissions of heavy commercial vehicles of over 7.5 tonnes based on their typical use (short-haul, regional, distribution and long-haul trips, service on construction sites and as municipal vehicles, city buses, intercity buses and coaches). This method is expected to be the basis for the European Commission’s concrete regulatory proposals, which are anticipated during 2016. Probably starting 2018 (2019 at the latest), a CO₂ declaration is expected to be compulsory for selected vehicle categories (initially long-haul and regional distribution vehicles, later also buses and other segments), with the captured data initially being used for customer information allowing comparability, for certification and for monitoring purposes. Further vehicle categories are likely to be included as time progresses.

Manufacturers of heavy commercial vehicles are urging the adoption of a system for quantifying CO₂ figures that is accessible to everyone and that looks at the vehicle as a whole and not simply at the engine or the tractor, but also at the trailers and bodywork. This transparency should increase competition for fuel and thus CO₂-efficient commercial vehicles and as a result decrease CO₂ emissions.

As part of its efforts to reduce the CO₂ emissions of heavy commercial vehicles, the European Commission has also adjusted the provisions regarding the maximum permissible dimensions and weights of trucks (Directive 1996/53/EC, the Weights and Dimensions Directive) and revised them through EU Directive 2015/719. As a consequence, cabs with a rounded shape and aerodynamic devices at the rear of the vehicle will enable future improvements in aerodynamics. At the same time, the driver’s field of vision will be extended by increasing the length of the cab in order to improve safety. In addition, the legislators increased the overall weight permitted for vehicles with alternative drive technologies by up to one tonne. The specific technical requirements for the development of aerodynamic and safer cabs have not yet been decided and will only be defined in the next two years.

The European commercial vehicles industry supports the goals of reducing CO₂ emissions and improving transport safety. However, it is not just new vehicles that matter for future CO₂ emissions; individual components are also important, such as reduced rolling resistance tires and the aerodynamic trim of the trailer, as are driving behavior, alternative fuels, transport infrastructure and transport conditions. Longer, heavier vehicles that can decrease fuel consumption and thus CO₂ emissions by up to 25% according to scientific studies by the Federal Highway Research Institute are currently also driving on German roads in a field trial.

In the Power Engineering segment, the International Maritime Organization (IMO) has implemented the International Convention for the Prevention of Pollution from Ships (MARPOL – MARine POLlution), with which limits on emissions from marine engines will be reduced in phases. Emission limits also apply, for example, under EU Directive 1997/68/EC and in accordance with the regulations of the US EPA (Environmental Protection Agency). As regards stationary equipment, there are a number of national rules in place worldwide that limit permitted emissions. On December 18, 2008, the World Bank Group set limits for gas and diesel engines in its “Environmental, Health, and Safety Guidelines for Thermal Power Plants”, which are required to be applied if individual countries have adopted no or less strict national requirements. In addition, back in 1979, the United Nations adopted the Convention on Long-range Transboundary Air Pollution, setting limits on total emissions as well as nitrogen oxide limits for the signatory states (including all EU states, other countries in Eastern Europe, the USA and Canada). Enhancements to the product portfolio in the Power Engineering segment focus on improving the efficiency of the equipment and systems.

The allocation method for emissions certificates changed fundamentally when the third emissions trading period (2013–2020) began. As a general rule, all emission allowances for power generators have been sold at auction starting in 2013. For manufacturing industry and certain power generation installations (e.g. combined heat and power installations), a portion of the certificates are allocated free of charge on the basis of benchmarks applicable throughout the EU. The portion of certificates allocated free of charge will gradually decrease as the trading period progresses: the remaining quantities required will have to be bought, and thus paid for, at auction. Furthermore, installation operators can partly fulfill their obligation to hold emission allowances using certificates from climate protection projects (Joint Implementation and Clean Development Mechanism projects).

In certain (sub-)sectors of industry, there is a risk that production will be transferred to countries outside Europe due to the amended provisions governing emissions trading (a phenomenon referred to as “carbon leakage”). In these cases a consistent quantity of certificates will be allocated free of charge for the period from 2013 to 2020 on the basis of the pan-EU benchmarks. The automotive industry was included in the new carbon leakage list that came into effect in 2015. It is still unclear to what extent the Volkswagen Group will receive additional certificates free of charge.

In 2013, the European Commission decided to initially withhold a portion of the certificates to be auctioned and to only release them for auction at a later date during the third trading period (backloading). This temporary scarcity of certificates, which could lead to a price increase, will be directed into a market stability reserve, to be established in 2018. The reserve should in future correct any imbalance between the supply of and demand for certificates in emissions trading.

As well as the European Union, other countries in which the Volkswagen Group has production sites are also considering introducing an emissions trading system. Seven pilot projects are running in China, for example, although they have not so far affected the Volkswagen Group. The Chinese government plans to expand those pilot projects into a national emissions trading system.