Environmental protection regulations

The specific emission limits for all new passenger car and light commercial vehicle fleets for brands and groups in the EU for the period up to 2019 are set out in Regulation (EC) No 443/2009 on CO₂ emissions from passenger cars and Regulation (EU) No 510/2011 on light commercial vehicles of up to 3.5 tonnes, which came into effect in April 2009 and June 2011 respectively. These 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 market.

The average CO₂ emissions of manufacturers’ new European passenger car fleets have not been allowed to exceed 130 g CO₂/km since 2012. Compliance with this requirement was introduced in phases; from 2015 the entire fleet had to meet this limit. Regulation (EC) No 333/2014, which was adopted in 2014, states that the average emissions of European passenger car fleets may be no higher than just 95 g CO₂/km from 2021 onwards; in 2020, this emissions limit will already apply to 95% of the fleet.

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. Under this regulation, the average CO₂ emissions of new vehicle registrations in Europe may not exceed 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.

The European Commission intends to publish a regulatory proposal for the CO₂ regime after 2020 in the second half of 2017. Policymakers 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 making additional, 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 in this country, 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, which set a fleet target of 6.9 liters/100 km for the period 2012–2015 (Phase III), were continued into Phase IV for the period 2016–2020, with a target of 5.0 liters/100 km at the end of this period. Preparations for legislation up to 2025 (Phase V) have begun. Due to the extension of greenhouse gas legislation in the USA, uniform fuel consumption and greenhouse gas standards will continue to apply in all federal states in the period from 2017 to 2025. The law was signed by the US president in mid-2012.

The increased regulation of fleet-based CO₂ emissions and fuel consumption makes it 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, since these would entail severe sanctions. Volkswagen continues to regard diesel technology as an important element in the fulfillment of CO₂ emissions targets.

EU legislation permits some flexibility in fulfilling the emissions targets, 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 contained in the vehicle and that apply outside the test cycle (eco-innovations)
• Special rules are in place for small series producers and niche manufacturers
• Particularly efficient vehicles qualify for super-credits.

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

In the EU, a new test procedure for determining pollutant and CO₂ emissions as well as fuel consumption in passenger cars and light commercial vehicles known as the Worldwide Harmonized Light-Duty Vehicles Test Procedure (WLTP) will be applied to new vehicle types from fall 2017 and to all new vehicles from fall 2018.

A further important European regulation pertains to Real Driving Emissions (RDE) for passenger cars and light commercial vehicles. The packages of legislation are currently being elaborated; uniform limits for nitrogen oxide and particulate emissions will then apply across the EU from September 2017. These limits must be complied with in real road traffic, making the RDE test procedure fundamentally different from the Euro 6 standard still in force, which stipulates that the limits are compulsory on the test bed. 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 in 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 Car 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. These are aimed not only at vehicle manufacturers, but also at other sectors such as the mineral oil industry. 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 of the Euro 6 standard in accordance with Regulation (EU) No 582/2011. At the same time as the CO₂ legislation for passenger cars and light commercial vehicles, the EU is also preparing more comprehensive regulation of CO₂ emissions in heavy commercial vehicles. Simply setting an overarching limit for these vehicles – such as that in place for passenger cars and light commercial vehicles – would require an extremely complex set of rules because of the wide range of variants. For this reason, the European Commission is working with independent scientific institutions and the European Automobile Manufacturers’ Association (ACEA), to prepare a simulation-based method called the Vehicle Energy Consumption Calculation Tool (VECTO). This 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). A legislative proposal for the CO₂ certification of heavy commercial vehicles and regulations on the reporting and monitoring of CO₂ figures are expected in the first half of 2017. A compulsory CO₂ declaration is expected for selected vehicle categories, probably from 2018 (initially long-haul and regional distribution vehicles, later also buses and other segments), with the captured data initially being used to enable the customer to compare information, and for certification and monitoring purposes. Further vehicle categories are likely to be included as time progresses. As part of its strategy to decarbonize transport, the European Commission has also announced that it will be presenting a proposal regarding the introduction of CO₂ standards for heavy commercial vehicles by the end of 2019. A public consultation that constitutes the basis for further regulatory measures ended in the fall of 2016. The European Commission placed particular emphasis on the role of the public sector in procuring low-emission or zero-emission vehicles, for example city buses.

Manufacturers of heavy commercial vehicles are urging the adoption of a system for quantifying CO₂ figures that looks at the vehicle as a whole and not simply at the engine or the tractor, and thus also includes the trailers and bodywork. This transparency should increase competition for more fuel-efficient and thus more 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. According to these, cabs with a rounded shape and air conduction devices at the rear of the vehicle will make it possible to improve aerodynamics in future. At the same time, the driver’s field of vision is to 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 safe cabs are currently being examined.

The European commercial vehicles industry supports the goals of reducing CO₂ emissions and improving transport safety. However, it is not just the vehicles themselves that affect future CO₂ emissions; individual components also play an important role, such as reduced rolling resistance tires and the aerodynamic trim of the trailer, and so do driving behavior, alternative fuels, transport infrastructure and transport conditions. As part of a field trial that took place up to the end of 2016, longer and 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, were also driving on German roads. Since the beginning of 2017, these longer vehicles have been used in regular operations in a certified road network. Digitalizing the transport system will also eliminate existing inefficiencies such as inadequate utilization of available load capacities, empty trips or unnetworked route planning: vehicles that move in networked, intermodal transport systems in which flows of traffic are optimized through the use of artificial intelligence save fuel and hence reduce CO₂ emissions.

In the Power Engineering segment, the International Maritime Organization (IMO) has introduced the International Convention for the Prevention of Pollution from Ships (MARine POLlution – MARPOL), with which limits on emissions from marine engines will be lowered in phases. A significant reduction of the sulfur content in marine fuel has been confirmed with effect from January 1, 2020. In addition, the IMO has decided on a number of emission control areas in Europe and in the United States/Canada that will be subject to special environmental regulations. Expansion to other regions such as the Mediterranean or Japan is already being planned; further regions such as the Black Sea, Alaska, Australia or South Korea are also in discussion. In addition, emission limits also apply, for example, under EU Directive 1997/68/EC and in accordance with the regulations of the US Environmental Protection Agency (EPA). 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 national requirements of their own, or ones that are less strict than those of the World Bank Group. In addition, the United Nations adopted the Convention on Long-range Transboundary Air Pollution back in 1979, setting limits on total emissions as well as nitrogen oxide 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 since 2013. For the 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 change 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”. A consistent quantity of certificates will be allocated to these sectors 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. As a result, individual plants at European locations of the Volkswagen Group will receive additional certificates free of charge by the end of the third trading period.

Back in 2013, the European Commission decided to initially withhold a portion of the certificates to be auctioned and not to release them for auction until 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 will serve to correct any imbalance between the supply of and demand for certificates in emissions trading in the fourth trading period.

In addition to the EU member states, 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 is planning a national emissions trading system that it says will enter into force as early as 2017. Experts consider this to be unrealistic, however. So far, no detailed information is available on the form the trading system will take.