Mandatory vehicle emissions or fuel economy standards have been operating for at least a decade in the US, Japan and China. Many countries are accelerating their rate of emissions intensity improvement with successive standards.

All countries allow varied targets across the light vehicle fleet that are based on an attribute such as vehicle mass or size. None applies a flat standard to which all vehicles must comply regardless of size or weight. In addition, soon all four major markets (the US, the EU, China and Japan) will take a flexible, corporate-average approach to standards, with Japan switching to fleet averaging for its 2020 target.

The detail of standard design varies across developed and emerging markets. The US and EU have more flexible yet more administratively complex designs, including trading or pooling arrangements, and have financial penalties for non-compliance. All major markets have at least some flexibility mechanisms (such as banking and borrowing arrangements) that lower the costs to suppliers of meeting targets.

A.1 Introduction

This appendix provides an overview of the implementation of vehicle emissions standards in other jurisdictions, including the approaches other countries have taken to each of the key design issues for standards. Understanding how standards have been implemented elsewhere provides a useful input into standard design for Australia.

Over 70 per cent of light vehicles sold in the world today are subject to vehicle emissions standards (CCA 2014a, p. 164). In several cases, including the US, Japan and China, mandatory standards have been operating for at least a decade. The share of vehicles covered by standards is expected to grow, with standards currently under investigation in emerging markets such as Indonesia and Thailand (ICCT 2014).

Standards have been introduced around the world to contribute to energy affordability, energy security and emissions reduction objectives. The US first introduced light vehicle fuel economy standards in the 1970s as part of its response to oil price shocks. After an initial period of improvement, the standards were static for decades, but were reinvigorated in 2012 with the joint objectives of improving fuel economy and reducing CO2 emissions. The EU has focused on reducing emissions as part of a broader climate change strategy and introduced mandatory targets in 2009 after previous voluntary targets were not met (EC 2009, L 140/2).

The countries analysed in this appendix account for the majority of the global vehicle market and have implemented, or committed to implement, mandatory vehicle emissions standards. The analysis focuses on the top four markets—the EU, the US, Japan and China—which together make up about 68 per cent of global vehicle sales (OICA 2014). Other countries are discussed where relevant.

The rest of this appendix:

  • provides an overview of standards in other countries
  • discusses the design choices other countries have made and the reasons for their choices.

A.2 Overview of standard design and ambition in other countries

Table A.1 and Figure A.1 summarise passenger vehicle emissions standards in major countries. They show:

  • The EU, the US, Japan and India have targets to at least 2020, with the US and EU having legislated and proposed targets to 2025, respectively. China has legislated targets to 2015 and proposed a 2020 target. Canada has a target for 2016 and has proposed regulations that more or less mirror the US’s 2025 target, although they have not yet been adopted.
  • The legislated basis of the standard differs between countries. Standards are applied in two forms—as a limit on either greenhouse gas emissions (GHGs) per distanced travelled or fuel consumption per distanced travelled. Some countries are motivated to implement standards to reduce fuel use, some CO2 emissions, and some both. The direct physical relationship between the two means that both will be achieved regardless.
  • Over the period to 2020, the EU and Japan have the most ambitious standards in absolute terms. Standards in China and the US capitalise on the faster rates of reduction possible when starting with a less efficient fleet; their 2020 standards are expected to take these nations from efficiency levels similar to Australia’s to levels much closer to the global leaders.
  • Countries with the largest vehicle markets, including the US and China, will have to accelerate their average improvement to meet their 2020 targets. The US will need to more than double its historical rate of improvement of 1.9 per cent per year to meet its 2020 target, and China will have to almost triple its historical rate of 2.1 per cent to meet its proposed 2020 target. The EU achieved its 2015 target two years early (EC 2014a); it will still have to improve by 4.1 per cent per year to meet its 2020 target, stepping up to 6.5 per cent per year to meet its proposed 2025 goal. Japan achieved its 2015 target four years early and thus requires a much lower annual reduction rate of 1.4 per cent to meet its 2020 target.
  • This general increase in global ambition means that the gap between Australia and others could widen. Between 2009 and 2013, Australia’s new passenger vehicle emissions fell at an annualised rate of 3.5 per cent per year—faster than some other major countries. As discussed in Chapter 3, it is difficult to project the extent to which more ambitious standards elsewhere will raise the rate of improvement of Australia’s new light vehicle emissions in the absence of standards here. It is reasonable to expect Australia will benefit to some extent, given it already imports almost all its light vehicles, and will become a full importer after 2017. However in the absence of standards, Australia could continue to miss out on the most efficient models and not keep pace with improvements elsewhere. Even if Australia’s new passenger vehicle efficiency continued to improve at the rate of the past five years, it would still lag behind other major countries (Figure A.1).

Table A.1: Global comparison of standards for passenger vehicles

Jurisdiction and first compliance year Basis for standard Future target year/s Equivalent CO2 target (g CO2/km) Equivalent fuel economy target (L/100km) Annualised percentage reduction (during each compliance period)^ Annualised percentage reductions (various historical periods)
EU 2009 CO2 emissions 2015 2020* 2025** 130 95 68–78** 5.6 4.1 2.9–3.3 Achieved in 2013 4.1 3.9–6.5 2000–09: 1.8 2009–13: 3.4
United States 1975 Fuel economy and GHG 2020 2025 121 93 5.2 4.0 5.1 5.1 2000–13: 1.9
Japan 1985 Fuel economy 2015 2020 125 105 5.3 4.5 Achieved in 2011 1.4 2000–11: 3.2
Republic of Korea 2006 Fuel economy and GHG 2015 153 6.5 2.2 2003–11: 4.0
China 2004 Fuel economy 2015 2020** 161 117** 6.9 5.0 2.3 6.2 2002–12: 2.1
India 2016 CO2 emissions 2016 2021 130 113 5.6 4.8 1.2 2.8 2006–12: 1.9
Canada 2011 GHG 2016 2025** 147 93** 6.3 4.0 5.2 5.0 2000–13: 1.3
Mexico 2012 Fuel economy and GHG 2016 153 6.5 3.8 2008–11: 2.6

Note: CO2 emissions and fuel economy for all standards normalised to European test cycle (NEDC). The coverage of ‘passenger vehicles’ differs by country—SUVs are included in the EU, Japan, Korea, China and India, and covered under ‘light trucks’ in North America. All countries except Korea and India also have targets for light commercial vehicles (or light trucks). ^For current compliance periods, annualised rate of reduction is calculated from 2013; EU 2020 target is calculated from 2013; Japan 2020 target is calculated from 2011; India 2016 target is calculated from 2012. *This target has a one-year phase-in period; 95 per cent of vehicles must comply by 2020 and 100 per cent by 2021. **Denotes target proposed or in development; Canada follows the US 2025 target in its proposal, but the final target value would be based on the projected fleet footprints. GHG is greenhouse gases.
Source: Adapted from ICCT 2014 and official sources listed under References

Figure A.1: Passenger vehicle CO2 emissions intensity, selected countries, 2000–25

Figure A.1 is a line chart comparing Australia’s historical and projected new passenger vehicle emissions intensity with other countries. Australia is the least efficient country in the sample and, in the absence of standards, the gap between Australian and other countries is projected to widen over time. Japan and India have targets to at least 2020; the US and EU have legislated and proposed targets to 2025, respectively. China has legislated targets to 2015 and proposed a 2020 target. Canada broadly mirrors the US. The Republic of Korea has targets to 2015, and Mexico has targets to 2016.

Note: CO2 emissions and fuel economy for all standards normalised to European test cycle (NEDC). The coverage of ‘passenger vehicles’ differs by country; SUVs are included in the EU, Japan, Republic of Korea, China and India, and covered under ‘light trucks’ in North America and Mexico. The EU met its 2015 target in 2013, so the EU trajectory to its next target year (2020) is a straight line from actual 2013 new passenger vehicle emissions intensity to the 2020 target; Japan, which met its 2015 target in 2011, has a similar approach. EU 2025 target is a mid-point between proposed targets of between 68 and 78 g CO2/km. The BAU projection for Australia is the rate of passenger vehicle improvement recorded from 2009–13 (3.5 per cent).
Source: Adapted from ICCT 2014 and, for Australia, NTC 2014

A.3 Design features for vehicle emissions standards—international practice

Chapter 5 set out the design choices that Australia must make to implement a standard. This section summarises the practices in other jurisdictions to help inform Australia’s choices. There is some variation in the design of vehicle emissions standards in other countries, and both the similarities and differences between countries are informative for Australia. As standards are implemented in both developed and emerging markets, much of the variation reflects different appetites for more flexible but potentially more administratively complex designs; there is also evidence of convergence across countries on some major issues such as a fleet-average approach to standards. Table A.2 at the end of this appendix provides a detailed comparison between the top four light vehicle markets of each of these design choices.

A.3.1 Coverage and liability

A.3.1.1 Coverage

All light vehicle emissions standards applied in other countries cover passenger vehicles at a minimum; most also cover light commercial vehicles. Upper weight limits are usually set to differentiate passenger vehicles and light commercial vehicles from heavy trucks and coaches. The classification and delineation of vehicle boundaries differs between countries. For example, larger vehicles such as four-wheel drive and sports utility vehicles (SUVs) are classified as passenger vehicles in some countries and as light trucks or light commercial vehicles in others.

All countries analysed that have targets for both passenger vehicles and light commercial vehicles (or light duty trucks) have ‘split’ targets. Under split targets, the light commercial vehicle category, which is usually larger and/or heavier, has a higher emissions intensity level target than passenger vehicles. Other countries regulate passenger vehicles only and have an upper weight limit. While split targets recognise the practical differences between different vehicles, the same outcome can be achieved under a single target (see Chapter 5 for further discussion).

A.3.1.2 Liability and exemptions

Vehicle manufacturers are generally vertically integrated global businesses and, in each of the schemes analysed, liability rests with the domestic parent company, or manufacturer’s agent, rather than (say) distributors, individual factories or sales offices. The EU permits suppliers to ‘pool’ their fleets to meet a combined target. Many countries have exemptions for small manufacturers and some exempt particular types of low-emissions vehicles.

In the EU and US, weaker targets are available for manufacturers producing small volumes of cars, which are applied upon application. In addition, in the US, those with fewer than 1,000 employees are automatically exempt from liability.

A.3.2 Standard design and measurement

A.3.2.1 Attribute options

All countries analysed have adopted an attribute-based approach, where the target for a vehicle is defined relative to a vehicle attribute. The two types of attribute used are vehicle mass (the weight of the vehicle) or vehicle size (usually measured as ‘footprint’). While mass is more strongly correlated to fuel consumption, footprint is considered to better relate to consumer utility, and facilitates a more technology-neutral approach to compliance (see Chapter 5).

The EU, the US and China have implemented corporate average targets, so a manufacturer can produce new vehicles that fall short of the standard if they also produce models that surpass it. Japan will move to a corporate average approach for its 2020 target.

  • The EU uses a mass-based corporate average target for each supplier. The EU did consider a footprint approach for its 2020 targets, but continued with the mass attribute due to limited availability of footprint data at the time the standard was set. It recommended that the footprint attribute should be considered in a future review (EC 2014b, L 103/15).
  • North American countries have adopted a footprint-based approach to corporate average targets.
  • Japan currently uses an approach that sets mass targets by class, but is shifting to mass-based corporate average targets for its 2020 target (Government of Japan 2011). The current system identifies the most fuel-efficient automobile in each weight class and designates it the ‘top runner’. Fuel consumption targets are then set at the level of the top runner. All other vehicles are required to surpass the new target values for their weight class within three to 10 years.
  • China has corporate average mass-based targets. It adopted a corporate average approach in 2012 for its Phase III standards to 2015, and is expected to use the same approach for its 2020 target. The IEA has reported concerns that a shift to heavier vehicles is occurring under the current approach (IEA 2012b, p. 26). As discussed in Chapter 5, mass-based standards can remove the incentive to reduce vehicle weight to comply with standards.

A.3.2.2 Basis of standard and CO2 emissions and fuel consumption testing

The major countries with standards in place use the data from laboratory testing of CO2 emissions and fuel consumption to underpin the standards. Varying types of laboratory testing are used around the world, but in each country a single test is used for CO2 emissions and fuel economy standards, as well as for testing compliance with air quality standards. The two main test types are the New European Drive Cycle (NEDC) and the US Federal Test Procedure (FTP-75). The EU, Australia, China and India use the EU test; the US, Korea, Canada and Mexico use the US test. Both are ‘combined cycle’ tests; that is, CO2 emissions and fuel consumption of each model are measured under simulated urban and non-urban conditions and the results are combined.

A.3.3 Timing and compliance

A.3.3.1 Timing

There are a number of different options for compliance, with a spectrum ranging from annual to periodic compliance; other variations, such as cumulative compliance over a number of years, are also possible. The US requires annual compliance with its targets, and China set specific interim targets between 2012 and 2015 under its Phase III standards. The EU and Japan do not have interim targets for their 2015 and 2020 targets, although the EU recently announced a one-year phase-in period for its 2020 target (EC 2014b). The periodic approach does not mandate an annual rate of improvement. The US approach has provisions for banking and trading (see below) that assist in allowing annual targets to be met at least cost.

A.3.3.2 Flexibility mechanisms—banking, borrowing and trading

All major markets have some flexibility mechanisms that lower the costs to suppliers of meeting targets:

  • The US permits liable parties to bank previously accrued credits and trade excess credits with other parties (within specified time frames). It also allows liable parties to borrow from future years to meet compliance obligations.
  • The EU standards allow manufacturers to ‘pool’ their emissions under certain conditions, which in effect is like a trading system.
  • Under its Phase III standards, China allows banking of excess credits achieved in a compliance year and they can be used within the phase period (2012–15).
  • Japan currently allows manufacturers to ‘pass’ credits between their own models in different weight classes. For example, credit given for a model that surpasses its weight-class target can be passed to a model in another weight class to help meet its target.

Additional incentives are used in other countries to encourage the supply of more efficient vehicles.

‘Multipliers’ are awarded to vehicles that satisfy low-emissions benchmarks or use specific technologies or fuels claimed to reduce CO2 emissions relative to conventional vehicles. Technology or fuel-specific adjustments apply in the US, China and the EU. In the US, multipliers for specified alternative drivetrains start at 2.0 in 2017 and decline to 1.5 by 2021. In the EU, the target for vehicles capable of using 85 per cent ethanol (E85) is reduced by 5 per cent. Multipliers for vehicles below a specific low-emissions benchmark are given to vehicles in the EU and China. For example, the EU awards ‘super-credits’ for sub-50 g CO2/km vehicles. These started at 3.5 in 2012 and decline each year to zero additional credit by 2016; they will start again at 2.0 in 2020, declining to zero additional credit in 2023.

‘Off-cycle’ credits are awarded for emissions-reducing technologies whose contributions are measurable but not covered by test cycles. The EU and US award off-cycle credits for technologies such as efficient lights, solar panel charging and active aerodynamics. The US also awards credits for improvements to air-conditioning systems. The emissions intensity of eligible models is effectively reduced by the number of credits they receive, making the standard easier to achieve. Limits are applied in both the EU and US, largely because of limited data about, and difficulties in testing, the emissions performance of these technologies.

A.3.3.3 Penalties

All countries with standards employ some type of penalty for non-compliance, with the form and stringency of penalties varying across countries.

  • In the US and EU, a financial penalty applies and is based on each unit (g CO2 per km or mile) over the target, multiplied by every non-compliant model sold by a manufacturer (in the US) or all models sold by a manufacturer (in the EU).
  • Financial penalties are lower in Japan with a penalty of ¥1 million (about AUD$10,800), which is not tied to the extent of non-compliance. Suppliers are also required to announce publicly that they have failed to meet the target.
  • There are no financial penalties in China; manufacturers are punished through a large loss of flexibility in future compliance. If a manufacturer does not achieve its corporate-average target in a given year, models that do not meet their individual weight-based target cannot be sold the next year. In addition, as in Japan, suppliers are required to publicly announce non-compliance.

Table A.2: Comparison of vehicle emissions standard design features in top four markets

Country Basis of standard Coverage Liability Target; approach Test procedure Timing Flexibility—banking, borrowing and trading Penalties Additional credits and other incentives
EU CO2 Passenger (includes SUVs), light commercial vehicles
  • <10,000 vehicles produced can apply for a derogation (partial or full exemption)
  • 5% higher target for E85 vehicles
  • Manufacturer pooling allowed
Split; vehicle mass NEDC Periodic Manufacturers are allowed to pool together to meet a combined target €95 for each gram above target multiplied by all models sold. Called ‘excess emissions premium’
  • Multipliers for vehicles under 50 g CO2/km of 3.5 down to 1 between 2012 and 2016, and 2 down to 1 between 2020 and 2023
  • Can apply for ‘eco-innovations’ up to 7 g CO2/km—e.g., LEDs, advanced alternators, improved battery systems
United States Fuel economy and GHG Passenger, Light-duty trucks (includes SUVs)
  • <50,000 vehicles can apply for less stringent targets until 2016, and transitional leniency until 2021
  • <5,000 vehicles produced can be exempt at least until 2017
  • <1,000 employees default exemption
Split; vehicle footprint US combined Annual Credits may be carried forward or banked up to 5 years, or carried back 3 years to cover a deficit (see ‘penalties’) US$5.50 for each 10th of a mpg of each new vehicle sold above target. The ability to ‘carry back’ credits (see ‘banking’) effectively means penalties can be avoided if deficits are made up within 3 years
  • Plug-in hybrid electric vehicles (PHEVs) zero carbon-rated
  • Multiplier for alternative drivetrain vehicles of 2 down to 1.5 between 2017 and 2021
  • Additional credit for improvements to AC systems
  • Off-cycle credits given for solar panel charging, engine start-stop or active aerodynamics. Pre-approved list for 2014 and later
Japan Fuel economy Passenger   Split; vehicle mass JC08 Periodic Suppliers can ‘pass’ credits between their own models in different weight classes Public announcement and single penalty of up to ¥1 million
  • PHEVs zero carbon rated
China Fuel economy Passenger and SUVs   Fleet-wide, vehicle mass NEDC Annual Banking: excess credits achieved in a compliance year can be used within the phase period (2012–15) Models that do not meet their category target cannot be sold the following year. Public announcement also required
  • Electric vehicles (EVs), PHEVs and fuel cell vehicles (FCVs) with at least 50 km electric range are zero fuel consumption-rated and counted 5 times
  • Multiplier of 3 for ‘super-efficient vehicles’ (not including EVs and FCVs) less than 2.8l/100 km fuel consumption

Source: Adapted from ICCT 2014 and official sources listed under References

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