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 the EU Regulation governing CO₂ emissions from passenger cars (443/2009/EC) and the EU Regulation governing light commercial vehicles of up to 3.5 tonnes (510/2011/EU), 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 is being introduced in stages: 80% of cars had to meet this requirement in 2014 and the entire fleet must meet it in 2015. The EU Regulation adopted in 2014 (333/2014/EU) states that, from 2021 onwards, the emissions of European passenger car fleets may be 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 registrations in Europe may not exceed the figure of 175 g CO₂/km, a target required to be met by 70% of the fleet in 2014. From 2020 onwards, the limit under the EU Regulation adopted in 2014 (253/2014/EU) 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 set out the CO₂ regime for the period after 2020 by the end of 2015. 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.

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

A regulation is being drawn up to further reduce nitrogen oxide and fine particulate emissions and hence improve air quality. Experts from Volkswagen are involved in this process.

At the same time, regulations governing fleet fuel consumption are being developed or introduced outside the EU28 as well – in Switzerland, Japan, Taiwan, South Korea, India, Brazil, Mexico, Canada and Saudi Arabia, for example. The existing regulations in China for the period 2012–2015 (“Phase III”) governing consumption with a target of 6.9 liters/100 km by 2015, will progress to “Phase IV”, with a fleet target of 5.0 liters/100 km by 2020 for the period 2016–2020. 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 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 emission limits, which would entail severe sanctions. In principle, the EU legislation permits some flexibility. For example:

• Excess emissions and emission shortfalls may be offset between vehicle models
• 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 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 effect; many EU member states have already incorporated CO₂ elements into their rules on vehicle taxation.

Heavy commercial vehicles put into operation from 2014 onwards are already subject to the stricter emission requirements under the Euro 6 standard in accordance with EU Regulation 595/2009/EC. 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 possible option for these vehicles and would require an extremely complex set of rules because of the wide range of variants. With the support of 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 3.5 tonnes based on their typical use (short- and long-haul trips, service on construction sites and as municipal vehicles, city buses and coaches). This method is expected to be the basis for the European Commission’s concrete regulatory proposals, which are anticipated by the end of 2015. From 2018 onwards, a CO₂ declaration is expected to be compulsory for selected vehicle categories (long-haul and regional distribution vehicles as well as coaches), with the captured data initially being used for customer information and monitoring purposes. Further vehicle categories are likely to be included going forward.

In order to increase transparency and therefore competition in the market, 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.

As part of its efforts to reduce the CO₂ emissions of heavy commercial vehicles, the European Commission is also planning to revise the provisions regarding the maximum permissible dimensions and weights of trucks (Directive 96/53/EC, the Weights and Dimensions Directive). According to the proposals, having cabs with a rounded shape and attaching aerodynamic devices at the rear of the vehicle should enable future improvements in aerodynamics. 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 aim to increase the overall weight permitted for vehicles with alternative drive technologies by up to one tonne.

The European commercial vehicles industry supports the goals of reducing CO₂ emissions and improving transport safety. However, manufacturers take a critical view of the simplified focus on improvements in vehicle aerodynamics, which also conflict with the applicable provisions on type approval. They believe, instead, that it is essential to fundamentally amend the directive with regard to the length of the cab and thus the installation space available in the vehicle so that it is workable in practice.

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), which aims to reduce marine pollution and phases in limits on emissions from marine engines. Emission limits also apply, for example, under EU Directive 1997/68/EC and the US EPA (Environmental Protection Agency) marine regulations. 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 are focusing 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 for free 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 comes 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 shortage of certificates during the trading period may cause certificate prices to rise.

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 have started 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.