EU will tax manufacturers for excess emissions and collect individual consumption data from vehicles in order to meet climate change goals.

By Jörn Kassow and Patrick Braasch

The EU is setting stricter CO2 emission standards for new passenger cars and light commercial vehicles (LCVs). A new regulation on CO2 emission standards (Regulation (EU) No 2019/631), replacing the past regulations (EC) No 443/2009 and (EU) No 510/2011, was published in the Official Journal on 25 April 2019 and will enter into force with effect from 1 January 2020. From 2025 onwards, the average CO2 emissions of new passenger cars and LCVs must be reduced by 15% compared to 2021 levels. By 2030, the average emissions must be reduced by 37.5% for passenger cars and 31% for LCVs, in each case compared to 2021 levels.

These average emissions targets apply to each manufacturer’s (or group of connected manufacturers’) EU-wide fleet of new passenger cars and LCVs. The regulation will reward manufacturers with less stringent CO2 targets if they meet benchmarks regarding their respective fleet’s share of zero- and low-emission vehicles (2025: 15% for both passenger cars and LCVs, 2030: 35% for passenger cars and 30% for LCVs). Furthermore, manufacturers may enter into pooling arrangements (subject to competition law restrictions) for meeting their emissions targets. These arrangements will allow leaders in zero- and low-emission vehicles to capitalise on their below-average emissions by pooling with, and effectively selling their emissions savings to, manufacturers of more traditional, i.e., CO2-intensive passenger cars and LCVs. Manufacturers can also apply to the Commission for consideration of CO2 savings achieved through the use of innovative technologies. The Commission may grant temporary derogations from their specific emissions targets to certain niche manufacturers.

Each year, the Commission will impose an excess emission premium on any manufacturer whose average emissions exceed its specific emissions target. For each excess gram per kilometer of CO2 emissions, the premium will amount to €95 per newly registered passenger car or LCV. For example, a manufacturer whose fleet on average exceeds the specific emissions target by 10 g/km CO2, and who registered 100,000 new passenger cars and/or LCVs in the relevant year, will be subject to a premium of €95 million. The excess emissions premium, which is essentially a CO2 tax, will be considered as revenue for the general EU budget.

In addition, the Commission will publish annual lists indicating, inter alia, each manufacturer’s average specific CO2 emissions and excess emissions. This name-and-shame approach is designed to increase consumer pressure on manufacturers of high emission passenger cars and LCVs.

CO2 emissions from passenger cars and LCVs will be determined pursuant to the worldwide harmonised light vehicles test procedure (WLTP). The Commission will monitor and assess the real-world representativeness of these emissions for each manufacturer and, for this purpose, collect data on the real-world CO2 emissions and passenger cars’ and LCVs’ fuel or energy consumption using on-board consumption monitoring devices. Starting from 2021, manufacturers and/or national authorities must, at regular intervals, provide the following information about each new passenger cars and LCVs to the Commission, inter alia:

  • Vehicle identification numbers
  • Fuel and/or electric energy consumption
  • Total distance travelled

If the gap between real-world emissions and emissions determined pursuant to the WLTP continues to increase, the Commission may take appropriate measures to adjust the manufacturer’s average specific emissions targets as of 2030. It is worth noting that the requirement to provide individual fuel consumption data raises data protection and privacy questions that may also need to be addressed by the European courts in the coming years.

The regulation will provide incentives for manufacturers to develop CO2-efficient passenger cars and LCVs, while putting additional pressure on manufacturers of traditional, i.e., CO2-intensive passenger cars and LCVs. As the regulatory approach focuses on average emissions, manufacturers likely will pursue strategies to increase the number of zero- or low-emission passenger cars and LCVs that are registered, e.g., by providing consumer discounts or by cooperating with car sharing platforms. Latham will continue to monitor and report on subsequent developments.