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Manufacturers Breathing Easy Under New E.U. CO2 Rules

Environmentalists Blast The Deal As Timid, Complacent.

It looks like the European Union’s rules on carbon dioxide (CO2) emissions won’t be troubling car manufacturers too much.

The original target of an average 130 g/km will be phased in from 2012 to 2015, while penalties for non-compliance are likely to be much less onerous than first thought.

Today’s fleet average is just under 160 g/km.

The reaction from environmentalists is perhaps as good a way as any to gauge how the industry emerges from this latest set of regulations.

“MEPs capitulate on deadlines, targets and penalties on fuel efficiency deal” said the headline in the European Federation for Transport and Environment’s (T&E) latest newsletter.

“The purpose of this law should have been to fundamentally alter the direction of the car industry in the long term by setting a clear roadmap for cutting emissions in half. In the end, precious little will change in the short term and the language on the long-term targets is not enough to guarantee that car makers will invest now in the technology needed to make the required leap,” said T&E director Jos Dings.

Greenpeace and Friends of the Earth had similar reactions.

From the other side of the divide, Citigroup Global Markets agreed.

In a report entitled “Toothless E.U. plan for Autos”, Citigroup Global Markets said new penalties are unlikely to be paid.

“The original 2012 C02 target of 130 g/km looks set to be phased in with full compliance not required until 2015 and full penalties not until 2019……. Only Porsche of major automakers seems incapable of reaching targeted fleet average CO2 levels,” said Citigroup auto analyst John Lawson.

According to Lawson, the E.U regulations might not have much impact, but ad hoc local and national taxes and rules will be more intrusive, forcing car makers to produce smaller and more fuel efficient cars.

IHS Global Insight analyst Rebecca Wright said the 130 g/km figure will apply to 65 per cent of new cars sold in January 2012, rising to 75 per cent in January 2013, 80 per cent in January 2014, and 100 per cent from 2015. Fines payable for excess emissions will stand at €5 per car for the first gram of CO2 missed in 2012 rising to €95 in 2019. Niche manufacturers, defined as those making fewer than 300,000 a year, will not have to contribute to the 130 g/km average, but will have to reduce fleet emissions by 25 per cent compared with 2007 levels. It’s not clear yet whether this will start in 2012 or 2015.

The agreement still needs to be approved by the European Parliament, and could be formally set by the end of 2008.

IHS Global Insight’s Wright wasn’t so sure that this will be easy for carmakers.

Extremely tough
“The reality is that carmakers still have an extremely tough job ahead of them to meet these new targets, with far greater average emission cuts required in the next three years than have ever been made before,” she said.

Although Citigroup’s Lawson doesn’t believe many manufacturers will fall foul of fines, there is still considerable work to do.

“There remain some significant distances for certain makers to travel in this effort, 15 per cent at VW, over 20 per cent at Mercedes and over 45 per cent at Porsche, on our calculations. BMW has proved that it is possible to reduce emissions decisively with simple energy management measures, optimised engines and start-stop systems. These methods have proved dilutive to margins but have already moved substantially towards the target,” Lawson said.

Neil Winton – December 15, 2008

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