Fuel For Thought
October 2018

Reducing CO2 emissions from passenger cars - Cars are responsible for around 12% of total EU emissions of carbon dioxide (CO2), the main greenhouse gas

▪ Reducing CO2 emissions from passenger cars - Cars are responsible for around 12% of total EU emissions of carbon dioxide (CO2), the main greenhouse gas

EU legislation sets mandatory emission reduction targets for new cars. This legislation is the cornerstone of the EU's strategy to improve the fuel economy of cars sold on the European market. Similar targets have been set for new vans.

The 2015 and 2021 targets represent reductions of 18% and 40% respectively compared with the 2007 fleet average of 158.7 grams of CO2 per kilometre (g CO2/km). The average emissions level of a new car sold in 2017 was 118.5 grams of CO2 per kilometre, significantly below the 2015 target of 130 g (provisional data). The 2015 target corresponds to a fuel consumption of around 5.6 litres per 100 km (l/100 km) of petrol or 4.9 l/100 km of diesel. Since monitoring started under current legislation in 2010, emissions have decreased by 22 g CO2/km (16%).

By 2021, phased in from 2020, the fleet average to be achieved by all new cars is 95 grams of CO2 per kilometre. This means a fuel consumption of around 4.1 l/100 km of petrol or 3.6 l/100 km of diesel.

Emission limits are set according to the mass of vehicle, using a limit value curve. The curve is set in such a way that the targets for fleet average emissions are achieved. The limit value curve means that heavier cars are allowed higher emissions than lighter cars. Only the fleet average is regulated, so manufacturers are still able to make vehicles with emissions above the curve, as long as these are balanced by vehicles below the curve.

The target of 130g/km was phased in between 2012 and 2015. From 2015 onwards, all newly registered cars must comply with the limit value curve. A shorter phase-in period will apply to the target of 95 g/km. 95% of each manufacturer's new cars will have to comply with the limit value curve in 2020, increasing to 100% in 2021.

If the average CO2 emissions of a manufacturer's fleet exceed its limit value in any year from 2012, the manufacturer has to pay an excess emissions premium for each car registered. This premium amounts to €5 for the first g/km of exceedance, €15 for the second g/km, €25 for the third g/km and €95 for each subsequent g/km. From 2019, the cost will be €95 from the first gram of exceedance onwards.

Innovative technologies can help cut emissions, but in some cases it is not possible to demonstrate the CO2-reducing effects of a new technology during the test procedure used for vehicle type approval. To encourage eco-innovation, manufacturers can be granted emission credits equivalent to a maximum emissions saving of 7 g/km per year for their fleet if they equip vehicles with innovative technologies, based on independently verified data.

The cars regulation gives manufacturers additional incentives (Super-credits) to produce vehicles with extremely low emissions (below 50 g/km). Each low-emitting car is counted as 3.5 vehicles in 2012 and 2013, 2.5 in 2014, 1.5 in 2015 and 1 from 2016 to 2019. Super-credits will also apply in the second stage of emission reductions, from 2020 to 2022. Each low-emitting car will be counted as 2 vehicles in 2020, 1.67 in 2021, 1.33 in 2022 and 1 from 2023. For this second step, there will be a cap on the scheme’s contribution to the target of 7.5 g/km per manufacturer over the three years.

Manufacturers can group together and act jointly to meet the emissions target. In forming a pool, manufacturers must respect the rules of competition law. The information they exchange should be limited to average specific emissions of CO2, their specific emissions targets, and their total number of vehicles registered.

Smaller manufacturers selling between 10,000 and 300,000 cars per year can apply for a fixed target of a 25% reduction from their 2007 average emissions for 2012-2019, and a 45% reduction from the 2007 level as of 2020. Those selling between 1000 and 10,000 cars per year can propose their own emissions reduction target (subject to approval by the Commission based on agreed criteria) if they cannot or do not wish to join a pool; fewer than 1000 cars per year, as well as special purpose vehicles – such as vehicles built to accommodate wheelchair access – are excluded from the scope of the legislation.

In November 2017, the Commission presented a legislative proposal setting new CO2 emission standards for cars and vans for the period after 2020.

▪ The Dirt on Clean Electric Cars - New research shows some drivers might spew out less CO2 with a diesel engine.

Beneath the hoods of millions of the clean electric cars rolling onto the world’s roads in the next few years will be a dirty battery. Every major carmaker has plans for electric vehicles to cut greenhouse gas emissions, yet their manufacturers are, by and large, making lithium-ion batteries in places with some of the most polluting grids in the world.

By 2021, capacity will exist to build batteries for more than 10 million cars running on 60 kilowatt-hour packs, according to data of Bloomberg NEF. Most supply will come from places like China, Thailand, Germany and Poland that rely on non-renewable sources like coal for electricity.

An electric vehicle in Germany would take more than 10 years to break even with an efficient combustion engine’s emissions.

“We’re facing a bow wave of additional CO2 emissions,” said Andreas Radics, a managing partner at Munich-based automotive consultancy Berylls Strategy Advisors, which argues that for now, drivers in Germany or Poland may still be better off with an efficient diesel engine.

The findings, among the more bearish ones around, show that while electric cars are emission-free on the road, they still discharge a lot of the carbon-dioxide that conventional cars do.

Just to build each car battery—weighing upwards of 500 kilograms (1,100 pounds) in size for sport-utility vehicles—would emit up to 74 percent more C02 than producing an efficient conventional car if it’s made in a factory powered by fossil fuels in a place like Germany, according to Berylls’ findings.

Yet regulators haven’t set out clear guidelines on acceptable carbon emissions over the life cycle of electric cars, even as the likes of China, France and the U.K. move toward outright bans of combustion engines.

“It will come down to where is the battery made, how is it made, and even where do we get our electric power from,” said Henrik Fisker, chief executive officer and chairman of Fisker Inc., a California-based developer of electric vehicles.

For perspective, the average German car owner could drive a gas-guzzling vehicle for three and a half years, or more than 50,000 kilometers, before a Nissan Leaf with a 30 kWh battery would beat it on carbon-dioxide emissions in a coal-heavy country, Berylls estimates show. And that’s one of the smallest batteries on the market: BMW’s i3 has a 42 kWh battery, Mercedes’s upcoming EQC crossover will have an 80 kWh battery, and Audi’s e-tron will come in at 95 kWh. With such heavy batteries, an electric car’s carbon footprint can grow quite large even beyond the showroom, depending on how it’s charged. Driving in France, which relies heavily on nuclear power, will spit out a lot less CO2 than Germany, where 40 percent of the grid burns on coal.

“It’s not a great change to move from diesel to German coal power,” said NorthVolt AB CEO Peter Carlsson, a former Tesla manager who is trying to build a 4-billion-euro ($4.6 billion) battery plant in Sweden that would run on hydropower. “Electric cars will be better in every way, but of course, when batteries are made in a coal-based electricity system it will take longer” to surpass diesel engines, he said.

To be sure, other studies show that even in coal-dominant Poland, using an electric car would emit 25 percent less carbon dioxide than a diesel car, according to Transport & Environment Brussels, a body that lobbies the European Union for sustainable environmental policy.

The benefit of driving battery cars in cities will be immediate: their quiet motors will reduce noise pollution and curb toxins like nitrogen oxide, NOX, a chemical compound spewed from diesel engines that’s hazardous to air quality and human health.

“In downtown Oslo, Stockholm, Beijing or Paris, the most immediate consideration is to improve air quality and the quality of life for the people who live there,” said Christoph Stuermer, the global lead analyst for PricewaterhouseCoopers Autofacts.

But electric cars aren’t as clean as they could be. Just switching to renewable energy for manufacturing would slash emissions by 65 percent, according to Transport & Environment. In Norway, where hydro-electric energy powers practically the entire grid, the Berylls study showed electric cars generate nearly 60 percent less CO2 over their lifetime, compared with even the most efficient fuel-powered vehicles.

As it is now, manufacturing an electric car pumps out “significantly” more climate-warming gases than a conventional car, which releases only 20 percent of its lifetime C02 at this stage, according to estimates of Mercedes-Benz’s electric-drive system integration department.

“Life-cycle emissions in electric vehicles depend on how much the car is driven in order to get to a point of crossover on diesels,” Ola Kallenius, the Daimler AG board member who will take over as CEO next year, said at the Paris Motor Show this month. “By 2030, the life cycle issue will improve.”

Battery demand will soar as electric cars become the norm in the next decade. Some manufacturers have heeded calls to produce batteries in a more sustainable way. Tesla uses solar power at its Gigafactory for batteries in Nevada, and has plans for similar plants in Europe and Shanghai. Chinese firm Contemporary Amperex Technology Co. is also looking to power its future German plant with renewables.

“The topic of CO2 lifetime evaluations is starting to get more traction,” said Radics at Berylls. “Carmakers need to be transparent in this discussion to avoid unsettling buyers.”

▪ ACFA-CSIS-UN Environment seminar on Government-Private Sector Collaboration in Realising Indonesia’s Cleaner Fuel Aspirations

The Asian Clean Fuels Association (ACFA) jointly organised the seminar on Government-Private Sector Collaboration in Realising Indonesia’s Cleaner Fuel Aspirations in Jakarta on 30 October 2018, together with CSIS Indonesia and UN Environment.

The seminar, which was held provided a platform for discussing ways for the government and other parties to cooperate in promoting cleaner fuel, after the Ministry of Environment and Forestry’s (MoEF) March 2017 regulation to introduce Euro 4 standards in Indonesia came into effect. This was ACFA’s first public engagement in Indonesia and helped pave the way for future collaboration with reputable stakeholders such as CSIS (Centre for Strategic and International Studies), a non-profit organization and influential think-tank In Indonesia, and UN Environment, a key partner in the Global Fuel Economy Initiative, which assists governments and transport stakeholders in promoting greater fuel economy.

The seminar was attended by about 40 participants, including government officials, representatives from the oil and automotive industry, non-government organisations, and the media. The speakers covering a broad spectrum of stakeholders, including Minister for National Development Planning Dr Bambang Brodjonegoro, Expert Staff to MoEF Minister Hudoyo, CSIS Executive Director Philips Vermonte, UN Environment Global Fuel Economy Initiative Coordinator Bert Fabian, as well as representatives from Pertamina and the Ministry of Energy and Mineral Resources (MEMR).

The lively discussions at the seminar have helped kick-start the conversation on fuel affordability and its impact on Indonesia’s cleaner fuel aspirations. CSIS hinted that it was open to further collaboration with ACFA on clean fuels and the environment, which was one of the new areas of research that the institute would focus on. The media coverage from the seminar has raised ACFA’s profile and enhanced its credibility in Indonesia, thereby placing it in a better position for future key stakeholder engagement. ACFA could also build on the seminar to conduct other public education activities to socialise the benefits of cleaner fuel.

Minister for National Development Planning Dr Bambang Brodjonegoro delivered a provocative keynote speech highlighting the importance of Euro 4 standards in meeting the Sustainable Development Goals (SDGs) and that one of the biggest obstacles was Pertamina’s reluctance to upgrade and build more refineries. He compared Indonesia with India, noting that the latter was an oil importing country that already reached Euro 4 standards but Indonesia was still lagging. He blamed Indonesia’s reliance on oil imports for its depreciating currency and current account deficit. He also urged Pertamina to demonstrate greater will to upgrade its refineries, pointing out that it played a big role in ensuring fuel affordability.

Hudoyo, Expert Staff to MoEF Minister Siti Nurbaya Bakar, delivered a speech on behalf of the Minister. The speech focused on the environmental impact of air pollution and the government’s efforts to achieve cleaner fuel, especially Euro 4 standards. Hudoyo noted that there was often a trade-off between the environment and economic growth, with the latter being prioritised. Although he admitted that Indonesia was lagging in implementing Euro 4 standards, he pointed out that some action was better than none. Notwithstanding the challenges, Hudoyo acknowledged the need for Indonesia to adopt Euro 4 standards in order to achieve the SDGs and to improve the environment for future generations.

Affordability of clean fuels was the main theme at the seminar, with CSIS Executive Director Philips Vermonte highlighting affordable fuel as being akin to human rights in Indonesia. Minister Bambang blamed high fuel prices on the reliance on fuel imports, which he attributed to Pertamina’s reluctance to upgrade existing refineries and build new ones.

Minister Bambang’s provocative remarks shook up the seminar and forced Pertamina and MEMR officials on the defensive. When highlighting its refinery upgrading and construction plans, Pertamina pointed out repeatedly that it needed government cooperation to set fuel prices to make it commercially viable, financial support to help it upgrade its refineries and assistance in acquiring land for the new refinery projects.

MEMR, on the other hand, took a blunt approach by insisting that Euro 4 standards had already been implemented, even though it admitted that this was only for one fuel type that was not widely used. It noted that fuel affordability remained an issue that Pertamina needed to solve as it was not possible to force consumers to switch to cleaner but more expensive fuels.

The consequent discussions highlighted the issue of rolling out Euro 4 fuels alongside cheaper, lower quality fuels, which would lead to consumers choosing the more cost-effective option. The government needed to institute fiscal policy alongside public education to promote the use of cleaner fuels.

▪ Neste welcomes Norway's 0.5% biofuel blending mandate for aviation

Finland's Neste confirmed there will be enough capacity on the market to supply the renewable jet fuel volumes to Norway that will be required following the government's announcement in early October of a 0.5% biofuel blending mandate for aviation from 2020.

It was the first time biofuels have been mandated in aviation fuel by a national government and Neste said it has the capability to produce the amount Norway will need by 2020, while there are plans to scale-up volumes in following years.

The aviation industry has set targets to mitigate greenhouse gas emissions from air transportation, including carbon-neutral growth from 2020 and a 50% reduction of net aviation carbon emissions by 2050.

"The signal Norway's regulation sends to other countries and markets is important. This will create the necessary predictability for Neste and other producers to boost their production of aviation biofuels," Neste's executive vice president in renewable products, Kaisa Hietala, said.

▪ Beijing Enjoys the Bluest Skies in a Decade

Beijing residents have been breathing some of the cleanest air in a decade as they begin to reap the benefits of China’s anti-smog push.

Of the seven lowest monthly pollution readings in the capital city since 2008, five have been recorded since the beginning of last summer, according to data gathered by the U.S. Embassy in Beijing. That’s when Chinese officials ramped up enforcement of policies restricting coal burning in Beijing and surrounding areas. July pollution levels averaged 44 micrograms of airborne particles per cubic meter, the seventh lowest since recordings began in 2008.

The improved air quality underscores how rapidly China is attacking the smog problem that created Beijing’s “airpocalypse” in 2013, when the tiny particles peaked at 35 times the World Health Organization’s recommended limit. Since President Xi Jinping made fighting air pollution one of the country’s main priorities, millions of northern businesses and families were forced to switch from coal to cleaner-burning natural gas for industrial power and home heating.

“China has made a very clear pledge to ‘bring back the blue skies,’” said Sydney-based Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis. “Hardly a week goes by when China doesn’t bring in a new regulation or policy to further this commitment.”

The rest of the world is paying for Beijing’s cleaner air. China’s skyrocketing gas use has made it the world’s top importer of the fuel and helped raise global liquefied natural gas prices last winter to the highest since 2014. Production cuts and capacity curbs to reduce pollution from steel mills have helped rebar futures rebound to the highest price since 2013.

But there’s still a long way to go and the cost to shift the country’s energy mix to cleaner fuels is rising.

China is seeking to lower the amount of energy it gets from coal to 58 percent by 2020 from about 60 percent now through substituting natural gas for home heating and industrial boilers and nuclear reactors for coal power plants, Jefferies Group LLC analyst Laban Yu said in a research note last month.

Retaliatory tariffs prompted by U.S. President Donald Trump may boost energy import costs. Chinese policy makers have now taken aim at U.S. LNG imports, including them on a list of goods that could be hit with a 25 percent duty, signalling Xi may be willing to suffer some pain to avoid backing down from Trump’s escalating trade dispute.

China’s rapid industrialization and subsequent environmental degradation follows a path forged by western countries -- Charles Dickens described the “smoke lowering down from chimney-pots, making a soft black drizzle” in 19th century London. But its rapid clean-up could outpace previous efforts, according to Jiang Kejun, a researcher at the Energy Research Institute under China’s National Development & Reform Commission. “Our technology is better than that in old smoggy London, so it’s likely that China may go faster in curbing air pollution,” Jiang said.

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