INCEPTION IMPACT ASSESSMENT

Inception Impact Assessments aim to inform citizens and stakeholders about the Commission's plans in order to allow them to provide feedback on the intended initiative and to participate effectively in future consultation activities. Citizens and stakeholders are in particular invited to provide views on the Commission's understanding of the problem and possible solutions and to make available any relevant information that they may have, including on possible impacts of the different options.

Title of the initiative

Lead DG (responsible unit)

CLIMA (C.4) Road Transport

Likely Type of initiative

Legislative, through the ordinary legislative procedure

Indicative Planning

Q2 2021

Additional Information

https://ec.europa.eu/clima/policies/transport/vehicles/regulation_en

The Inception Impact Assessment is provided for information purposes only. It does not prejudge the final decision of the Commission on whether this initiative will be pursued or on its final content. All elements of the initiative described by the Inception impact assessment, including its timing, are subject to change.

A. Context, Problem definition and Subsidiarity Check

Context

The European Green Deal 1 , adopted by the Commission in December 2019, has tackling climate change, including more ambitious action in the coming decade, and reaching the objectives of the Paris agreement and other environmental issues at its core. This transition must be just and inclusive. The climate neutrality objective, which the Commission proposed in 2018 2 and the European Council 3 and Parliament 4 endorsed, is one of its central elements. The Commission has proposed to enshrine climate neutrality into EU law 5 . In order to set the EU on a sustainable path to achieve climate neutrality by 2050, with the Communication on stepping up Europe’s 2030 climate ambition 6 the Commission has proposed a EU-wide, economy-wide net greenhouse gas emissions reduction target by 2030 compared to 1990 of at least 55% and set the stage for this initiative, together with other legislative initiatives in the field of climate and energy.

Achieving the higher climate ambition will require actions in all sectors. As highlighted in the European Green Deal, in order to contribute to the overall climate neutrality objective for 2050, emissions of the transport sector need to be reduced by 90% by 2050. Road transport, which today accounts for a fifth of the EU’s greenhouse gas emissions and increased its emissions by over a quarter since 1990, has a key role to play. CO2 emissions from light duty vehicles (cars and vans) represent about 75% of total EU road transport CO2 emissions, which in turn represent 70% of transport greenhouse gas emissions. Increased ambition for 2030 is needed to ensure a smooth pathway towards 2050 afterwards and to limit the costs and maximise the benefits of the transition in the longer term.

To ensure the necessary reduction of road transport emissions, different policy instruments will be revised. They include a revision of the CO2 emission standards for cars and vans, to ensure a clear pathway towards zero-emission mobility, a revision of the Energy Taxation Directive to reduce fossil fuels subsidies, a possible extension of emission trading to road transport, a revision of the Renewable Energy Directive to further incentivise renewable and low carbon fuels.. This will be complemented by a forward looking approach to providing a sufficient recharging and refuelling infrastructure through the revision of the Alternative Fuels Infrastructure Directive and of the Regulation on the TEN-T guidelines. 

The upcoming EU Smart and Sustainable Mobility Strategy will also support this key objective with a forward-looking and systemic approach.

The COVID-19 pandemic has had a severe impact on Europe’s transport sector. The mobility and automotive ecosystem is one of the most integrated in the EU and has been one of the most affected 7 . The Communication “Europe’s Moment: Repair and Prepare for the Next Generation 8 set the direction for Europe’s recovery, including in transport. Europe must invest in protecting and creating lasting quality jobs and in the competitive sustainability of its transport sector by building a fairer, greener and more digital future for it. In this respect, the revised CO2 standards will also contribute to modernise and make the automotive value chain more sustainable. As the transport sector is currently a major source of air pollution, i.e. the largest contributor to nitrogen oxide emissions, and a significant contributor to particulate matter emissions 9 , the shift to low and zero emissions mobility will also contribute to the zero pollution ambition for a toxic-free environment as described in the European Green Deal.

Problem the initiative aims to tackle

While CO2 vehicle standards have proven to be an effective policy tool, without further policy intervention, emissions from road transport are not projected to be on a decreasing trajectory that allows achieving the new 2030 target and the climate neutrality objective by 2050.

A higher uptake of zero emission vehicles than currently projected, will be needed for achieving these objectives.

The current policy is not fully in line with new climate objectives and therefore does not provide sufficiently long term signal to channel the necessary investment in zero-emission vehicles and increase their market uptake over time. As a consequence EU industry innovative developments in zero-emission technologies could make slower progress than possible and compared to its international competitors, putting at risk the technological leadership and competitiveness of the EU automotive value chain. The production of more zero emission models and their increased supply to the market is also key to make zero emission mobility more affordable and ensure a just transition.

There are a number of market failures and barriers which prevent the market alone from delivering CO2 reductions from cars and vans and a faster uptake of zero-emission vehicles in line with 2050 climate neutrality. The most obvious market failure is that the cost of CO2 emissions to society is an external cost which vehicle manufacturers and purchasers do not directly experience and therefore do not necessarily take into account in their production and purchase decisions. In addition, experience show that both producers and end-users tend to undervalue future fuel/energy savings. As a result, it may not appear attractive for producers to accelerate R&D and increase manufacturing outputs of more efficient vehicles, such as zero-emission vehicles, and for end-users to pay more for them. This determines also a risk of consumers missing out on fuel/energy savings. Other market barriers today relate to the costs and model availability of zero emission vehicles and the availability and accessibility of the necessary recharging/refuelling infrastructure. However, the costs of battery electric vehicles and batteries strongly depend on economies of scale and are falling faster than anticipated, and under the European Green Deal the EU will invest in accelerating the roll-out of charging infrastructure as part of Next Generation EU with the goal of having a comprehensive network of infrastructure that allows zero emission cars to travel seamlessly across Europe. CO2 standards give vehicle manufacturers the legal certainty to invest more in related R&D, to produce more zero-emission vehicles so that with increased supply and economy of scale they can become more affordable for citizens. The standards may also guide the purchase behaviour of institutional investors. The CO2 emissions standards are part of the answer to overcome the obstacles to the shift to zero emission mobility.

Basis for EU intervention (legal basis and subsidiarity check)

The legal basis of this initiative is in Article 192(1) of the Treaty on the Functioning of the European Union.

Climate change is a trans-boundary problem where both international and EU action can supplement and reinforce national and local action effectively. Coordination at the European level enhances climate action and EU action is justified on grounds of subsidiarity, in line with Article 191 of the TFEU. The EU has worked since 1992 to develop joint solutions and drive forward a global agreement to fight climate change.

EU action is justified as there is a single market for new passenger cars and light duty vehicles. It is most cost-effective to ensure harmonised action on CO2 targets for these vehicles across the whole of the EU single market because of the economies of scale. The automotive industry also requires regulatory certainty to make the large capital investments necessary to maximise the fuel economy of new vehicles, and even more so for shifting to new primary energy sources. Standards provide this certainty over a long planning horizon and they could not be implemented with the same effectiveness and certainty at Member State level. Therefore EU action is justified in view of both the cross-border impact of climate change and the need to safeguard the single market for vehicles.

B. Objectives and Policy options

The main objective of the initiative is to reduce CO2 emissions from cars and vans cost-effectively, in line with the European Green Deal, so as to:

(I)contribute to the objectives of the Communication on stepping up Europe’s 2030 climate ambition and

(II)define a clear pathway towards zero-emission mobility, in the broader context of climate neutrality by 2050,

while strengthening the competitiveness of EU industry and stimulating employment, channelling investments into zero-emission technologies, and reducing fuel consumption costs, promoting a just transition and thereby provide benefits for European citizens and consumers.

The “baseline scenario” is the current Regulation (EU) 2019/631, setting reduction targets of 15% for cars and vans to be achieved from 2025, and of 37.5% for cars and 31% for vans to be achieved from 2030, all compared to 2021. The baseline scenario is built on an updated EU Reference Scenario which includes COVID-19 impacts.

The impact assessment will explore a variety of options on different elements of the CO2 emission standards Regulation, including on:

·the levels of stringency of the CO2 emission targets for cars and vans, including options to define new stricter target levels and their timing

·the specific mechanism to incentivise and preferences  zero- and low-emission vehicles, including the type of mechanism and its elements, as well as the type of vehicles to be targeted

·the appropriateness of a new mechanism to take into account the potential contribution of renewable and low-carbon fuel when determining manufacturers compliance with their targets, including the option of voluntary crediting mechanism and in view of other EU policies and measures to decarbonise fuels

·the possibility to assign potential revenues from fines to a specific fund or programme

C. Preliminary Assessment of Expected Impacts

Likely economic impacts

The deployment of additional CO2 reducing technologies and zero-emission vehicles may lead to additional manufacturing costs, depending on the evolution of the costs of the technologies which will have to be implemented to reach the future targets. Global developments in the costs of zero-emission technologies such as batteries will however have an impact on the costs for the manufactures and will require stronger partnerships beyond EU’s borders to share best practices and solutions. The deployment of technologies which lower the energy/fuel consumption of the vehicles may lead to an overall decrease of the total cost of ownership, with possible economic benefits for private consumers and commercial enterprises, including SMEs.

Increasing interlinkages between energy and mobility sectors will be an opportunity for EU industry active and leading in this segment.

The significant investments in zero emission technologies at scale, e.g. batteries, hydrogen and fuel cells and the related necessary recharging and refuelling infrastructure can be expected to create new business opportunities and added value. These investments will also be instrumental for the European automotive sector to adapt to future changing demands and gain competitive advantage in the development of zero-emission vehicles. Faster market uptake of larger numbers of vehicles will strengthen the business case of innovative manufacturers. At the same time, there will be a reduction in investments in conventional internal combustion engine technologies, including components, and conventional fuels. This can impact negatively specialised components suppliers and the oil refining sector, possibly requiring actions under other European initiatives to modernise supply chains and reskill and upskill workers to transition to new and lasting jobs (see below on likely social impacts).

At macroeconomic level, target levels incentivising zero-emission vehicles could lead to positive impacts in terms of overall GDP, the economy’s energy efficiency and employment and European industrial leadership in zero emission mobility. Increased consumer expenditure, increased investment in infrastructure, reduction of oil imports, and expanding the value chain to the battery sector in the EU, both manufacturing, reuse and recycling, are all positive drivers for GDP increase and jobs creation. Economic benefits can also result from the reduction of air pollution such as decreased health expenditure and lower mortality rates.

Likely social impacts

Accelerating the transition towards zero emission mobility would mean an increase of employment in research, development and production of zero emission technologies - e.g. battery production and recycling, electric engineering, hydrogen and fuel cells, tailored software components etc–, and construction and maintenance of the necessary alternative fuels infrastructure while the employment in internal combustion engines supply chain, maintenance and in oil refining would decrease. It is imperative that these distributional impacts are recognised and addressed, to promote wide public acceptance and ensure a just transition,

The Impact Assessment will therefore verify the impact of the initiative on existing jobs as well as on new jobs that are created, on skill requirements and labour market transitions, to have a complete picture of the social impact. Since the transformation will determine changes in the type of jobs required in the automotive value chain, reskilling and upskilling of workers will be needed to ensure a just and smooth transition towards zero-emission mobility. Furthermore, the transition could require significant investments, including support to labour market transitions and labour reallocation from production of conventional to new transport technologies. The Impact Assessment will also assess the impact of the transition towards zero-emission mobility on consumers.. The trade-offs between possible increase in upfront costs and decrease in operating costs for new vehicles will be looked at. The Impact Assessment will assess how the CO2 standards trigger carmakers to produce more zero emission models and how increased supply to the market with reduced cost for batteries and other technologies could decrease purchasing cost as well. The second-hand vehicles market, particularly important for lower income consumers and for cohesion efforts across Europe, is also likely to be impacted, with zero-emission vehicles starting to penetrate it with some time delay and CO2 standards playing a role in accelerating the supply of zero-emission vehicles and hence also quicker second hand trading in such vehicles.

Accelerating the transition towards zero emission mobility would enhance the co-benefits of mitigation efforts. Air pollution due to road transport would be lowered, which would deliver significant benefits in terms of health and avoided related costs, to which especially less well-off people are exposed to their area of living and working

Likely environmental impacts

Depending on the level of ambition considered, the key environmental impacts of this initiative concern the reduction of greenhouse gas emissions from light-duty vehicles, thus contributing to addressing the issue of climate change.

As a co-benefit, and depending on the ambition and option considered, the increased market uptake of vehicles with zero tailpipe emissions can have a positive impact on air pollutant levels, in particular in urban environments.

Likely impacts on fundamental rights

The initiative is in line with Article 37 of the Charter of Fundamental Rights, which requires that a high level of environmental protection and the improvement of the quality of the environment must be integrated into the policies of the Union and ensured in accordance with the principle of sustainable development. No relevant impacts on other fundamental rights are expected.

Likely impacts on simplification and/or administrative burden

It is expected that the same types of arrangements would be continued to monitor compliance and therefore it is not expected that there will be any significant change in administrative burden compared to the existing legislation on CO2 standards.

D. Evidence Base, Data collection and Better Regulation Instruments

Impact assessment

The impact assessment for this initiative will build upon the results of the impact assessment performed in the context of the Communication on stepping up Europe’s 2030 climate ambition which considered the impacts of increasing the economy-wide GHG reduction target and its sectoral implications. This impact assessment will assess economic, social and environmental impacts, also in view of the COVID-19 crisis and recovery It will be prepared in coordination with other relevant impact assessments part of the same package.

Evidence base and data collection

This initiative builds upon the in-depth analysis in support of the Long-Term Strategy, the Communication on stepping up Europe’s 2030 climate ambition, an ad-hoc study and ad-hoc modelling exercises to define and assess the different policy options, and any relevant evidence compiled in other concurrent European Green Deal initiatives.

Consultation of citizens and stakeholders

The Commission will seek views, opinions, and preferences on the range of issues and design choices for the CO2 emission standards. Main stakeholders include national, regional and local governments, relevant industrial sectors and related associations, social partners, consumers and professional organisations, NGOs, and research and academic institutions The consultation will consist of:

-Collecting online feedback on this inception impact assessment over a 4-week period

-A 12-week open online public consultation

-Welcoming the submission of stakeholder documents such as position papers, policy briefs or roadmaps

Will an Implementation plan be established?

No. The legislative instrument will continue to be a Regulation. In view of this, there is no specific need to assist with implementation in Member States. Arrangements with expert groups exist to address different aspects of the current Regulations. It is anticipated that those arrangements would continue to function satisfactorily in the future.