Assessment of 2021-2025-2030 CO2 standards on automakers' portfolio vehicles' segments

Publication Type:



Gerpisa colloquium, Paris (2021)


Battery Electric Vehicles, CO2 standards, Fuel economy, Plug-in hybrid electric vehicles


In order to reach ambitious climate change mitigation targets, the Intergovernmental Panel on Climate Change called for a reduction of greenhouse gas emissions (GHG) emissions, especially in the transportation sector, responsible for 20% of global CO2 emissions, that is currently heavily fossil-fuel dependent (IPCC, 2018). More specifically, passenger cars are responsible for around 12% of total-EU CO2 emissions (EC, 2017). To achieve a neutral climate by 2050 and the intermediate target of an at-least 55% net reduction in greenhouse gas emissions by 2030, the European Parliament adopted regulations setting CO2 emission performance standards for new passenger cars and vans in the EU (EC, 2017). These regulations are adapted from The US’s standards, called the Corporate Average Fuel Economy (CAFE) standard, introduced in 1975. Indeed, each automotive manufacturer must set its own emissions targets for 2021, 2025 (-15% compared to 2021), 2030 (-37.5% compared to 2021) and respect these targets. If the average CO2 emissions of a manufacturer's sold vehicles exceed its target in a given year, penalties would be a consequence equal to €95 for each exceeded gCO2/km, leading to several billion Euros (Hüls et al., 2020).
To meet CAFE standards, several technical and strategic solutions are possible. First, vehicle’s technical improvements ensure less CO2 emissions by engine technologies improvements (stop-start, downsizing), transmission upgrade (automatic transmissions, increase the number of gears), light-weighting, higher efficiency systems, improved aerodynamics and low-rolling resistance tyres. Second, additionally to technical improvements, car manufacturers could apply possible strategic solutions, such as buying credits to other manufacturers below the standard or paying the fines. These possible solutions are purely dependent on the manufacturer’s strategy and could not be revealed. Third, the electrification of the sold vehicles, selling more electric vehicles (EVs): Battery EVs (BEVs) and Plug-in Hybrid EVs (PHEVs), is more likely to be the best solution to meet long-term CAFE standards because of their low CO2 emissions and their non-dependency on fossil fuels.

While technical improvements have received widespread attention in the literature, results showed that implementing such upgrades has limited long-term results since CO2 emissions will become stricter over time (Luk et al., 2016). Therefore, 2030 standards, which technical improvements could not respect, challenge manufacturers to investigate other solutions to limit their CO2 fleet emissions. Fleet electrification seems to be the best way to reach 2025-2030 CO2 targets. PHEVs and BEVs are one of these emerging technologies whose impact on a manufacturer’s CAFE compliance costs must be examined. Indeed, a variety of studies analysed the value of purchasing a PHEV for users. To date, only (Al-Alawi and Bradley, 2014) considered the effects of PHEV to automakers and policymakers in achieving passenger car and domestic light truck fleet CAFE compliance. Results show that for Ford, Fiat, and GM US automakers and a variety of incremental cost scenarios, the introduction of PHEVs into the vehicle fleet reduces the costs of CAFE compliance relative to baseline scenarios and should be more thoroughly considered in near-term regulatory. While (Al-Alawi and Bradley, 2014) made significant improvements in this field, questions remain regarding socio-techno- economic assumptions. First, each automotive manufacturer targets a well-defined category of clients. Second, do BEVs share the same effect as PHEVs to reduce the costs of European CAFE compliance? This paper aims to close these research gaps and study the CAFE compliance by identifying the trade-off between BEV/PHEV incremental costs -i.e. the costs of electric drive, electric accessories, and battery- and CAFE penalty fines, considering different scenarios of vehicles sizes. 


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