Carmakers face €20 billion in fines for exceeding CO2 targets – Part 2

06 February 2020

6 February 2020

Neil King, Autovista Group’s Senior Data Journalist considers the fines facing carmakers as the new regulations on emissions come into force. In this second part, King highlights the magnitude of the challenge that OEMs face in meeting their respective targets.

From 2021, the average emissions target is set at 95g/km CO2. For every 1g/km of CO2 that a manufacturer exceeds its average emissions target by, it will be fined €95 multiplied by its volume of new-car registrations in the preceding year.

However, the highest-polluting 5% of new cars registered in 2020 are excluded from the 2021 fines calculations, which serves as a transitional phase for carmakers. Based on analysis of data distribution, Autovista Group calculates that this would reduce CO2 emissions figures by about 7%. From 2022 onwards, full compliance of all new cars is required (i.e. new cars registered in 2021 onwards).

Nevertheless, car manufacturers in the EU are not expected to meet the new 95g/km target and could face fines amounting to more than €20 billion in both 2021 and 2022. All major carmakers are expected to miss their respective emissions targets under this new regime. The rise in CO2 emissions again in 2019 does not bode well for carmakers and failure to meet their targets would also put them at a major disadvantage in reaching the 2025 and 2030 CO2 targets agreed in December 2018.

The chart below indicates the total fines that would be imposed for exceeding the 95g/km CO2 target in 2021 and 2022, based on 15 million new-car registrations. Autovista Group has used this figure, which is supported by the ACEA forecast of a 2% decline in new-car registrations in 2020, to calculate the total fines by emission level.

Fines for exceeding the 95g/km EU CO2 target in 2021 and 2022, emissions range 95g to 125g, 15 million new-car registrations

Fines for exceeding the 95g/km EU CO2 target in 2021 and 2022, emissions range 95g to 125g, 15 million new-car registrations

Push for electrification

Manufacturers are therefore pushing ahead with electric vehicle (EV) plans to meet, or come as close as possible to, their respective emissions targets. Additionally, carmakers are expected to offer healthy discounts on EVs and are also expected to pre-register them, especially towards the end of the year. This would, however, have a detrimental impact on their residual values.

The number of EVs on sale in Europe is set to more than triple to at least 200 by 2021, according to a recent report published by Transport and Environment (T&E). It remains uncertain, however, whether consumer demand for EVs will increase to meet supply given both the lack of sufficiently enticing tax incentives and concerns over both the charging infrastructure and charging times.

Nevertheless, average emissions should reduce from this year onwards. Assuming they return to the 2017 level of 118g/km in 2020, Autovista Group estimates that this would equate to about 110g/km when the 95% compliance rule is factored in. At this level, carmakers would face total fines of €20.3 billion in 2021, based upon 14.25 million new-car registrations (95% of the 15 million registrations forecast for 2020).

Even if EU-wide average emissions further reduced from 118g/km in 2020 to 110g/km in 2021, full compliance applies and so the fines would actually rise to €21.4 billion in 2022 in this scenario.

Manufacturer performance

The chart below shows the fleet average emissions of 10 leading OEMs in Europe in 2017 and their 2021 emissions targets. Full details of how the emissions targets are calculated for each manufacturer are provided in “Annex 1” of EU regulation 2019/631, released on 17 April 2019.

For example, Toyota would only have to reduce their average fleet emissions by 9g CO2/km (9%) from their 2017 level to meet their new target. However, FCA Group would need to lower their emissions by 29g (24%). This largely explains why FCA is paying US EV manufacturer Tesla to pool its emissions figures in Europe. The move would bring FCA’s average CO2 emissions down by offsetting the company’s petrol and diesel vehicles from Fiat, Jeep, Alfa Romeo and Maserati against the zero-emission outputs of Tesla’s EVs.

2017 emissions and 2021 emissions targets by OEM

2017 emissions and 2021 emissions targets by OEM

Source: ICCT

Assuming again that carmakers reduce their average emissions back to the 2017 level in 2020, including super-credit multipliers1 and eco-innovation credit2, and gain the same market share as in 2019, Autovista Group has calculated the fines major carmakers would face for missing their respective emissions targets.

The total bill for the 10 carmakers featured above, based on 2017 emissions levels but factoring in the 95% compliance rule, would amount to almost €17.1 billion in 2021, In this scenario, Volkswagen Group (VW) faces the largest fine (over €5 billion) and Toyota the lowest (€121 million). This tallies with a recent survey conducted by Autovista Group, in which respondents voted overwhelmingly for Toyota as the favourite to avoid a fine or pay the least amount should it breach its CO2 target.

Assuming manufacturers lower their emissions by 7% in 2021, in line with the EU-wide reduction from 118g in 2020 to 110g in 2021 outlined above, the total bill for the 10 carmakers, applying to all new-car registrations, would amount to €18 billion in 2022.

Indicative fines for exceeding emissions targets, major carmakers, € billions, 2021 and 2022

Indicative fines for exceeding emissions targets, major carmakers, € billions, 2021 and 2022

Source: Autovista Group based on ICCT and ACEA data

Key OEM initiatives

Given the magnitude of the fines, carmakers are embarking on numerous initiatives to reduce their CO2 emissions and, ultimately, lower the fines payable if they do not meet their targets.

This analysis highlights the phenomenal challenge that OEMs are facing in Europe in order to avoid paying fines amounting to billions of euros. Above all, OEMs are very serious about pushing electrification into their portfolios and they are certainly not just paying ‘lip service.’ The volume of new cars they register in 2020 and 2021, and the powertrain mix, will be critical for the future reduction of emissions.

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1 Super-credit multipliers increase the weighting of cars that emit less than 50g CO2/km in the calculation of a manufacturer’s average CO2 emissions. These low-emission cars will count as two cars in 2020, 1.67 in 2021, and 1.33 in 2022.

2 Eco-innovation credits reward innovative technologies that produce real-world CO2 savings and these savings also count towards manufacturers’ CO2 targets.