Mandatory CO2 Targets in Europe:
How Much Change Should We Really
Expect to See in the Market?
Nigel E. Griffiths
Group Managing Director
Presentation Outline
• European Legislative Agenda
• Mandatory CO2 Framework
• CO2 Taxation Is Being Introduced Fast
• Market Impacts
• Sub-Segment Impacts
• The Bottom Line
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Some Business
Implications
of Mandatory
CO2 Targets
2007 GLOBAL AUTOMOTIVE CONFERENCE
he
Ind
us
tr
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ya
ffo
rd
it?
5
The Seas of Change
Market Strategy:
Model Proliferation
Growth Pole: Organic Growth
Cost Strategy:
M&A Fever
Platform Consolidation
1990
2007 GLOBAL AUTOMOTIVE CONFERENCE
Brand Realignment
1995
Organic Brand
C02 /FE
Innovation
Cross Platform/Modules
J.V. (Emissions)
Low Cost Sourcing
2000
Copyright © 2007 Global Insight, Inc.
2005
2010+
6
Emissions and Fuel Consumption, CO2 and
Fiscal Policy Situation – October 2007
EU Biofuels Directive
targets 2% biofuel
share – EU MS target
1.4% but actually hits
closer to 1%
Euro 5 Limits
EU Biofuels Directive
targets 5.75% biofuel share
Euro 6
focus on
NOx
Published
Euro5
Euro 4
2005
2007
Fiscal Policy - ACT
CO2 ACEA Voluntary
Agreement
Move to mandatory
agreement indicated
by Commission
2008
25% CO2
based
2010
Legislative
framework
to rule on
CO2 based
tax?
Euro 6
2012
2015 2016
50% CO2
based
EU CO2 Target
120 g/km
CO2 Target
140 g/km
Expect a legislative proposal
by late 2007, approved
framework mid 2008?
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Beyond 2010, Commission
indicates that a Revised
Biofuels Directive could raise
targets to 10% for 2020.
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Emissions
Trading
extends to
Autos?
2017
2020
Registration tax
abolished by 2016
EU CO2 target 130g/km –
120g/km. Final 10g accounted
by ‘other measures’ TBD
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CO2 Impact on European Market Forecast
• ACEA target (2008) will be missed, but 2012 is now the real
operative target
• New proposed Mandatory Framework, but we still do not
know the rules of the game
• Our working assumptions for the market impact:
• EU will set targets for 2012 at 130/120g/km
• EU will pursue an ‘integrated approach’ to reach its targets
• OEMs are the accountable actors for the 130g target
• Mechanism is unclear, so for now our working assumption is that
ALL CAR MAKERS are assumed to have to make the SAME
PROPORTIONAL reduction as the fleet average (approximating to
20% in their CO2 compared to 2005/6 levels)
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CO2 Targets Proposed by the EU for which the
Car Manufacturers Would Be Accountable
170
160
CO2 g/Km
150
140
130
120
110
‘Suggested thresholds’
20
00
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20
19
100
EU OEM EFFECTIVE TARGETS
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The Mandatory Framework
• February 2007: the European Commission set out its intention to force
through mandatory targets for average CO2 output — sticking to a figure of
120g/km by 2012
– For OEMs the effective target actually becomes 130g/km
– Due to “complementary measures” which have been factored in,
contributing to further cuts of up to 10g/km
• Now in formulation period: 46 possible schemes now down to shortlist of 8
– Including 1) Weight 2) Footprint 3) Shadow based CO2 bands
• Expect a formal legislative proposal in December from EU Commission, to be
voted on in early 2008
• 120/130g target is not negotiable — the timing probably is 2012, 2014, or 2015
• Possibility of phased-in start dates based on sales volumes
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In the Mandatory CO2 Reduction Era...
Move towards a new 3, or maybe 4 or 5 pillar approach, but with harder
hitting policies, using price signals to encourage changes in consumption
and behaviour….the soft voluntary approach has not worked!
Speeding
Speeding Limiting,
Limiting,
Eco-Driving
Eco-Driving
Information
Information for
for Consumers
Consumers
New Framework
??????
Fiscal
Mechanisms
Demand
Management
Consumer
Behaviour
Mandatory CO2 Reduction Era
Tougher
Tougher CO
CO22-linked
-linked
Ownership
Ownership and
and
Acquisition
Acquisition Taxes,
Taxes,
Emission
Emission Trading
Trading
Schemes
Schemes
Congestion
Congestion Charging
Charging
Intelligent
Intelligent Road
Road Tolls
Tolls
Copyright
©
2007 Global Insight, Inc.
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Parking
Parking Schemes
Schemes
11
Latest: European Parliament ‘Opinions’ (24-9-07)
•
•
•
Specialist Manufacturers &
Companies with less than 0.5%
market share may have different
targets
Advises differentiation of CO2
targets by Vehicle Footprint
Introduction of a new Carbon
Allowance Reductions System
(CARS).
– Where penalties will be based
on Euro’s per g/ CO2
– Revenue from Penalties go to
R&D & Local Transport
– Closed trading of allowances
between OEM’s
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•
Stick to CO2 Targets but delay
introduction to 2015
– Provided , quantifiable fixed
g/ CO2 reduction values for
complementary measures GSI, TPMs, HVAC, fitted Econometers
– Suggests inclusive 125g by
2015
•
•
•
Legislation that a minimum of
20% of advertising space must
be devoted to CO2 and fuel
consumption
Limit top speed ratings to 25%
above typical legal speed limits
Call on Member states to
introduce a scrapping incentive
for older cars
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Starting Point: Europeans Already Buy Fuel-Efficient
Cars, So How Much More Down-segmenting Is Needed?
35%
Segment Market Share
30%
25%
20%
15%
10%
5%
0%
A
B
MPVCompact
C
D
E
MPV
US
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W Europe
PUP
SUV
Italy
13
2004 – CO2 Taxation
U.K. leads the way,
(Belgium introduces small
CO2 element)
= CO2 tax
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2007 – CO2 Taxation
U.K. and BEL joined by
• Portugal
• France
• LUX
• Norway
• Sweden
= CO2 tax
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2010 – CO2 Taxation
Already confirmed
future CO2 tax:
• Spain
• Germany
• Ireland
• Likely to be most of EU
by 2010
= CO2 tax
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In Reality, ‘Size-based’ Segment Share Changes Seen in
the U.K. Since 2000 Have Been Almost Counter Intuitive
• “There has already been a
‘dramatic shift’ in the U.K.’s
new car market since 2000”
A
B
C
D
E+
SUV-Compact
SUV's
200
180
• “61% of cars sold are now in
lowest CO2 bands (<165g/km)
compared to just 43% in 2000”
• “…Hundreds of thousands of
buyers changing to cars with
lower CO2 emissions”
– Quotes from SMMT June 2007
160
140
120
100
80
60
2000
2001
2002
2003
2004
2005
2006
2007
Market Share indexed at 100 in year 2000
Segments are grouped to include all vehicle body styles (inc MPVs) on the same footprint/platform
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U.K. VED Bands (CO2 Based Circulation Tax)
Budget 2007 Changes in Red
No current diesel or petrol cars (!)
Now
£35
Now
£115
Now
£140
Band C to F
see smaller
rate rises of £5
per year out to
2011
Now
£165
Now
£205
Now
£300
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Band G
expected to see
more rapid
increases…next
year rate rises
to £400..
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U.K. Annual Road Usage Car Tax 2006–2011
(CO2 Based Vehicle Excise Duty – VED)
VED
Bands
CO2
Emissions
(g/km)
2006 %
of New
Cars
A
100 &
below
0%
B
101 – 120
5%
£40
£50
C
121 – 150
32%
£100
D
151 – 165
24%
E
166 – 185
F
G*
2006/07
Petrol
Car
2006/07
Diesel
Car
£0
£0
2007/08
2008/09
2009/10
2010/11
Diesel or Diesel or Diesel or Diesel or
Petrol
Petrol
Petrol
Petrol
£0
£0
£0
£0
£35
£35
£35
TBC
£110
£115
£120
£125
£130
£125
£135
£140
£145
£150
£155
17%
£150
£160
£165
£170
£175
£180
186 – 225
15%
£190
£195
£205
£215
£220
£225
Over 226
7.5%
£210
£215
£300
£400
TBC
TBC
(no cars yet) (no cars yet) (no cars yet)
VED rates for private vehicles registered on or after 22 March 2007
From 22 March 2007 VED normalised for Petrol & Diesel (at higher rate)
* Band G only for vehicles registered on or after 23 March 2006
Emissions VED only for vehicles registered after 1 March 2001
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Spanish Registration Tax from January 2008
16
200g/km
New tax = technology neutral
8.5%
14
12
160g/km
Tax %
10
27%
8
56%
%
120g/km
6
= % market share in
this CO2 bracket
4
<120g/km = zero tax
7.7%
2
9
24
9
23
9
22
9
21
9
20
9
19
9
18
9
17
9
16
9
15
9
14
9
13
12
9
9
11
9
10
99
C
O
2
g/
km
0
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Top-Five Market Changes Due to Threat of Mandatory
CO2 Framework by the EU from 2012 Onwards
1. End to ‘upsizing’ of vehicles in this current launch cycle
2. Increase in diesel penetration rate being forecast across
horizon, notably 2010 to 2014
3. Compression of fuel-efficiency span within segments
towards ‘best in class’
4. Body/segment shifts
5. Increased importance of “technology loading” of vehicles
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1. End to ‘Upsizing’ of Vehicles
• End to ‘upsizing’ of vehicles in this current launch cycle
– Physical vehicle size of each segment group will stop growing
– Possible downsizing mid/late next decade = consumers do not
have to go down segments since segments go with them
• OEMs already sending signals about this trend reversal, e.g. Mazda 2
• 1st Gen (Length: 3800)
• 2nd Gen (Length: 3940)
• 3rd Gen (Length: 3900)
– Citroen C-Cactus
• The family-sized car is about 15% lighter than a C4 Hybrid HDi
– Total weight of 1,306 kg
– Weight-conscious design
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Changes to Long-Term Diesel Share Will Be a Key European Consumer
Response to ‘Faster and Harder’ CO2 Targets and Taxes — Delaying the
Need for Other Substantial Segment Shifts in the Car Market
New diesel forecast after assertion of 130g objective
70%
65%
60%
55%
50%
Previous diesel forecast
45%
40%
30%
25%
2015
2014
2013
2012
2011
2010
Copyright © 2007 Global Insight, Inc.
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
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Euro 6
Euro 5
35%
23
3. Compression of Fuel Efficiency Span
Within Segments Towards Best in Class
The CO2 Distribution Curve:
Changes to U.K. market since year 2000
25
Unit Volume
20
15
UK 2006
UK 2000
10
5
+
up
to
10
0
11
0
12
0
13
0
14
0
15
0
16
0
17
0
18
0
19
0
20
0
21
0
22
0
23
0
24
0
25
0
26
0
27
0
0
CO2 bands (up to)
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3. Compression of Fuel Efficiency Span
Within Segments Towards Best in Class
CO2 distribution curve for powertrain fitted to European C
segment models — current
Unit Volume
700000
600000
500000
400000
D
G
300000
200000
100000
+
0
120
130
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140
150 160 170 180
CO2 bands (up to)
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190
210
220
25
4. Body/Segment-shifts
• Decay of SUV trend after 2012
• Deflection of SUV buyers into
new ‘dynamic’ body-styles
within mainly similar
segment/price bands
• Reduction in compact and
mid-/full-size MPVs
• Rise of city-cars heavily
incentivised by tax or local
metro area policies
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5. Assumed Technology Load Curves
% market penetration of new cars
35%
Stop Start
30%
Hybrid (FULL)
25%
20%
GDI
15%
DCT
10%
5%
Engine
Downsizing
0%
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Weight Conscious
Design (% share)
Note: Scenario assumptions Only
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CO2 Market Scenario EU
170
160
CO2 g/Km
150
140
130
120
110
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
100
EU OEM EFFECTIVE TARGETS
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BEST CASE
28
CO2 Market Scenario for EU Markets
Technology Load Elastic Scenarios
170
160
150
130
120
110
100
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
CO2 g/Km
140
EU OEM EFFECTIVE TARGETS
DIESEL TO 75% FROM 2012
HYBRID TO 10% MARKET IN 2012
DOUBLE STOP START PEN FROM 2012 TO 32%
BEST CASE
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CO2 Market Scenarios EU — Segment Shift Inelastic
170
160
140
130
120
110
100
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
CO2 g/Km
150
EU OEM EFFECTIVE TARGETS
BASE LINE =
BAN ALL SUV'S IN 2012 SALES NOT DISPLACED
BAN ALL SUV'S AND ALL LARGE & SPORTS CARS 2012 SALES NOT DISPLACED
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Redefined – The Specific Performance Ratio
Power per g/km of CO2
300
Power train variants
in the European C segment
BHP
250
Diesel
Petrol/Gas
200
150
100
50
50
100
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150
C02
200
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250
300
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‘The CO2 Challenge’: Will This Be the Future?
Small, fuel-efficient cars?
– New Smart fortwo cdi, CO2 emissions
– @ 88 g/km 3.3 litres per 100 kilometres
– The lowest CO2 emissions of any car in the
market today
Downsized
performance?
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Or Will It Look Like This?
220
250 CDi Bluetec (2009)
hp
200
180
220 CDi
160
140
200 CDi
120
100
100
120
140
160
180
200
220
CO2
1.8L,
127 g/km
44.5 US MPG
238 bhp
(Same output
as 3.5L today)
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Global Insight’s Response
• Dedicated Taxation/Legislative
Specialist
• New ‘Tax Tool’ to asses tax
impacts of vehicle specification
changes
• CO2 included in all European
production powertrain
databases
• European regulatory monitoring
service for alternative fuels
2007 GLOBAL AUTOMOTIVE CONFERENCE
• CO2 Forecasting (new vehicle
specifications CO2 forecasting
model) for competitive analysis
of future product/technology
launches
• Long-term Future Powertrain
Technology Study with TIAX
• Biofuels Study reviewing
implications for Automotive,
Energy, and Agriculture sectors
• Tax and CO2 Scenario
Workshops for OEM clients
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34
The Penguin Quiz
Save the Planet…or at least win a bottle
of wine
“What Weight of CO2 is produced by driving on a typical short
journey by car of approximately 14 km round trip”
Please put your Business Card (or Question Card with your name on it)
in your selected weight envelope
A single winner will be determined by a draw of all correct answers
Thank You
Nigel E Griffiths
Director Forecasting
E-mail: [email protected]