2021-2030 CO2 regulations in Europe, backlash against diesel, and electrification

Germany's two-sided strategy for electrification and diesel cars



Daimler's E-Class and C-Class diesel plug-in hybrid cars for 2018 (announced at the March 2018 Geneva Motor Show)
(Source: Daimler)

This report presents the recent developments in European CO2 regulations for the period 2021 to 2030, the global backlash against diesel cars, and developments in EV and 48V hybrid vehicle electrification.

In Europe, the global backlash against diesel engines sparked by the Volkswagen emissions fraud scandal continues. In Western Europe, the proportion of diesel engine passenger cars has plunged from 49.5% in 2016 to 44.4% in 2017 and is expected to further drop in 2018.

In the EU, the regulations that set CO2 emissions at 95 g/km for passenger cars will go into effect in 2021. While European carmakers to date have complied with CO2 regulations using diesel cars, due to the decline of diesel cars and the increase of SUVs that emit more CO2, there are reports indicating some carmakers will be unable to meet the CO2 emissions regulations in 2021.

From 2018, European carmakers are planning on rapidly increasing 48V mild hybrid vehicles to comply with the tightening regulations.

In the EU countries, plans to reduce further CO2 emissions in 2030 by 30% from 2021 levels (15% reduction by 2025) are being considered. Policies likely will require increasing the total sales volumes of LZEVs (Low-and zero-emission vehicles: vehicles with CO2 emissions of less than 50 g/km) by 15% in 2025 and 30% in 2030. The CO2 emissions targets presume that the share LZEVs in the market will increase.

The European Automobile Manufacturers' Association (ACEA) is objecting to the above targets, claiming that a 20% reduction is a realistic and viable CO2 emissions reduction target for 2030. The association further argues that to meet the 2030 regulated target, electrification of vehicles is a must and would require the development of the EV charging infrastructure as well as incentives to purchase electrified vehicles. The key to achieving the proposed targets lies in the policy implementation of each country rather than that of the EU, and that the final decision for the 2030 target should be decided after verifying the popularization of electrified vehicles in 2025 as an intermediate checkpoint.

In Europe, the U.K., France, Norway and the Netherlands hammered out a policy to ban the sales of vehicles powered by internal combustion engines only. In Germany, even after the Volkwagen's emissions fraud scandal became public, policymakers and industry circles placed emphasis on protecting not only the diesel engine but also employment in the automotive industry. However, even in Germany, the proportion of diesel passenger cars declined to 38.7% in 2017. And in February 2018, the Federal Administrative Court of Germany (Verwaltungsgericht) ruled that "to ban diesel cars in major cities is legally valid".

Germany's Big Three carmakers plan to continue the development of diesel engines while advancing electrification. The German government is also exploring means to avoid the ban on driving diesel passenger cars into EU cities by introducing diesel engines with improved environmental performance.

In summary, the CO2 regulations of 2021 to 2013 and the decline of diesel cars are having a negative impact on the European market as described above.

Related Reports:
OEM Electrification Strategies: Strengthening HVs and diversifying into EVs, PHVs, and FCVs (May 2018)
OEM Electrification Strategies: Acceleration of EV and PHV Lineup Expansion (Apr. 2018)