Market Overview

Automakers Could Be Fined More Than €14 Billion in European CO2 Excess Emissions Premiums in 2021, IHS Markit Says

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Automakers failing to meet 2021 fleet CO2 emissions
compliance, for passenger vehicles sold in the European Union (EU) could
be fined more than €14 billion in 2021, based on new analysis from
business information provider IHS
Markit
(NASDAQ:INFO).

Legislators in the European Union (EU) are imposing a new passenger car
fleet CO2 emissions target of 95 g/km, to be phased in during
2020, with 100% application in 2021 on Worldwide Harmonized Light
Vehicle Test Procedure (WLTP).

New passenger car fleets that fail to meet compliance are set for
potentially substantial fines in both 2020 and 2021.

The IHS Markit baseline scenario (one of various scenarios) suggests
that the EU28 sales-weighted passenger car phased (best 95 percent)
fleet CO2 average in 2020 is likely to reach 102.3 g/km
(NEDC). This includes 4 g/km of CO2 reduction derived from
super credits and a further 2 g/km of CO2 reduction from
forecasted eco-innovation technology deployment. In 2020, fines paid by
OEMs could amount to €11 billion.

Furthermore, with a 2021 target set at 114.9 g/km (as the 95 g/km New
European Driving Cycle (NEDC) target is adjusted to an equivalent WLTP
value), IHS Markit forecasts that the sales-weighted passenger car fleet
CO2 average will reach 122.9 g/km (WLTP). If this level of
excess emission is unable to be curtailed, it could lead to a total of
€14 billion in excess emission premiums.

"The current expectation considers each OEM we expect to be selling cars
in the region during the forecast horizon," said Vijay Subramanian,
associate director for the IHS Markit powertrain and compliance business
in EMEA. "As we continue to follow OEM technology developments and any
regulatory adjustments, our forecasts may be adjusted accordingly."

The analysis shows that 25 OEMs are however, on course to meet targets
in 2020 and 2021, given developments and initiatives toward
electrification and hybridization of their fleets.

Despite the continued collapse of the European diesel passenger car
market, a technology that is generally helpful in CO2 abatement,
the implementation of other impactful technologies, including LED
lighting, thermal encapsulation, highly efficient alternators and other
relevant technologies are proving to be helpful in offsetting some, it
not all, of the diesel headwind effect in the 2020 and 2021 periods.

Several automakers are also observed as clearly pursuing, or leveraging
a super credit strategy, designed to supplement engineering strategies
and will help some achieve targets and avoid fines. In addition, some
manufacturers may plan, under parent company umbrellas, to pool
resources in order to avoid fines.

In comparison, 27 manufacturers could share the forecasted €14 billion
in 2021 penalties due to non-compliance. This, despite efforts to build
a super credit strategy and investments into hybridization and
electrification. These OEMs are not expected to stop work on compliance
solutions and strategy, yet are expected to continue to struggle to
bring forward the fruits of commensurate investment, leading to
compelling product with enough demand at the correct time for compliance.

"If they are unable to meet compliance targets in time, IHS Markit
forecasts that average fines for those not complying could reach €624
per vehicle at the end of 2020, with a further €190 increase in 2021 as
a function of the shift to WLTP," said Subramanian.

Technology contribution focus is shifting, diminishing returns from
traditional technology.

In 2020, the final year of being monitored under the NEDC regime, it is
abundantly clear that technologies commensurate to compliance are not
envisaged to reach demand levels sufficient enough to guarantee it,
under the IHS Markit baseline scenario.

 

Technology Based Contribution: NEDC Protocol, EU28

Year: 2020

   
 

Powertrain System Design Based Prognosis

Powertrain System Design

Sales Weighted Average CO2 (g/Km)

Share of Sales Volume

Electric Plug-in 0.9 2.6%
Hybrid-Full 91.0 3.0%
Hybrid-Full Plug-in 34.4 2.9%
Hybrid-Mild 114.8 8.8%
ICE 138.6 2.6%
ICE: Stop/Start 117.5 80.1%
 

Source: IHS Markit, August 2018

 

Once in 2021 and subject to full WLTP regulatory monitoring, only a
seismic shift (over the baseline) in consumer demand for BEV
(‘Electric-Plug-In') and PHEV (‘Hybrid-Full Plug-In) will result in the
full mitigation of EU28 fleet level excess emissions premiums.

Put simply, in 2021, the IHS Markit baseline forecast struggles to
envisage enough demand of the correct technology in order for the entire
EU28 fleet to comply.

 

Technology Based Contribution: WLTP Protocol, EU28

Year: 2021

   
 

Powertrain System Design Based Prognosis

Powertrain System Design

Sales Weighted Average CO2 (g/Km)

Share of Sales Volume
Electric Plug-in 1.6 4.0%
Hybrid-Full 96.4 3.1%
Hybrid-Full Plug-in 43.2 4.0%
Hybrid-Mild 137.6 11.9%
ICE 157.8 1.4%
ICE: Stop/Start 138.7 75.6%
 
Source: IHS Markit, August 2018
 

About the IHS Markit Compliance Suite

Compliance+, the first of four components IHS Markit Compliance Suite,
provides an unbiased, independent outlook on car manufacturers
compliance gaps with total anticipated CO2 forecasts and
fines across the entire future EU28 passenger car sales fleet. The
Compliance+ module addresses the challenges facing the EU-28 automotive
market as automakers endeavor to respond to increasingly stringent CO2 and
emissions regulations. For additional details on the Compliance Suite
from IHS Markit, please visit
this link
.

About IHS Markit (www.ihsmarkit.com)

IHS Markit (NASDAQ:INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
economies worldwide. The company delivers next-generation information,
analytics and solutions to customers in business, finance and
government, improving their operational efficiency and providing deep
insights that lead to well-informed, confident decisions. IHS Markit has
more than 50,000 business and government customers, including 80 percent
of the Fortune Global 500 and the world's leading financial
institutions. Headquartered in London, IHS Markit is committed to
sustainable, profitable growth.

IHS Markit is a registered trademark of IHS Markit Ltd. and/or its
affiliates. All other company and product names may be trademarks of
their respective owners © 2018 IHS Markit Ltd. All rights reserved.

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