As part of the Department for Transport’s (DfT's) decarbonisation plan the UK Government announced a public consultation on legislative proposals which seek to reduce CO2 emissions produced by passenger road vehicles ('the Green Paper'). This post focuses on proposals for passenger cars and light commercial vehicles. However, the DfT has also published additional papers on rail, aviation and heavy goods vehicle emissions.

Since leaving the EU, there has been little change to the retained vehicle CO2 emissions regulations, aside from minor technical adjustments. While the EU has recently published targets to achieve its own climate change ambitions, the DfT has positioned the new consultations as the means by which the UK will develop a regulatory framework with sufficient flexibility to meet the UK’s ambitions.

The Green Paper’s proposals have two overarching objectives:

  1. to establish a framework that supports carbon savings such that the UK is able to fulfil legally binding carbon budgets; and 
  2. to achieve the DfT’s 2050 net zero ambition.

The UK has also committed to phasing out new petrol and diesel cars and vans by 2030, with all new cars and vans being ‘zero emission at the tailpipe’ by 2035. The decarbonisation plan outlines a regime for cars and light commercial vehicles to be sold with ‘significant zero emission capability’ (SZEC) during the transition period between 2030 and 2035. The Green Paper considers how to define SZEC and requests suggestions for key metrics to be considered when identifying which vehicles fall within the SZEC definition.

The proposals

The Green Paper proposes two approaches to achieving the Government’s aim for 100 per cent of new car and van sales to be zero-emissions vehicles (ZEVs) by 2035:

  • Option 1: build on the existing regulatory framework by imposing more ambitious efficiency-based requirements, to align with the UK’s wider carbon-reduction commitments and with the 2030/2035 phase-out dates.
  • Option 2: introduce ZEV sales targets, alongside separate parallel CO2 targets largely based on the framework envisaged by Option 1. 

What do the options mean for manufacturers?

Option 1 – increased efficiency targets 

The proposals under this option will set targets using the existing ‘g CO2/km’ metric. This is not expected to be a static target so, as the UK’s CO2 targets become more stringent, manufacturers would be required to meet their individual CO2 targets through increasing the sale of ZEVs. The lower the CO2 target gets, the higher the proportion of ZEVs that will need to be sold to offset manufacturer’s higher CO2 emission models. The DfT considers the advantages and disadvantages of that option to be:

Advantages 

Disadvantages 

  • Manufacturers can continue ‘pooling’ their emissions to meet CO2 targets.
  • Most of the framework already exists in the UK which provides a degree of continuity to manufacturers and wider industry.
  • The framework would be based on fleet-wide average targets. This allows manufacturers some short-term flexibility as they transition to a zero emission fleet.
  • Targets would be based on the internationally recognised worldwide harmonised light vehicle test procedure (WLTP).
  • WLTP data is not representative of real-world emissions.
  • Option 1 does not propose to include any hard-targets for ZEV sales. This reduces private sector incentive to invest in national zero-emission infrastructure such as chargepoints and battery recycling.



Option 2 – ZEV sales targets alongside CO2 targets 

A ZEV mandate would set targets requiring manufacturers to sell a certain percentage of ZEVs each year. (See the Government’s 2035 delivery plan for an overview of the key methods to increase uptake of ZEVs.) The ZEV mandate would work on a credit-based system. Manufacturers could earn credits for selling and registering ‘qualified’ vehicles and must hold enough credits at the end of each calendar year to satisfy the targets.

The DfT provides an example: 'if the target was set at 20 per cent, and a manufacturer sold 200,000 vehicles in a particular calendar year, they would be required to hold 40,000 credits at the end of the year'. It is envisaged that the credit system could work in a similar way to the existing pooling regime, in that manufacturers may be able to trade their ZEV credits to ensure they meet their targets. The trading element would also provide a financial incentive to overachieve on targets.

The DfT takes the view that a ZEV mandate alone is not sufficient to achieve CO2 targets, as there may be the unintended consequences of leaving a proportion of a manufacturer’s fleet unregulated in terms of reducing CO2 emissions. To address this potential shortfall, the DfT proposes an accompanying CO2 regulatory framework, as outlined in Option 1, to regulate CO2 emissions in the non-ZEV proportion of a manufacturer’s fleet.

Manufacturers would therefore be required to meet two targets each year:

  1. the fixed percentage of ZEV sales (to hold a set number of ZEV credits at the end of the year); and 
  2. a CO2-based regulatory target. This could be set across the entire fleet or to the non-ZEV-regulated portion of the fleet.

Under both targets, any manufacturer that has not accumulated enough credits at the end of the calendar year (whether earned via ZEV sales, or through the purchase of excess credits from others) would be required to pay a fine. The fine would be a fixed amount, multiplied by the number of credits still required. The level of fine would effectively act as a cap on the cost of credits that can be traded between manufacturers. For this option, the DfT considers the advantages and disadvantages to be:

Advantages

Disadvantages

  • Guaranteed ZEV targets would incentivise private-sector development of zero-emission infrastructure to increase uptake.
  • The trading element provides some continuity in line with the existing regime and also allows manufacturers some flexibility while making the transition to a ZEV fleet.
  • A ZEV mandate could encourage the shift to ZEVs sooner. Along with further infrastructure investment, consumers will have more faith in purchasing a ZEV knowing, for instance, that they will be able to complete longer journeys as more charging points become available.
  • Additional burden and compliance costs of meeting two separate targets.
  • A secondary market for trading CO2 and ZEV credits could create a further administrative burden for manufacturers beyond current systems they may have in place.



The Green Paper states that Option 2 is preferred by the Government (as well as the Climate Change Committee), as it will allow the Government to fully legislate for the phase-out of new petrol and diesel cars, by ensuring deployment of ZEVs to reach set targets, while also providing a clear legislative framework for regulating CO2 emissions from new vehicles. 

While the Green Paper focuses on phase-out dates for new cars and vans, the Government has emphasised that the framework should be capable of extending to all road vehicles, beyond cars and vans.

How can businesses respond?

The Government is seeking views on the two options outlined above, including whether there are any alternative frameworks they should consider. Over the coming months, businesses affected by the proposals should consider participating in the consultation, not least because the Government has explicitly recognised that some of the proposals identified will impose additional costs on manufacturers (although it has stated that it will seek to avoid 'unnecessary burdens').

Important questions remain to be decided regarding the stringency of the CO2 targets, the terms and proposed amount of fines for not achieving set targets, and whether the key focus for the Government’s plans should be on delivering the greatest CO2 emissions savings or the quickest transition to zero-emission mobility.

The consultation period on the proposals closes on 22 September 2021. You can respond here. When the Government proceeds to legislate, a further consultation period will follow in which views on the exact details of the framework will be sought. The new road vehicles CO2 emissions regime is, at present, expected to enter into force in 2024.