Europe: CO2 rules fatal to industry
Leaders of the European auto industry are pleading for mercy from ever-tightening and bottom-line busting fuel economy rules imposed by politicians, but it looks like they are wasting their collective breath.
At the Paris Car Show earlier this month, Volkswagen, Europe’s biggest car maker, said that if fuel consumption rules are tightened again, this would be “fatal” for the industry. The plea, from VW CEO Martin Winterkorn, fell on deaf ears, despite being echoed by Fiat Chrysler Automobiles CEO Sergio Marchionne, General Motors Europe chief Karl-Thomas Neumann, and Ford of Europe CEO Stephen Odell.
Almost immediately, the European Union (E.U.) Commission’s director of Industry and Enterprise Carlo Pettinelli said Europe would indeed be seeking more from the industry even though the rules are already the toughest in the world. But he at least conceded, in an interview with Automotive News Europe, that this might be delayed from 2025 until 2030.
Garel Rhys, emeritus professor of Motor Industry Economics and director for Automotive Industry Research at the Cardiff Business School, said it is about time the European industry fought back against what he called the “fanatics” at the European Commission, the executive branch of the E.U. If they don’t, the industry faces tough times as their products are priced out of the market. Other experts felt that the industry had little choice but to go along with Brussels’ demands. Professor Ferdinand Dudenhoeffer from the Center for Automotive Research (CAR) at the University of Duisberg-Essen said the industry should seek help from European governments to subsidize electric charging networks.
Currently, Europe demands average vehicle emissions of 130 grams per kilometer of carbon dioxide (CO2) – that’s the equivalent of 43 miles per U.S. gallon – by 2015. This will tighten to 95 g/km by 2020 or 57.4 miles per U.S. gallon. The U.S. requires a slightly less aggressive 54.5 mpg by 2025. The European industry reckons it already has the 2015 regulations beaten, but it faces a huge amount of spending to meet the 2020 target, and is starting to get rebellious about the possibility of an even tighter target soon afterwards.
You could argue that these regulations are unnecessary, at least in Europe, because the huge taxation on gasoline and diesel makes the price so high and unaffordable that manufacturers would produce fuel sippers anyway, without being forced to by the law. (I’ve just filled the tank of my car with 14.5 U.S. gallons of diesel - cost $111.5 - versus about $47 in the U.S. In Britain, taxation on gasoline and diesel is around 70 percent a gallon. Seventy percent. Europe is usually just as high).
When the current regulations were being discussed the European industry was mostly passive, being reluctant to be drawn into political arguments. At the time, the outlook for supplies of fossil fuels looked alarming, with some reckoning by around 2030 global supplies might be beginning to tighten as scarcity beckoned. “Peak oil” was the watchword. Action on fuel efficiency made a lot of sense.
The political force behind the fear that increasing emissions of CO2 were bound to warm the planet also cowed the industry into submission. But since then the outlook for fossil fuel supply has changed dramatically, thanks to the fracking of oil and gas, and new discoveries. Now supplies look secure for up to 100, maybe 200 years. Also the science linking CO2 and global warming looks much less secure, as research institutes were shown to have produced tainted, politicized data. Meanwhile global temperatures have remained stable for more than 15 years while output of CO2 spurted.
In an article in the Wall Street Journal last week entitled “The Global Warming Statistical Meltdown”, Climatologist Judith Curry had this to say.
“A growing body of evidence suggests that the climate is less sensitive to increases in carbon dioxide emissions than policy makers generally assume-and that the need for reductions in such emissions is less urgent,” Curry said.
This all should encourage the European auto industry to get off its knees, Cardiff Business School’s Rhys said.
Frozen in green headlights
“The industry should start to take the high ground and put its own view rather than just standing there and taking it and trying to make the best of it. They’ve brought it on themselves by not actually standing up earlier. They’ve been frozen in the headlights of propaganda by the green movement,” Rhys said
“Some of these E.U. commissioners have almost a fanatical mission to reduce CO2, and are completely wedded to electric vehicles as the only way forward and salvation. Not even the (petrol-electric) hybrid is regarded as worthwhile. The electric vehicle is the answer to everything,” Rhys said.
Rhys said the European industry mistakenly hoped their governments, especially the Germans and French with big auto industries, would not allow the zealots to dictate policy which jeopardized jobs and industries. They haven’t in the past but they might if the E.U tried to tighten the rules again. Rhys pointed to recent actions by the Commission to regulate the power used in domestic appliances and things like kitchen equipment, patio heaters and swimming pool heaters as examples of its fanaticism, and said the cry of anguish from consumers when they discovered household vacuum cleaners were being forced to curb power might have been an eye-opener to Brussels.
“The auto industry better wake up to the fact that they are very much in the firing line. The commission thinks it knows better what consumers want to buy; shades of the Soviet Union when Gosplan told people what to buy,” said Rhys.
CAR’s Dudenhoeffer doesn’t think an aggressive approach will help the industry because it has cried “wolf” before, said it was all impossible, then managed to meet the regulations in the end.
“They must come up with a joint approach paving the way for electric vehicles and plug-in hybrids. They should ask governments to give them the infrastructure it needs with charging stations and parking lots, and think about some kind of market incentives,” Dudenhoeffer said.
Germany, unlike Britain or France, doesn’t offer cash incentives to buy electric cars, but many cities like Berlin have inducements including free parking and use of bus lanes.
Dudenhoeffer wants incentives for electric cars like road pricing and to make it more expensive to use gas-guzzlers. He doesn’t think it makes sense for the industry to fight governments on the issue of global warming science. Politicians are generally committed to green issues because of demands from voters.
Dudenhoeffer didn’t think Winterkorn of VW’s claim that more regulations would fatally harm the industry would get very far.
“He (Winterkorn) wants to put pressure on but I don’t think in the long run he will be successful. And just saying it is not possible is not the right approach. I think he is overestimating the negative effects of all that. The industry has always overestimated the consequences (of tighter regulation) and if you do that you lose credibility,” Dudenhoeffer said.
Frankfurt, Germany-based Peter Fuss, partner in the industry consultancy EY, reckoned different technology approaches might emerge in Europe, China and the U.S.
China, with its lack of fossil fuels, might seek the fastest way towards alternative options like batteries or fuel cells, while the U.S., with its burgeoning supplies, would be slowest. Europe, in the middle, had access to fossil fuels from Russia.
Fuss said the European industry had met the 130 g/km target, but if it was to better 95 g/km and approach say 50 g/km, downsizing and light-weighting of the internal combustion engine wouldn’t be enough; the industry would have to develop battery technology or fuel cells.
“This is a technology which needs much more investment and much more innovation to get to a range of battery car acceptable to the end consumer. This presents great problems for the industry because it will take a huge investment while not knowing whether the end customer will accept the new technology and pay for it,” Fuss said.
“Going beyond 95 requires such a huge investment that this may have a negative impact for the industry as a whole and many companies might not be able to invest,” Fuss said.
None of this is cast in concrete for Cardiff Business School’s Rhys, and he expects some mitigation in the rules eventually, when the fanatics have gone from Brussels.
“There’s a lot to play for and it’s not hopeless. In effect there won’t be a disaster. We have until 2030 so there’s plenty of time to compromise and the fanatics in charge will be long gone by then. Expect the French and Germans to mount a counter-attack and make sure the Commission reflects what they want,” Rhys said.
Neil Winton, European columnist for Autos Insider, is based in Sussex, England. E-mail him at email@example.com