Emissions Performance Standards: European Union

Overview

Passenger vehicles accounted for over half of road emissions and 16% of total emissions in 2022, and transport is one of the fastest-growing sectors in terms of carbon output. Electric vehicles (EVs) are a mature and increasingly economic solution to decarbonize road transport. Governments can support EV adoption through tailpipe emissions standards, and through phased plans to eventually eliminate internal combustion engine sales entirely.

The European Union introduced its Emissions Performance Standards (EPS) in 2009 to reduce the tailpipe pollution of new light-duty vehicles sold by automakers. The emissions restrictions were enforced from 2012, giving manufacturers time to plan for compliance.

Impact

The EPS has proven effective in promoting the manufacturing and sale of EVs in the bloc, particularly after the limit tightened to 95 grams of CO2 per kilometer traveled in 2020, from an initial threshold of 130gCO2/km.

The regulation has been instrumental in accelerating the number of EVs on the market. Battery-electric and plug-in hybrid vehicle sales in Europe increased fivefold from 2019 to 2023, expanding the share of EV sales in Europe to a quarter of total new passenger car sales by 2023 – a massive jump from just 2.5% in 2018.

The limit is due to tighten further, to 93gCO2/km for new passenger vehicles over 2025-29, and 49.5gCO2/km from 2030 to 2034, less than half the 2012-19 threshold. After 2034, the threshold drops to 0gCO2/km, indicating that all new vehicle sales must have zero tailpipe emissions. The penalty for non-compliance if a manufacturer’s average fleet emissions exceed these targets is €95 per gCO2/km over the threshold.

The EPS acts as a supply-side mechanism, putting the onus on vehicle manufacturers to decrease the emissions intensity of their fleets. While emissions standards don’t specify how companies should decarbonize, automakers have tended to choose electrification over low-carbon fuels because of cost, and to prioritize zero-emission vehicles over hybrids because this strategy has a greater effect on lowering their overall average tailpipe emissions.

Opportunity

The EU’s EPS regulation also applies to heavy-duty vehicles, which currently contribute 6% of the EU’s total emissions. Manufacturers of heavy-duty trucks will face a 15% emissions reduction target – based on their average emissions from the 2019 reporting period – by 2025, and a 45% reduction by 2030. While not all heavy-duty transport segments can be easily electrified, other vehicles with zero tailpipe emissions, such as those using hydrogen fuel cells, count toward compliance thresholds.

There are limitations to the design of the EU’s EPS. For example, the emissions thresholds apply to a manufacturer’s portfolio average, and only account for the tailpipe emissions of new vehicle sales. In other words, they do not consider the lifecycle emissions of a vehicle, and they are less likely to be impactful in markets dominated by secondary vehicle sales.

Policymakers can complement EPS measures by developing supply- and demand-side incentives for zero-emission vehicles and clean fuels, such as blending mandates and tax credits. Policies also play a crucial role in incentivizing modal shifts, including supporting the development of public transit networks and cycling infrastructure, and placing emissions limits on transportation, including in city centers.

Source

BloombergNEF, European Commission, European Environement Agency