Working Paper

Europe’s CO2 emission performance standards for new passenger cars: Lessons from 2020 and future prospects

This paper reviews recent developments in the European passenger car market and assesses the implications for the proposed post-2021 CO2 emissions targets. The regulatory proposal suggests retaining the 2025 reduction target of 15% compared to the 2021 baseline, and CO2 emissions reductions from cars would have to reach 55% in 2030, up from 37.5% in the current regulation. The proposal also suggests a de facto phase-out of internal combustion engine vehicles by suggesting that new cars registered should have zero emissions by 2035.

This analysis of 2020 market developments found that new vehicle type approval CO2 emission levels can decrease substantially if the right regulatory framework—including high penalties for non-compliance—is in place. In response to current policies, the average CO2 emission levels in Europe dropped by 21% from 2019 to 2020, illustrating that vehicle manufacturers are promptly able to adapt their product portfolio to ensure compliance with regulatory targets. The decrease in average new car type approval fleet CO2 levels in 2020 was almost entirely due to the strong uptake of electric vehicles, as well as regulatory compliance credits. Meanwhile, the average CO2 level of non-electric vehicles is estimated to have remained about constant.

The findings from this analysis leads to the following recommendations for post-2021 CO2 targets:

To ensure compliance with the European Green Deal climate protection targets, CO2 emission levels will have to decrease at a much faster rate than they have in previous years. The vehicle CO2 regulation provides an exemplary regulatory instrument to ensure the necessary reductions but must urgently be strengthened and adapted to the climate objectives.

Introducing annual interim targets for average new vehicle CO2 emission levels, rather than relying on 5-year targets as is currently foreseen by the regulation, would help to ensure a continuous decline in CO2 emission levels and avoid sudden market interruptions, such as the observed yet unprecedented uptake of electric vehicles in 2020.

Introducing minimum requirements for internal combustion engine vehicles, along with implementing monitoring and enforcement measures for real driving emissions, would help to ensure that manufacturers focus solely on reducing type approval CO2 levels and rely almost entirely on electric vehicles and regulatory credits for compliance, as was the case in 2020.

Revising fiscal policies at the national level to provide strong incentives for vehicles with zero or low emissions, while applying high taxation rates for vehicles with high emissions (i.e., a bonus-malus taxation system), would help to secure a continued and financially sustainable push for zero- and low-emission vehicles. These actions would leverage the effect of the EU-wide CO2 regulation and help automakers ensure compliance with their respective regulatory target values.