White paper

Pathways to decarbonization: The European passenger car market, 2021–2035

As part of the roadmap to achieve its climate-neutrality goal, the European Commission will come forward with a proposal for revised CO2 targets for new passenger cars and vans by the middle of 2021. This paper assesses the CO2 reduction potential and associated estimated costs for currently adopted policies and three policy scenarios:

  • In the Adopted Policies scenario, manufacturers comply with the currently established targets of -15% by 2025 and -37.5% by 2030 but make no efforts to achieve additional reductions.
  • In the Lower Ambition scenario, targets are strengthened to -20% by 2025 and -50% by 2030, and a -70% target is introduced for 2035. Battery electric vehicles (BEVs) account for about half of new car sales by 2035.
  • In the Moderate Ambition scenario, the CO2 targets are increased to -30% by 2025, -70% by 2030, and -100% by 2035. In addition, BEVs reach a market penetration of about 50% by 2030 and 100% by 2035.
  • In the Higher Ambition scenario, full CO2 reduction (-100%) of the new car fleet is achieved by 2030 due to a rapid transition towards battery electric vehicles (BEVs).

For all scenarios, direct manufacturing costs increase compared to the 2021 baseline, from about €400 in the Adopted Policies scenario in 2025 to about €1,700 in the Higher Ambition scenario in 2030. In 2035, incremental manufacturing costs decline compared to 2030, mainly due to improved learning for electric vehicle technologies. Fuel cost savings throughout the lifetime of the vehicle make up for these initial investments in improved vehicle technologies. From a consumer perspective, for 2025, the Moderate Ambition and Higher Ambition scenarios provide the most favorable cost-benefit and initial technology investments are fully paid for within four to six years of ownership. For 2030, the Higher Ambition scenario ensures the quickest payback period (two years) and highest savings. For 2035, technology investments are recouped within one to two years for all scenarios except the Adopted Policies scenario, and savings are highest for the Moderate and Higher Ambition scenarios. In addition to fuel cost savings, calculations from a societal perspective also include the avoided external cost of CO2. For society, in all years, those scenarios with the highest CO2 reduction are also the scenarios that provide the greatest savings.

The analysis suggests that it is important to consider strengthening not only the 2030 fleet target but also the 2025 target, and to consider implementing annual targets in place of step-wise goals. Reducing more CO2 early increases cumulative savings for consumers and society and ensures a smoother technology uptake in anticipation of necessary CO2 reductions towards 2030 and 2035. In addition, credits for zero- and low-emission vehicles and eco-innovations should be set low and be phased out as early as possible.

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