Environmental protection regulations

The EU regulations governing CO₂ emissions from passenger cars (443/2009/EC) and light commercial vehicles of up to 3.5 tonnes (510/2011/EU), in effect since April 2009 and June 2011 respectively, set the specific emission limits for all new passenger car and light commercial vehicle models and the fleet targets calculated from the individual vehicle data of brands and groups in the 27 EU member states until 2019. They are an important component of European climate protection regulations and therefore form the key regulatory framework for product design and marketing by all vehicle manufacturers operating in the European markets.

From 2012 onwards, the average CO₂ emissions of European manufacturers’ new passenger car fleets may not exceed 130 g CO₂/km. This requirement is to be introduced in four stages: 65% of the fleet must meet this requirement as of 2012 and the entire fleet by 2015. A further significant reduction in European passenger car fleet emissions to 95 g CO₂/km from 2020 onwards has already been resolved, although the details as to how it will be reached have not. These are expected to be agreed by mid–2013 in the course of the European Commission’s current review.

The EU CO₂ regulation for light commercial vehicles requires limits to be met from 2014 onwards, with targets being phased in over the period to 2017: the average CO₂ emissions of new registrations in Europe may not exceed 175 g CO₂/km. The long-term target for the period after 2020 has also been set (at 147 g CO₂/km), subject to the European Commission’s current review. Like the CO₂ regulation for passenger cars, the regulation provides for derogations from the targets, for example by offering relief for eco-innovations.

The European Commission intends to set out the CO₂ regime for the period after 2020 by the end of 2014. Politicians are already discussing reduction targets for the transport sector for the period to 2050, such as the 60% reduction in greenhouse gases from 1990 levels cited in the EU White Paper on transport published in March 2011. It will only be possible to meet these long-term goals by also making extensive use of nonfossil sources of energy, in particular in the form of renewable electricity.

At the same time, CO₂ or fuel consumption regulations are also being developed or introduced outside Europe – in Japan, China, India, Brazil, Australia and Mexico, for example. In the USA, a new consumption regulation will prolong uniform fuel consumption and greenhouse gas rules in all states of the USA for the period from 2017 to 2025. The law was signed by the US president on August 28, 2012.

Increasing CO₂ and consumption regulations mean that the latest mobility technologies are required in all key markets worldwide.

The Volkswagen Group closely coordinates technology and product planning with its brands so as to avoid target breaches, which entail severe sanctions. In principle, the EU legislation permits some flexibility. For example:

• Excess emissions and emission shortfalls may be offset between vehicle models
• Emission pools may be formed
• Relief may be provided in the form of credits that are granted for additional eco-innovations contained in the vehicle and that apply outside the test cycle
• Special rules are in place for small and niche manufacturers.

Whether the targets are met, however, depends crucially on the Group’s technological and financial capabilities, which are reflected, among other things, in our drivetrain and fuel strategy.

The other main EU regulations affecting the automotive industry include

• EU Directive 2009/33/EC on the promotion of clean and energy-efficient road transport vehicles (Green Procurement Directive),
• Passenger car energy consumption labeling directive 1999/94/EC,
• Fuel Quality Directive 2009/30/EC: updates the fuel quality specifications and introduces energy efficiency specifications for fuel production,
• Renewable Energy Directive 2009/28/EC: introduces sustainability criteria,
• Revised Energy Taxation Directive 2003/96/EC: updates the minimum tax rates for all energy products and power.

The implementation of the above-mentioned directives by the EU member states serves as a flanking measure for the CO₂ regulations in Europe. As well as vehicle manufacturers, they are also aimed at other stakeholders such as the mineral oil industry. Plans to tax vehicles based on CO₂ emissions are having a similar effect; many EU member states have already incorporated CO₂ elements into their rules on vehicle taxation.

At the same time as the CO₂ legislation for passenger cars and light commercial vehicles, the EU is preparing CO₂ regulation for heavy commercial vehicles. Setting one overarching limit for these vehicles – like that in place for passenger cars and light commercial vehicles – is extremely complicated because of the wide range of variants (tractors with different trailers or bodywork). Therefore, a system for measuring and certifying CO₂ emissions by heavy commercial vehicles that considers the vehicle as a whole is currently being worked on. This is expected to be the basis for the EU’s concrete regulatory proposals, which are expected for 2014 and are likely to enter into force in 2017/2018.

Manufacturers of heavy commercial vehicles are urging the adoption of a system for quantifying CO₂ figures that is accessible to everyone and that looks at the vehicle as a whole, and not simply at the engine or the tractor, in order to increase transparency and therefore competition in the market.

As part of its efforts to reduce the CO₂ emissions of heavy commercial vehicles, the European Commission is also planning to revise the provisions regarding the maximum permissible dimensions of trucks (Directive 96/53/EC, the “weights and measures” directive). By relaxing the legal length restrictions, it may be possible to design vehicles in an aerodynamic way without losing any loading space. As air resistance is lower in a rounded and streamlined design, this leads to lower fuel consumption. Considering the vehicle as a whole could save up to 25% in fuel through the aerodynamic design of cabs and trailers, as well as additional technical innovations.

In the Power Engineering segment, the International Maritime Organization (IMO) has laid down the International Convention for the Prevention of Pollution from Ships (MARPOL), which phases in limits on exhaust emissions from marine engines. Emission limits also apply, for example, under EU directive 97/68/EC and the US EPA (Environmental Protection Agency) marine regulations. As regards stationary equipment, national rules are in place worldwide and have to be applied locally. On December 18, 2008, the World Bank Group set limits for gas and diesel engines in its “Environmental, Health, and Safety Guidelines for Thermal Power Plants”, which are binding if individual countries have adopted no or less strict national requirements. In addition, back in 1979, the United Nations adopted the Convention on Long-range Transboundary Air Pollution, setting limits on total emissions as well as nitrogen oxide limits for the signatory states (including all EU states, other countries in Eastern Europe, the USA and Canada). Enhancements to the product portfolio in the Power Engineering segment are focusing on improving the efficiency of the equipment and systems.

In order to be optimally prepared for the third emissions trading period starting in 2013, we calculated and reported the CO₂ emissions to be reported for our German plants in accordance with the Datenerhebungsverordnung (DEV 2020 – German Data Collection Regulation). We submitted the appropriate applications for the allocation of certificates to the Deutsche Emissionshandelsstelle (DEHSt – German Emissions Trading Authority) for all our plants. Our other plants in the European Union were also checked in accordance with the national laws in force at those locations and action was taken to ensure that applications were submitted to the relevant national authorities in good time.

The changes to the Emissions Trading Directive and their transposition into German law have been completed. From a current perspective, the number of plants included in the European emissions trading system from 2013 onwards and the related amount of CO₂ emissions requiring to be traded will not increase significantly.

The allocation of the necessary emissions certificates will change fundamentally as of 2013. They will no longer be allocated mostly free of charge through national allocation plans. Instead, a steadily falling number of certificates, for heat generation using natural gas for example, will be allocated free of charge. Companies will have to purchase any additional certificates they require at auction. Unlike before, CO₂ emissions certificates for power generation will have to be purchased in full. Estimates to date indicate that the energy costs incurred by the Volkswagen Group’s European sites will increase as a result of purchasing the emission allowances required for the operation of proprietary power plants and heating facilities. The amount of the additional costs will depend essentially on the price at which the certificates are traded.

The European Commission is currently giving detailed consideration to intervening in EU emissions trading in order to boost it. The Commission is currently in favor ofwithdrawing a defined number of freely allocated certificates at the beginning of the third trading period and not allocating them until the end of the trading period. This artificial shortage of certificates at the beginning of the trading period may cause certificate prices to rise.

The future political direction of global climate protection agreements remains unclear. There is currently no sound long-term prospect of specific reduction targets, responsibilities and funding arrangements or more stringent climate protection requirements based on them. At the UN, a new climate protection agreement for 2020 onwards is to be negotiated by 2015 at the latest.