Context
Heavy-duty vehicles (HDVs) – freight vehicles of more than 3.5 tonnes (lorries), or passenger transport vehicles of more than 8 seats (buses and coaches) – are a great part of our economy. Trucks transport 77% of all land freight in the European Union, forming part of a logistics network that includes inland waterways, maritime shipping, air transport and rail transport, delivering also essential public services such as garbage collection, fire, and construction.
The production of HDVs in the EU is concentrated in countries such as Germany, the Netherlands, Belgium, France, Sweden, and Spain. The EU is a major exporter of lorries, which generated a trade balance surplus of €4.9 billion in 2016.
Notwithstanding, the heavy-duty vehicles sector accounts for more than 25% of the greenhouse gas emissions from road transport in the EU. In 2019, the EU Regulation (EU) 2019/1242 of the European Parliament and of the Council of 20 June 2019 setting CO2 emission performance standards for new heavy-duty vehicles introduced CO2 emission standards for certain heavy-duty vehicles for the first time. These standards aimed to achieve a 15% reduction by 2025 and a 30% reduction by 2030. Considering these goals, a review of the regulation was scheduled for 2022.
Acknowledging the pressing need for more aggressive measures, in line with the EU’s climate objectives for 2030 and beyond, the Commission proposed a revision on February 14, 2023. In this light, the Council of Europe proposed an amending of the EU Regulation (EU) 2019/1242 to strengthen the CO₂ emission performance standards for new heavy-duty vehicles and integrate reporting obligations, which measures and goals that we are going to discuss in this blog post.
Goals
The revised targets are more ambitious, targeting a general 45% reduction by 2030, 65% by 2035, and an impressive 90% by 2040. Co-legislators agreed to broaden the scope of the regulation so that nearly all new heavy-duty vehicles with certified CO2 emissions — including smaller trucks, urban buses, tour buses, trailers, service vehicles such as garbage trucks, and retrofit vehicles — are subject to emission reduction targets.
However, we can identify some deviations or exceptions from these goals: trailers and semitrailers have a reduction target of, respectively, 7,5% and 10% from 2030 onwards, instead of the 45% general reduction stated above. On the other hand, a target of 100% zero-emission urban buses by 2035 has also been set, along with an interim target of 90% for new urban buses by 2030.
Nevertheless, some vehicles were exempted, even with this wide-broadened legislation, from the CO2 emission reduction targets outlined in the regulation, including small manufacturers, vehicles used in mining, forestry, and agriculture, vehicles intended for the armed forces, firefighters, civil protection, law enforcement, and healthcare. If the Member State wants to exempt these vehicles, it needs to specify during the registration and reporting process that the purpose of the heavy-duty vehicle cannot be adequately fulfilled by a zero-emission heavy-duty vehicle and that it is in the public interest to register a heavy-duty vehicle with a combustion engine for that purpose.
Procedure
The starting point of the CO2 certification procedure, found in Regulation (EU) 2017/2400, is the determination of the average specific CO2 emissions of a manufacturer, making it depend on the vehicle group and mission profiles (based on the different driving cycles), providing the average CO2 emissions at both reference and low payloads, differencing vehicle sub-groups.
After the calculation of the baseline of emissions for each sub-group, the backbone of the CO2 emissions and fuel consumption certification procedure is the Vehicle Energy Consumption Calculation Tool (VECTO). VECTO is a publicly available, open-source, downloadable, and executable software, where the manufacturer can calculate the specific CO2 emission of each vehicle, which will help to define a vehicle as zero or low-emission heavy-duty vehicles (ZEVs and LEVs). A vehicle is considered an LEV if its CO2 emissions are less than half of the baseline CO2 emissions of its respective sub-group.
With the calculations done, the reduction of the emissions will be determined by the comparison of the emissions of the heavy-duty vehicles of a manufacturer in the reporting period, versus the reference period. The reporting period is the period from 1 July of the year in question to 30 June of the following year; the reference period relates to the reporting period of a certain year concerning which the regulatory CO2 emissions reduction obligations for a certain vehicle sub-group are specified under the Regulation.
By this, we mean that on 30 September of each year, started in 2020, the competent authorities of the Member States shall report those data for the previous reporting period of 1 July to 30 June to the Commission. For example, the reference period of a trailer could be 2020, which would be compared to the reporting period of 2030, to check if it has accomplished the reduction of 45%.
The competent authorities responsible for the monitoring and reporting of data by this Regulation shall be those designated by the Member States – in Portugal, the competent authority is the Agência Portuguesa do Ambiente (Portuguese Environment Agency), a government agency responsible for managing environmental and sustainability policies.
Nevertheless, the Commission will keep a central register for the data on heavy-duty vehicles (‘the central register’). This central would be publicly available for everyone, as a mean of verification and fiscalization of potential errors, as a mean of comparison between countries and manufacturers, to help identify some difficulties found by any of these entities that might need the Union’s help, as a mean of accountability, and also for meanings of research.
Flexibilities and incentives
Building a solid business case that strongly supports the operation of zero-emission trucks and buses will lead to rapid market adoption of such vehicles and swift decarbonization of road transport. Therefore, decarbonizing road transport requires more than setting higher CO2 targets for manufacturers. Transport operators must be able to seamlessly recharge/refuel these new vehicles and be able to operate them more profitably than their conventionally powered trucks, so, the proposal also provides a set of incentives and flexibilities to assure compliance with the regulation.
The zero and low-emission heavy-duty vehicle incentives have two well-defined phases. From 2019 to 2024, a super-credit scheme was adopted. From 2025 onwards, is going to be applied a bonus only based on a benchmark. The incentives are implemented via the ZLEV factor, which consists of acquiring the average specific CO2 emissions of the company: summing the total emissions, and dividing by the number of vehicles. The ZLEV factor is capped at a minimum of 0.97. That is, the ZLEV incentives can only reduce the average emissions of a manufacturer by a maximum of 3%.
Credit-debt system
The first incentive is given by the credit-debt system that can (or not) benefit the manufacturers: manufacturers can generate credits if the manufacturer’s average CO2 emissions are below the linear CO2 reduction trajectory emissions targets. But, at the same time, manufacturers accumulate debt if their average CO2 emissions are above the respective CO2 target. If the average emissions of a manufacturer lie between the mandatory target and the CO2 reduction trajectory, neither credits nor debts are generated.
From 2019 to 2024, is going to be implemented a super-credits system: in the super-credits system, for all manufacturers, the produced ZLEVs are counted as more than one vehicle in the calculation of the average CO2 emissions of a manufacturer: ZEVs, which are certified with 0 gCO2/km, are double counted in the averaging set and LEVs are counted as up to 2 vehicles, depending on their CO2 emissions. For example, an LEV with CO2 emissions 75% lower than the sub-group baseline would count as 1.5 vehicles. The credit-debt accounting, expressed in gCO2/t-km, is proportional to the number of vehicle registrations under the scope of the regulation produced by the manufacturer.
Manufacturers are also allowed to accumulate early credits. These early credits are generated once the manufacturer’s average CO2 emissions are below a certain threshold, called the CO2 reduction trajectory, defined as a linear function between the baseline CO2 emissions and the 2025 emissions target. The early credits can only be used for compliance in 2025 and are not valid thereafter. There are no implications if a manufacturer’s average CO2 emissions are above the CO2 reduction trajectory during this period, meaning no debt is accumulated.
However, as stated the Article 7 of the Regulation, the total emission debt of a manufacturer shall not exceed 5 % of the manufacturer’s specific CO₂ emissions target multiplied by the number of heavy-duty vehicles of the manufacturer in that period (‘’emission debt limit’’).
In this context, it is important to note that credits and debts are not transferable between manufacturers. This is a logical rule, as the goals are supposed to be general – if the manufacturers could transfer the debts, it could lead to a type of fraud where, between some economical agreement, one manufacturer carries all of the consequences of the non-compliance, where the other one complies entirely to it.
Benchmark phase
However, from 2025 onwards, the credit-debit system will only be available for manufacturers where the sales of ZLEVs meet a benchmark of 2%. If the benchmark is not achieved, there are no negative consequences. But, if the manufacturer achieves the benchmark, LEVs count towards the benchmark with a value between 0 and 1, depending on their CO2 emissions. For example, an LEV with CO2 emissions 75% lower than the sub-group’s baseline would count as 0.5 in the ZLEV sales share calculation.
Compliance
Even with the credits-benefit, a manufacturer shall be deemed to have excess CO₂ emissions in any of the following cases: where, in any of the reporting periods of the years 2025 to 2028, 2030 to 2033, or 2035 to 2038, the sum of the emission debts reduced by the sum of the emission credits exceeds the emission debt limit referred to in Article 7(1), third subparagraph; where, in the reporting periods of the years 2029, 2034, 2039 and 2040, the sum of the emission debts reduced by the sum of the emission credits is positive or where, from the reporting period of the year 2041 onwards, the manufacturer’s average specific CO₂ emissions exceed its specific CO₂ emissions target.
Emissions credits can only be used for compliance up to 2029 and any emission debts must be resolved by then. From 2025 to 2029, if the accumulated debt exceeds a given threshold, the manufacturer is required to pay a per-vehicle penalty of €4,250 per vehicle for each gCO2/t-km of excess emissions.
Compliance in 2030 and thereafter is evaluated each year without the application of past credits or accumulated debt. Excess CO2 emissions above the target would result in immediate financial penalties. From 2030 onwards, the penalty amounts to €6,800 per vehicle for each gCO2/t-km of excess emissions. Extending the credit-debt scheme to the post-2030 period, including the immediate financial penalties, will be reassessed in the 2022 regulation review.
Next Steps
The provisional agreement will now be presented to the Member States’ representatives in the Council (Coreper) and to the Parliament’s Committee on Environment for approval. If approved, the text will then need to be formally adopted by both institutions, following reviewed by legal linguists, before it can be published in the Official Journal of the EU and come into effect.
The effectiveness and impact of the amended regulation on the aforementioned targets will be reviewed by the Commission in 2027. The co-legislators have added several provisions to broaden the scope of the review clause.
By 30 June 2027, the Commission will present to the European Parliament and Council a report analyzing the potential need and impact of initiatives aimed at increasing the proportion of zero-emission heavy-duty vehicles owned or leased by large fleet operators, as well as considering possible strategies to enhance the deployment of such vehicles.
Among other aspects, the Commission will also need to assess the possibility of developing a common methodology for evaluating and communicating information on CO2 emissions throughout the entire life cycle of new heavy-duty vehicles and present an evaluation of the role of a carbon correction factor in the transition to zero-emission mobility in the heavy-duty vehicle sector. The review will also evaluate the role of a registration methodology for heavy-duty vehicles that operate exclusively on CO2-neutral fuels.
Analysis
In general, we can say that this Regulation has great advantages in reducing the amount of CO2 released into the atmosphere, leading to a decrease in the overall greenhouse effect and mitigating the impacts of climate change, not only by the more ambitious goals but also by the regulation of more types of HDVs.
An indirect advantage that is worth talking about is the technological innovation in the automotive industry, which can be expanded for all vehicles, leading to the development of new technologies and solutions for reducing emissions, including advancements in engine design, aerodynamics, tire technology, vehicle weight reduction and the use of alternative fuels, hybrid, and electric powertrains.
For the last, setting and enforcing CO2 reductions on heavy-duty vehicle manufacturers will promote a shift towards a long-term sustainable and resilient transportation system, once the heavy-duty vehicles produced and the ones to be produced will last years and years, probably changing the whole automotive industry forever.
On the other hand, this regulation also presents several challenges, such as cost implications, involving substantial investments in research and development, more technological manufacturing processes, human resources, and infrastructure upgrades. Manufacturers may face challenges in meeting these requirements while maintaining vehicle performance and cost-effectiveness, probably leading to market problems as the prices of the HDVs and the consumer’s acceptance.
Besides this, the transitory process can also be unfair and unequal for some manufacturers that might require more time to shift their production towards lower-emission heavy-duty vehicles than others, particularly in regions with limited regulatory capacity and resources or smaller businesses.
Another disadvantage might be the consequences for multinational manufacturers, leading to potential inconsistencies for manufacturers operating in multiple markets outside Europe, making the manufacturers face difficulties in industry competitiveness with the domestic market of the third state, once these changes might involve the rise of the prices of the vehicles.
Nonetheless, this Regulation seems adequate and responding well to these difficulties, with all the incentives mentioned above, and with all the reviewing and follow-up policies found in this Regulation, allowing the European Union to respond to all the problems that might be faced in each country, each manufacturer, and in the market in general.
