Re: Cleaner, cheaper to run cars: The Australian New Vehicle Efficiency Standard Consultation

Impact Analysis (February 2024)

To: Department of Infrastructure, Transport, Regional Development, Communications and the
Arts
From: Tanzila Khan, Jan Dornoff, Zifei Yang, International Council on Clean Transportation
(ICCT)
Date: March 4, 2024
We compliment the Australian Government for taking the initiative to propose CO2 emissions
standards and publish the draft regulatory impact analysis for mandatory light-duty vehicle (LDV)
fleet CO2 targets in Australia. We cordially thank the Government for the opportunity to provide
comments on the consultation impact analysis. Please find a summary of the responses below,
followed by the complete detailed responses to the proposed New Vehicle Efficiency Standards
(NVES) for Australia. In case of questions, please contact Zifei Yang, Passenger Vehicle Program
Lead (zifei.yang@theicct.org).

Summary of responses
We particularly support the following aspects of the proposed standards with Options B or C.
• Introducing annual CO2 emissions targets, beginning as soon as 2025.
• Vision for adopting the Worldwide harmonized Light-vehicles Test Procedure (WLTP).
• Designing constrained linear target curves with lower and upper breakpoints and planning
to annually update limit curve slope and reference mass.
• Maintaining the same stringency headline targets for all passenger vehicles by classifying
passenger cars, all SUVs, and four-wheel drives under one vehicle class.
• Ensuring effectiveness of the standards by not allowing any technology credits.
We have the following major comments.
• For the headline targets, we recommend adopting Option C targets as these more closely
aligned with the stringency level needed to help Australia achieve its 2050 decarbonization
goal and catch up with global leading markets, including the U.S., European Union (EU),
United Kingdom (UK), Canada, and New Zealand.
• We consider the assumptions made for calculating the benefit-cost ratio of different
options as conservative and expect the benefit estimates to be substantially higher.
• Regarding the limit curve elements:
1. We suggest Australia adjust the determined slope downward by 10% each year.
Hence, the slope for passenger vehicles in 2025 standards would be 0.0597
instead of 0.0663. We further recommend practicing caution in updating the annual
slope and reference mass values, so that they are gradually lowered over years to
 ensure tightening stringency levels for emission targets.
2. For updating the annual reference mass, we recommend using the historic
evolution of fleet-average mass to annually extrapolate the reference mass value
to be used in the following year.
3. For the lower mass breakpoint, we recommend following New Zealand’s approach
and reducing the value to 1,200 kg, thereby not allowing a large portion of vehicles
below the lower breakpoint being subject to the same lenient targets.
• We recommend Australia adopt the EU approach for the transition from NEDC to WLTP,
including the robust method for setting the targets and for converting the original type-
approved values between test procedures.
• We recommend limiting the period where borrowing of credits is allowed to the first three
years of the standards, applying a continuously reducing cap on the number of debits that
can be offset by borrowing, and levying an interest on borrowed CO2 credits.
• We recommend the government to consider setting CO2 targets for 2030 and beyond
during the standard review period in 2026 to allow manufacturers time for long-term
planning and to continue emissions reduction post 2029.

Detailed comments
Headline CO2 targets
We suggest Australia adopt CO2 targets in Option C to closely align with the global leading target
trajectories and to help achieve Australia’s 2050 decarbonization goal. Proposed CO2 targets
under both Options B and C aim to align with the U.S. proposed (2027-2032) targets. However,
there are several major vehicle markets around the world that have adopted more stringent
regulations than the United States to reduce CO2 emissions from light-duty vehicles, including
Canada, the European Unition (EU), United Kingdom (UK), and New Zealand. Aligning with the
standards in those leading markets would better position Australia to decarbonize its light-duty
vehicle fleet and reach its net-zero climate target.
In ICCT studies, we assessed various policy scenarios for Australia’s LDV fuel efficiency
standards by evaluating different stringency levels that can help Australia achieve the 2050
decarbonization goal, including a scenario aligned with world-leading targets and a scenario
aligned with the U.S. 2023-2026 enacted standards.1 Assuming standards would apply from 2024
onwards, we estimated that the world-class scenario would require, on average, 16% annual
reduction from 2023-2029 while the U.S. aligned scenario was estimated to reduce emissions by
12% per year.2 From 2019 to 2050, the world-class scenario would lead to 33 million tons less
cumulative CO2 emissions than the U.S. aligned scenario. Although the assumption of the policy
scenarios and the regulatory timeframe considered in ICCT’s studies are different from those in
the NVES proposal, which lead to differences in annual reduction rate assumption, the analyses

1 Tanzila Khan et al. Fuel Efficiency Standards to Decarbonize Australia’s Light-Duty Vehicles, (ICCT: Washington
DC) 2022, https://theicct.org/publication/pv-australia-co2-standards-dec22/; Tanzila Khan and Zifei Yang, Run,
Australia, run! Catch up with leading markets in decarbonizing light-duty vehicles, https://theicct.org/pv-australia-blog-
efficiency-standards-dec22/. The world-leading targets include New Zealand’s CO2 emissions standards for 2025;
California’s Advanced Clean Car (ACC)-II requirement of 68% EV sales by 2030; and the European Union’s 0 g
CO2/km standards by 2035.
2 Formula we used to calculate the average annual emissions reduction:

1-[(g/km emissions at end year/g/km emissions at start year)]^(1/(end year-start year)).

2
demonstrate the significant CO2 reduction benefit that would result from a faster reduction speed
required by the regulations. Thus, we suggest Australia adopt the more ambitious Option C
targets as it would deliver higher cumulative CO2 reduction over the long term that could put
Australia on the way to LDV decarbonization by 2050.
Acknowledging that lower ambition is necessary in the first years to enable a fast implementation
of the CO2 standards, Australia could consider adopting CO2 targets in Option B from 2025 to
2027 and adopting CO2 targets in Option C from 2028 onwards to speed up the CO2 reduction
and align with the trajectories of the leading regions.
Figures 1 and 2 compare Australia’s Option B and Option C trajectories for new passenger cars
(PCs) and light commercial vehicles (LCV), respectively, with CO2 emission target trajectories in
the United States (U.S.), Canada, the EU, UK, and New Zealand. For comparability, all targets
have been converted to New European Driving Cycle (NEDC) equivalent CO2 emission values
using the ICCT cycle conversion factors.3
Under the proposed Option B, the CO2 targets for PCs align with the U.S. NEDC-equivalent
targets in 2028 and 2029 but remain less stringent than targets in other leading markets. Option
B LCV targets are consistently weaker than the respective U.S. targets, with 9% and 14% lower
stringency in 2028 and 2029 respectively. The LCV targets are also less stringent compared to
the UK and New Zealand.
The Option C targets would put Australia on track with the global leaders. For PCs, Option C
targets catch up with the leading markets in 2027, although it will still fall slightly behind EU and
New Zealand but will align closely in 2028 and 2029 with UK, which has a combination of CO2
emission standards and zero-emission vehicle (ZEV) mandates. For LCVs, Option C targets catch
up with EU and UK by 2027, reach similar level of New Zealand 2027 target with one year delay,
but generally align with or even more stringent than the UK targets in 2028 and 2029.
The consultation impact analysis report expressed concerns about the constrained technology
needed for the industry to meet the stringent Option C targets, which may then lead to limited
vehicle availability and affordability issues. On the vehicle availability issue, we expect that the
technologies will be ready and available when the Australia targets are catching up with the world-
leading targets in 2027. Note that fleet average CO2 emissions of passenger cars and LCVs in
EU and UK in 2021 have already achieved the CO2 targets required in Option C by 2026. As the
standards in the United States, Canada, and New Zealand become more stringent, vehicles in
those markets will overachieve the 2026 CO2 targets identified in Option C several years earlier.
This means that efficient vehicle models will be widely available in major markets globally.

3 Kühlwein, J. et al. (2014). Development of test cycle conversion factors among worldwide light-duty vehicle CO2
emission standards. International Council on Clean Transportation. https://theicct.org/publication/development-of-test-
cycle-conversion-factors-among-worldwide-light-duty-vehicle-co2-emission-standards/ ; Yang, Z. (2014). Improving
the conversions between the various passenger vehicle fuel economy/CO2 emission standards around the world.
International Council on Clean Transportation. https://theicct.org/improving-the-conversions-between-the-various-
passenger-vehicle-fuel-economy-co2-emission-standards-around-the-world/

3
 180

160 7
CO2 emissions (g/km) for passenger cars, normalized to NEDC

140 6

Fuel consumption (l/100 km gasline equivalent)

120
5

Australia option A 2029: 99

100
4

80

3
60
Australia option B 2029: 58
New Zealand 2027: 57
2
40 US 2032: 38

Australia option C 2029: 34 Canada 2035: 8

1
20 Historical performance
Enacted targets UK 2035: 0
Proposed targets
EU 2035: 0
0 0
2015 2020 2025 2030 2035
Note: U.S. 2026 target is adjusted in proposed standards for 2027 and later vehicles to reflect differences in various credits between the current rule and the
proposal; Canada and UK fleet-average targets estimated based on non-ZEV CO2 emissions and ZEV mandate.

Figure 1. Australia NVES impact analysis options in context of international historical data and standards for passenger
car CO2 emissions and fuel consumption, normalized to NEDC-equivalent CO2 emissions. Note: New Zealand
overachieved their 2023 target, and the average type-approval value in 2023 is lower than the enacted 2024 target (not
shown in the Figure).

240

220
CO2 emissions (g/km) for light commercial vehicles, normalized to NEDC

10

200

Fuel consumption (l/100 km gasline equivalent)

180
Australia option A 2029: 172 8

160

140
6
120

100

Australia option B 2029: 81 4

80

New Zealand 2027: 69

60
US 2032: 49
Australia option C 2029: 56
40 2

Historical performance Canada 2035: 11

20 Enacted targets
Proposed targets UK 2035: 0
EU 2035: 0
0 0
2015 2020 2025 2030 2035
Note: U.S. 2026 target is adjusted in proposed standards for 2027 and later vehicles to reflect differences in various credits between the current rule and the proposal;
Canada and UK fleet-average targets estimated based on non-ZEV CO2 emissions and ZEV mandate.

Figure 2. Australia NVES impact analysis proposed options in context of international historical data and standards for
light commercial vehicles CO2 emissions and fuel consumption, normalized to NEDC-equivalent CO2 emissions.

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In addition to the progress in CO2 reduction around the world, there has been significant progress
in global electric vehicle uptake. An ICCT briefing (2024) reported that the number of battery-
electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV) models keep increasing in
global leading markets including China, EU, India, and the U.S. The number of EV models has
increased by more than 20% on average in the first half of 2023 from 2022; 4 this includes 516 in
China, 243 in Europe, and 58 models in the U.S. The top 20 global automakers, accounting for
more than 80% of global LDV sales, have collectively committed to nearly 60% sales of BEVs
and PHEVs by 2030 globally.5
Since Australia only imports vehicles from other countries and is a technology adopter for new
LDVs, technology constraint should not be a significant issue because such technologies would
already be mature and widespread in other major markets. New Zealand is an example as an
import-only market that reacts to a CO2 emission regulation with a shift in technologies. New
Zealand recently adopted LDV standards for the 2023 to 2027 timeframe. Since the standards
came into effect in 2023, the PC fleet average CO2 emissions reduced by more than 18% from
2022 to 2023, compared with the 2% annual reduction rate before the introduction of the
standards6. The electric vehicle penetration also significantly increased from 10.7% in 2022 to
about 14.7% in 2023.7 The CO2 reduction progress in New Zealand demonstrates that a market
can quickly adopt technologies that have already become available to the mainstream market
globally.
On the point of affordability being affected by stringent targets, the consultation report mentions
that based on the experiences of the U.S., EU, and New Zealand, evidence to date consistently
finds that CO2 emissions standards have negligible or no impact on vehicle price nor will affect
new vehicle affordability for consumers. In the U.S., new vehicle prices have remained flat, or at
worst kept up with inflation for the past 20 years, despite mandatory greenhouse gas emissions
standards for six of those 20 years, getting progressively more stringent year-over-year. (Figure
3). Thus, while vehicles have become bigger, more powerful, more fuel efficient and less emitting,
they have become cheaper relative to the cost of other goods, and there has been no impact from
stringent standards on the price of U.S. vehicles.

4 Ilma Fadhil and Chang Shen, Electric Vehicles Market Monitor for Light-duty vehicles: China, Europe, United States,
and India, 2023 H1, (ICCT: Washington DC) 2024, https://theicct.org/publication/ev-ldv-major-markets-monitor-
2023h1-jan24/
5 Chang Shen et al., The Global Automaker Rating 2022: Who is leading the transition to Electric Vehicles? (ICCT:

Washington DC) 2023, https://theicct.org/publication/the-global-automaker-rating-2022-may23/; Ilma Fadhil, Which

automakers are keeping the ZEV momentum strong? (ICCT: Washington DC) 2023, https://theicct.org/automakers-
are-keeping-the-zev-momentum-strong-oct23/
6 New Zealand Ministry of Transport, Fleet statistics, https://www.transport.govt.nz/statistics-and-insights/fleet-

statistics/sheet/light-motor-vehicle-registrations
7 EVDB, NZ EV market share: light vehicles, https://evdb.nz/ev-percentage-nz

5
Figure 3. Consumer price indices for new U.S. vehicles relative to all goods and services over the years
(Data source: https://fred.stlouisfed.org/release/tables?rid=10&eid=34561#snid=34562)

Cost benefit analysis

The three options compared in the impact analysis have positive benefit-cost ratios. This is in line
with the European Commission’s impact assessment for setting the 2030 and 2035 targets.
However, while the EU analysis showed an increasing benefit-cost ratio with increasing ambition,
the Australia NVES impact analysis identifies the highest ratio for Option B.
We consider the assumptions made for calculating the benefit-cost ratio as conservative and
expect the benefit to be substantially higher, for the following reasons:
• Carbon cost: The benefit of CO2 avoidance is estimated at AUD 60 per Mt CO2, following
the Australian Transport Assessment and Planning Guidelines8. Compared to cost values
used for similar analyses in other markets, this value is very low. In the EU9 in 2019, CO2
abatement cost is estimated at about AUD 165 (+175%). The UK10 used a 2021 value of
about AUD 470 (+683%) for their ZEV mandate cost benefit analysis. While large
variability and uncertainty of the carbon cost is also acknowledged by the Australian
Transport Assessment and Planning Guidelines, a sensitivity analysis in this regard is
performed only for Option B and only considers a relatively small variability of +/- AUD
60.
• Battery replacement cost: The impact analysis considers battery replacement after 12
years. This seems to be a pessimistic scenario, considering that the Advanced Clean
Cars Act II of the California Air Resources Board11 sets durability requirements of 70%
performance retention after 10 years, or 240,000 km for vehicles registered until 2029,

8 Commonwealth of Autralia, “Australian Transport Assessment and Planning Guidelines - PV5 Environmental
Parameter Values - 2021,” ATAP (Australia: Infrastructure and Transport Ministers, August 2021),
https://www.atap.gov.au/sites/default/files/documents/pv5-multi-modal-update.pdf.
9 European Commission, “Handbook on the External Costs of Transport : Version 2019 – 1.1,” Website, April 21,

2020, http://op.europa.eu/en/publication-detail/-/publication/9781f65f-8448-11ea-bf12-01aa75ed71a1/language-
en/format-PDF.
10 UK Department for Transport, “Zero Emission Vehicle Mandate and CO₂ Regulations - Joint Government

Response Cost Benefit Analysis,” October 2023,

https://www.legislation.gov.uk/uksi/2023/1394/pdfs/uksiod_20231394_en_001.pdf.
11 Anh Bui, Dale Hall, and Stephanie Searle, “Advanced Clean Cars II: The next Phase of California’s Zero-Emission

Vehicle and Low-Emission Vehicle Regulations,” Policy Update (Washington DC: ICCT, 2022), https://theicct.org/wp-
content/uploads/2022/11/accii-zev-lez-reg-update-nov22.pdf.

6
 and 80% retention from 2030 onwards. It is unlikely that a battery would require
replacement only 2 years later.
• Price parity: The impact analysis assumes price parity between combustion engine cars
and battery electric vehicles will not happen until 2030. The cost parity sensitivity analysis
performed in the impact analysis for Option B assesses only the effect of a later price
parity by 2035 but not of an earlier date. However, a 2022 ICCT study12 finds that in the
U.S., price parity for battery electric vehicles with a range of at least 300 miles is already
achieved by 2028 for most segments. Only pick-up trucks reach price parity one year
later.
The limit curve design
We support the proposal that the target curve slope and reference mass values will be updated
annually and agree with the design of introducing upper and lower mass thresholds to the
standards curve. However, we recommend the following: (1) adjusting reference mass based on
future projections from historic evolution of fleet-average mass, rather than using two-year old
data; (2) reducing the proposed slope of the limits curve for passenger vehicles and practicing
caution in updating the annual slope and reference mass values so that the values are lowered
over years; and (3) reducing the lower mass breakpoint of the limits curve to 1,200 kg to avoid a
large portion of vehicles below the lower limit being subject to the same lenient targets.
• Reference mass
The slope and reference mass values of the limit curve affect the stringency level of the standards
as those are used to adjust the headline targets using the limits curve equation. A steeper slope
(i.e., slope with higher value) implies less stringent emission targets for heavier vehicles, which
could encourage the import of heavier vehicles. In general, a mass-based adjustment does not
incentivize manufacturers to adopt light-weighting technologies; rather, since the slope value is
usually higher than the actual best fitting line of mass and CO2, manufacturers are rewarded for
higher mass by gaining a higher CO2 target than needed. A heavier reference mass has the
similar weakening effect on stringency level of the mass-adjusted targets. Therefore, our
recommendation is to be cautious in updating the slope and reference mass values each year so
that they are gradually lowered to ensure tightening stringency levels for emission targets and to
discourage weight increase of the fleet.
Regarding use of two-year prior data in updating the slope and reference mass estimates,
considering that BEVs have a substantially higher mass than comparable ICEVs, an increasing
share of BEVs leads to a rapid increase in fleet-average vehicle mass. Therefore, even a two-
year delay in data availability for updating the fleet-average mass can have a strong effect since
a reference mass lower than the current fleet-average mass weakens the CO2 standards as it
leads to a higher fleet-average target than foreseen by the regulation. Therefore, we recommend
using the historic evolution of fleet-average mass to annually extrapolate the mass value to be
used in the following year.
• Slope of the curve
The proposed slope of the curve for PCs is very steep compared with other countries that also
use a weight-based system. Figure 4 shows that the slope of the Australia’s proposed curve for

12 Peter Slowik et al., “Assessment of Light-Duty Electric Vehicle Costs and Consumer Benefits in the United States
in the 2022–2035 Time Frame” (Washington, D.C.: International Council on Clean Transportation, October 18, 2022),
https://theicct.org/publication/ev-cost-benefits-2035-oct22/.

7
PCs is twice the slope of the EU standards, and also higher than China and Japan. For
comparison purpose, fuel efficiency or CO2 emission standards for all countries are converted to
equivalent gCO2/km emissions on NEDC.13 The CO2 emission targets curves are comparing the
proposed 2025 NVES standards for Australia, 2023 standards for New Zealand, 2024 standards
of EU, 2025 standards of China, and 2030 standards of Japan, all for passenger cars.14
180

160

Australia slope = 0.0663

CO2 emission target (NEDC g/km) for passenger cars

140 Equation for 2025 PVs: 141 + 0.0663 x (M-1723)

120 New Zealand slope = 0.0695

EU slope = 0.0333

100

80
China slope = 0.0345

60
Japan slope = 0.0516

40

20

0
700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 2100 2200
Vehicle mass (kg)

Figure 4: Comparison of NEDC-equivalent CO2 emission targets curves for Australia and other countries
with weight-based standards, for passenger cars. Australia’s curve is based on the 2025 annual CO2
emission target, i.e., 141 g/km, and the slope represents 2025 and 2026 obligation years.
A weight-based standards system always penalizes mass reduction of the vehicles as it assigns
more stringent targets for lighter-weight vehicles. Such negative impact increases as the curve
gets steeper. Therefore, the slope of the standard curve should be low enough to avoid gaming
and fleet upsizing/weight increase. Setting a flatter limit curve for heavier vehicles would ensure
the heaviest vehicles are subject to a more stringent standard, therefore encouraging the
advancement of fuel efficiency technologies in larger vehicles and helping to reverse the fleet-
wide trend toward heavier vehicles. Given that the proposed slope update would apply with a

13 All countries shown in Figure 4 other than Australia, have WLTP-based standards; we used a WLTP to NEDC ratio
of 1.21 to estimate the NEDC-equivalent gCO2/km emissions for comparison purpose.
14 Australian Government, Cleaner, cheaper to run cars: The Australian New Vehicle Efficiency Standard consultation

impact analysis, https://www.infrastructure.gov.au/sites/default/files/documents/cleaner-cheaper-to-run-cars-the-

australian-new-vehicle-efficiency-standard-consultation-impact-analysis-february2024.pdf; New Zealand Legislation,
Land Transport (Clean Vehicle Standard) Regulations 2022,
https://www.legislation.govt.nz/regulation/public/2022/0285/27.0/LMS773853.html; EU 2021-2024 standards
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02019R0631-20240101; China Phase V 2025
standards https://www.transportpolicy.net/standard/china-light-duty-fuel-consumption/; Japan 2030 standards
https://theicct.org/wp-content/uploads/2021/06/Japan_2030_fuel_standard_update_20191007.pdf.

8
delay of two years and considering that the slope continuously reduces over time 15 , we
recommend adjusting the determined slope downward by 10% each year. Therefore, the slope
for the first year should be 0.0597 instead of 0.0663 for PVs.
• Breakpoint mass
Regarding the breakpoint masses of the limit curve, the NVES proposed a lower mass breakpoint
as 1,500 kg for both PCs and LCVs, which is very close to the reference mass, i.e., fleet-average
value of 1,723 kg, for PCs. This leaves a wide range of vehicles with mass at, or below, 1,500 kg
subject to the same adjusted target (e.g., 126 gCO2/km in 2025) regardless of variability in CO2
emission rates. The lower mass breakpoint in the proposal is much higher than practices in other
countries, such as 1,200 kg in New Zealand16 and 750 kg in China17. We recommend following
New Zealand’s approach and reducing the lower breakpoint to 1,200 kg so that there is not a
large portion of vehicles being subject to the same, lenient targets below the lower breakpoint.
CO2 emission performance assessment during the transition from NEDC to WLTP
We support Australia’s ambition to switch from the NEDC based type-approval procedure to
WLTP, as the WLTP is more robust and generates CO2 emission values that are more
representative of real-world driving. A recent ICCT study (2024) jointly done with the Transport
Energy/Emissions Research, Australia, estimated that the gap between NEDC and real-world
CO2 emissions for Australia’s PVs have increased from 9% in 2007 to 46% in 2021.18 Analyses
of WLTP and real-world emissions for the EU passenger cars suggested a much smaller gap,
being estimated 8% in 2018 and 14% in 2022. 19 The increasing gap between real-world
performance and official CO2 emissions values in Australia contributes to the growing difference
between the real-world performance of LDVs in Australia and those in other major markets,
including China, Europe Union, United States, and Japan. Thus, WLTP needs to be adopted as
soon as possible for Australia’s new standards to effectively reduce not only type-approval
emissions but also emissions in the real-world.
Considering the long NEDC to WLTP transition period, starting in December 2025, it is necessary
to decide whether emission limits are defined relative to the NEDC or WLTP. Furthermore, a
mechanism is required to translate the type-approval value in the case that it was determined by
a procedure differing from the procedure the target refers to.
Fortunately, the same exercise was already performed in the European Union and Australia could
benefit from their prior work and experiences. We therefore recommend Australia follows the EU’s
approach which entails the following elements:

15 Peter Mock et al., Adjusting for vehicle mass and size in European post-2020 CO2 targets for passenger cars,
ICCT briefing, 2018, https://theicct.org/publication/adjusting-for-vehicle-mass-and-size-in-european-post-2020-co2-
targets-for-passenger-cars/
16 New Zealand Legislation, Land Transport (Clean Vehicle Standard) Regulations 2022,

https://www.legislation.govt.nz/regulation/public/2022/0285/27.0/LMS773913.html
17 China Phase V 2025 standards https://www.transportpolicy.net/standard/china-light-duty-fuel-consumption/
18 Robin Smit et al., How Australian Light-duty vehicle CO2 emissions compare with the rest of the world, (ICCT:

Washington DC), 2024, https://theicct.org/publication/australian-ldv-co2-emissions-compare-to-the-rest-of-the-world-

feb24/.
19 Jan Dornoff et al., On the Way to ‘Real-World’ CO2 Values? The European Passenger Car Market after 5 years of

WLTP, (Berlin, Germany: ICCT, 2024), https://theicct.org/publication/real-world-co2-emission-values-vehicles-europe-

jan24/.

9
 • CO2 targets are defined as NEDC emissions until all new vehicles, including end-of-
series vehicles, are required to be WTLP type-approved.
• During this transition phase, WLTP type-approved vehicles require an NEDC equivalent
CO2 type-approval value. To avoid double testing, the NEDC value is preferably derived
from WLTP type-approval test data by simulation, using the European
Commission’s open-source tool CO2MPAS. This approach is enabled by the fact that
the WLTP comprises a substantially larger engine operating range than the NEDC.
Therefore, NEDC CO2 emissions can be derived by interpolation of the WLTP data points.
Details of the mechanism can be found in a 2020 white paper.20 It should be noted that
the reverse approach is not recommended, as it would require extrapolation of CO2
emissions to engine operating ranges that are not encountered during NEDC vehicle
testing and are therefore subject to large uncertainties. We would also advise against
converting NEDC type-approval values to WLTP CO2 values using fixed conversion
factors. As shown in ICCT21 and Joint Research Centre of the European Commission
(JRC)22 analyses, the WLTP to NEDC ratio strongly varies between manufacturers and
fuel types.
• Once the transition to WTLP is completed, the NEDC CO2 limits need to be translated
to WLTP equivalent limits. For this purpose, fleet-average WLTP to NEDC ratios
determined in the EU separately for passenger cars and light commercial vehicles
could be used. The conversion ratios used in the EU are 1.157 for cars and 1.226 for
vans23. To avoid manufacturers inflating the WLTP/NEDC ratio and thereby the WLTP
CO2 targets by declaring a too high WLTP value, JRC calculated these values based on
the measured WLTP emissions, instead of the declared. The WLTP to NEDC ratios based
on the declared WLTP value were 1.211 for cars and 1.288 for vans in the same year
2020.
We suggest that once the transition is completed, the WLTP test mass should be used as
reference mass, instead of the mass in running order because the WLTP CO2 emission values
are associated to the test mass.
Vehicle classification
We strongly support the vehicle categories of Options B and C where PVs have been defined to
include passenger cars, all SUVs, and four-wheel drives (MA, MB, and MC categories), while
LCVs include utes and vans with up to 4.5 tonnes gross vehicle mass (NA and NB1 vehicles).
This classification scheme is in alignment with our findings and recommendations from the ICCT
briefing paper (2023) on LDV classification for Australia.24 In that paper, we discussed that the
global typical practice is to have two standards curves, like the EU, New Zealand, and Japan,
where they keep SUVs and non-SUV cars in one category under passenger cars, and LCVs or
light trucks to a separate category. Based on the analyses of EU data, non-SUV cars, SUVs, and

20 Jan Dornoff, Uwe Tietge, and Peter Mock, “On the Way to ‘Real-World’ CO2 Values: The European Passenger Car
Market in Its First Year after Introducing the WLTP” (Washington, D.C.: International Council on Clean
Transportation, May 19, 2020), https://theicct.org/publication/on-the-way-to-real-world-co2-values-the-european-
passenger-car-market-in-its-first-year-after-introducing-the-wltp/.
21 ibid
22 European Commission. Joint Research Centre., 2025 and 2030 CO2 Emission Targets for Light Duty Vehicles.

(LU: Publications Office, 2023), https://data.europa.eu/doi/10.2760/901734.

23 ibid
24 Tanzila Khan and Zifei Yang. Light-Duty Vehicle Classification for Australia’s Fuel Efficiency Standards, (ICCT:

Washington DC) 2023, https://theicct.org/publication/pv-australia-vehicle-classification-apr23/

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LCVs all have similar patterns of CO2 emissions versus vehicle mass. Because the same
emission reduction technologies can be applied to all LDV types, there is no need to split the SUV
segment and allow certain heavier SUVs to be in a separate class with light trucks, as proposed
in Option A.
Furthermore, splitting up the SUV segment under PV and LCV segments could lead to
unfavorable consequences of increasing sales of heavier SUVs, as seen in the U.S. market. The
U.S. is one example of a major vehicle market where SUVs have been differentiated between car
SUVs and truck SUVs, and thus subject to different standard curves. Such classification has
contributed to a significant increase in the sale of truck SUVs, from 2% of the U.S. LDV market in
1975 to 45% in 2021.25 These trends are one factor that has contributed to the relatively modest
fleet-wide efficiency improvements in the U.S. in recent years. Such an outcome runs counter to
the goal of an effective fuel efficiency standard. Merging certain heavy SUVs in Australia with
LCVs in “NA” class would risk similar consequences as in the U.S. SUVs already grew from 30%
to 55% of the Australian LDV market between 2012 to 2021. While heavy SUVs were only 14%
of the Australian LDV market in 2021, light SUVs had a 41% share, signaling that the heavy SUV
market will likely increase substantially in the future if those vehicles are granted less stringent
standards. Our modeling results showed that with the most ambitious world-leading targets (such
as California’s ZEV mandate for 2030 and the EU’s 0 gCO2/km by 2035), the standards with a
SUV split approach would yield 35 million tons more cumulative CO2 emissions than the standards
without a split approach. 26 The emissions from a split approach would be even higher if the
adopted standards are less stringent than the world leading targets.
In the recently released U.S. multi-pollutant emissions standards proposal for 2027 and later
model year light- and medium-duty vehicles, the U.S. Environmental Protection Agency (EPA)
indicated that “The design differences for many cross-over vehicle models that are offered in both
a two-wheel drive (2WD) and an AWD version (aside from their driveline) are difficult to detect.27
They often have the same engine, similar curb weight (except for the additional weight of an AWD
system), and similar operating features (although AWD versions might be offered at a premium
trim level that is not required of the drivetrain). ” Furthermore, “Many crossover vehicles and SUVs
exhibit similar towing capability between their 2WD and AWD versions (there are some exceptions
in cases where AWD is packaged with a larger more powerful engine than the base 2WD
version).” The U.S. EPA’s analysis of its recent vehicle fleet from model year 2019 further supports
the proposal in Option B and C to regulate all SUVs with the same standard curve as the non-
SUV passenger cars.
Technology credits and off-cycle CO2 emissions.
We support Australia’s position to not provide technology credits, e.g., super credits, off-cycle,
and air-conditioning credits. Technology credits could weaken CO2 standards and create
uncertainties of the effectiveness of the standards. To ensure the deployment of technologies that
reduce CO2 emissions outside of the type-approval test cycle, we recommend monitoring real-
world CO2 emissions. For this purpose, on-board fuel and energy consumption monitoring
(OBFCM) devices should be made mandatory for all new vehicles.

25 ibid
26 ibid
27 Office of the Federal Register, “40 CFR Parts 85, 86, 600, 1036, 1037, and 1066 Multi-Pollutant Emissions

Standards for Model Years 2027 and Later Light-Duty and Medium-Duty Vehicles,” May 2023,
https://www.govinfo.gov/content/pkg/FR-2023-05-05/pdf/2023-07974.pdf.

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With regards to air conditioning systems, we recommend making low-global-warming-potential
refrigerants mandatory, as in the EU28.
Credit banking, borrowing, and trading.
To provide manufacturers with flexibility in meeting their CO2 targets, the proposed options
foresee the possibilities to bank generated credits, trade credits between manufacturers, and
borrow credits that need to be balanced with future credits to avoid penalties.
While we understand the need for these flexibilities, we also want to highlight the risks of
borrowing. Borrowing allows manufacturers to delay the introduction of vehicles with lower fuel
consumption, thereby posing a serious risk to the overall reduction of CO2. Furthermore,
borrowing credits disincentivizes ambitious manufacturers to overachieve their CO2 targets as the
value of generated credits is substantially reduced if manufacturers are not reliant on purchasing
them through trading.
To mitigate these risks while accounting for the need of borrowing until sufficient credits for trading
are generated, we recommend the following restrictions for borrowing, following the United
Kingdom Zero Emission Vehicle mandate (UK ZEV mandate)29:
• The period where borrowing is allowed should be limited. Following the UK ZEV
mandate that uses a three-year period, borrowing should only be allowed in the years
2025 to 2027. Remaining borrowed debits must be acquitted at latest by the end of 2029.
• The number of debits that can be offset by borrowing should be capped. The UK
ZEV mandate caps are defined as a percentage share of the total number of debits to
offset and are gradually reduced each year. In the first year, 75% of the debits can be
acquitted by borrowing, 50% in the second year, and 25% in the last year. If, for example,
a manufacturer sells 10,000 vehicles per year and exceeds its target by 20 g/km in 2025,
2026 and 2027, it would generate 200,000 g/km debits each year. Applying UK’s ZEV
mandate approach, the number of debits that this manufacturer could offset by borrowing
would be limited to 150,000 g/km (2025), 100,000 g/km (2026), and 50,000 g/km (2027).
• Considering the detrimental effect of borrowing on overall CO2 reduction and thereby on
society, borrowing should be subject to an interest rate. We suggest following the UK
by setting a 3.5% annual interest rate. This means, for example, that acquitting 1,000
debits borrowed in 2025 would require 1,035 credits in 2026 or 1,071 credits in 2027.
Under the proposed Option B, banked credits expire after 3 years. This long period brings the risk
that manufacturers reduce their CO2 emissions stepwise, especially when combined with
unrestricted borrowing. We therefore favor the 2-year expiration period of Option C, however, we
support Option B if the borrowing is restricted, as recommended above, to have sufficient credits
for trading in the market.
The penalty rate
Penalties should have a deterrent effect and ensure fairness for compliant manufacturers. The
preferred Option B foresees penalties of AUD 100 for uncompensated debits.

28 European Commission, “Directive 2006/40/EC of the European Parliament and of the Council of 17 May 2006
Relating to Emissions from Air Conditioning Systems in Motor Vehicles and Amending Council Directive
70/156/EEC,” 2006/40/EC § (2006), https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32006L0040.
29 United Kingdom, “CLIMATE CHANGE ROAD TRAFFIC - The Vehicle Emissions Trading Schemes Order 2023,”

2023 No 1394 § (2023), https://www.legislation.gov.uk/uksi/2023/1394/contents/made.

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As remarked in our earlier response to the public consultation, we recommend a higher penalty
of at least AUD 160. This would align with the penalties applied in the EU (95 EUR = AUD
157) and UK (86 GBP = AUD 166). This value would also better reflect the range of costs
associated with CO2 direct air carbon capture, which is equivalent to AUD 73 to AUD 175 per
gram of CO2 and km30.
We cannot follow the light vehicle industry’s concern mentioned in Chapter 6 “that high penalties
could result in some vehicles being withdrawn from the market.” The purpose of a CO2 standard
is to reduce fleet average emissions, which entails replacing high emitting vehicles with low or
zero-emission vehicles.
Real-world CO2 reduction
Similar to CO2 and fuel economy standards in other regions, the proposed NVES sets targets for
type-approval CO2 emission values. However, relevant for meeting climate targets are the CO2
emissions during real-world usage.
As shown in a recent ICCT study (2024)31, even for WLTP type-approved vehicles, the reported
gap between real-world and type-approval CO2 values for cars used in Germany increased from
8% in 2018 to 14% in 2022. Consequently, while official CO2 emissions dropped over the same
period by 7%, reductions in real-world CO2 emissions values were only about 2%. Therefore, we
recommend Australia monitors real-world CO2 emissions and subsequently implements
measures that prevent the real-world to type-approval gap from growing. As a prerequisite,
OBFCM devices should be made mandatory for all new vehicles, as in the EU. To avoid similar
developments in discrepancy between real-world and type-approval energy consumption for
electric vehicles, we recommend requiring OBFCMs for all vehicles, that is including electric
vehicles.
PHEVs were shown to have a particularly large real-world to type-approval CO2 emissions gap of
200 to 400% in the EU 32. Therefore, we strongly recommend revisiting the calculation method of
PHEV official CO2 emission values. Following the European Commission’s approach for Euro 6e,
this can be achieved by adjusting the PHEV utility factor curve33.
Transparency
To build trust in the reported CO2 reductions, we recommend that detailed CO2 performance data
is made publicly available by the Australian government, as offered, for example, by the European
Environmental Agency (EEA)34. To allow for a detailed analysis by interested stakeholders, the
data should include vehicle parameters like model, fuel type, powertrain type, transmission type,
engine capacity, and engine power, similar to the EEA dataset. To analyze the BEV electric

30 Based on the International Energy Agency’s cost for CO2 capture of USD 143 to 342 per ton, assuming a lifetime
mileage of 240,000 km and a real-world to type-approval CO2 ratio for NEDC type-approved cars of 1.4.
31 Jan Dornoff et al., (2024), On the Way to ‘Real-World’ CO2 Values? The European Passenger Car Market after 5

years of WLTP, https://theicct.org/publication/real-world-co2-emission-values-vehicles-europe-jan24/

32 Patrick Plötz et al., “Real-World Usage of Plug-in Hybrid Vehicles in Europe: A 2022 Update on Fuel Consumption,

Electric Driving, and CO2 Emissions” (Washington, D.C.: International Council on Clean Transportation, June 8,
2022), https://theicct.org/publication/real-world-phev-use-jun22/.
33 Jan Dornoff, “Euro 6e: Changes to the European Union Light-Duty Vehicle Type-Approval Procedure” (Washington,

D.C.: International Council on Clean Transportation, December 19, 2022), https://theicct.org/publication/euro6e-type-

approval-dec22/.
34 European Environment Agency, Monitoring of CO2 emissions from passenger cars Regulation (EU) 2019/631,

https://www.eea.europa.eu/en/datahub/datahubitem-view/fa8b1229-3db6-495d-b18e-9c9b3267c02b

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energy consumption, the reported data should also contain energy consumption, electric range,
and battery capacity values.
Standard review in 2026
We appreciate Australia’s ambition to start implementing CO2 targets as fast as possible,
beginning from 2025 onwards, and we acknowledge the effort associated with this fast
implementation.
We recommend the government to consider setting CO2 targets for 2030 and beyond during the
standard review period in 2026 to allow manufacturers time for long-term planning and to continue
emissions reduction post 2029. The post-2029 targets need to be increasingly tightened to reach
a 0 gCO2/km target as soon as possible, and at least in line with Australia’s 2050 decarbonization
goal. Rules adopted in other markets show that a 0 gCO2/km by the middle of the next century is
considered both necessary and feasible. The EU in 2023, for example, adopted a 100% CO2
reduction target for 2035. Other markets including the UK and Canada are on the trajectory for
near-zero emission targets by 2035, with a combination of CO2 emission standards and ZEV
mandates that require manufacturers to sell increasing percentages of ZEVs each year.
Considering the novelty of the regulation, we welcome that regular reviews of the CO2 standards
are scheduled to assess implemented processes and analyze the effectiveness and efficiency. In
addition to the review of the historical and project performance regarding compliance with the
standards, we recommend this analysis to include:
• An evaluation of the CO2 emission reduction achieved under real-world conditions;
• The possibility to introduce a mechanism to prevent the gap between real-world and type-
approval conditions from growing;
• An assessment as to how consumers can be informed about the fuel- and energy
consumption as well as related cost, specifically under real-world conditions.
Success metrics
An important declared success measure of the NVES is the continued supply of small and
affordable vehicles to the Australian market. Based on experiences from other markets, additional
measures might be needed:
• Energy consumption standards for electric vehicles can ensure that efficient and smaller
vehicles are made available to the market.
• Fiscal instruments like bonus-malus vehicle registration taxation systems can be used to
balance purchase subsidies and to steer the demand towards smaller and more affordable
vehicles.
• Vehicles could be made affordable for low-income households by establishing social
leasing schemes as recently introduced in France35.

35France - Directorate for Legal and Administrative Information, “Help to rent an electric car from 2024 (electric
leasing),” December 21, 2023, https://www.service-public.fr/particuliers/vosdroits/F37557?lang=en.

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