China Passenger Vehicle Fuel Consumption Development Annual Report 2016

Transcription

1 China Passenger Vehicle Fuel Consumption Development Annual Report 2016 The Innovation Center for Energy and Transportation September, 2016

2 Acknowledgements We wish to thank the Energy Foundation for providing us with the financial support required for the execution of this report and subsequent research work. We would also like to express our sincere thanks for the valuable advice and recommendations provided by distinguished experts and colleagues. Report Title China Passenger Vehicle Fuel Consumption Development Annual Report 2016 Report Date September 2016 Authors Liping Kang, Lanzhi Qin, Maya Ben Dror, Feng An The Innovation Center for Energy and Transportation (icet) Phone: Fax: Website: -1-

3 Executive Summary One of the main drivers of the national increase of oil consumption, greenhouse gases, and pollutant emissions is the rapid growth of passenger vehicles ownership in China over the past decade. International experience demonstrates that fuel economy standards are one of the most effective policy instruments for improving vehicle fuel efficiency, promoting technological development, and reducing greenhouse gas emissions. China started implementing fuel economy standards in July Since then, the policy has expanded the original by-vehicle weight-group fuel consumption limitation standard to also include by-vehicle weight-group fuel consumption targets, corporate average fuel consumption targets, also known as CAFC, and imported vehicles inclusion (as of Phase III, since 2012). The Innovation Center for Energy and Transportation (icet), the only domestic non-governmental organization to participate in the development of China s passenger car fuel consumption standards, continues to track and analyze the implementation of these standards. icet s efforts are primarily aimed at advising policy-makers to design and enforce a robust and effective standard. icet s 2016 China Passenger Vehicle Fuel Consumption Development Annual Report the sixth report of its kind analyzes the gaps between Phase III and IV in China s fuel consumption standard. The report is based on China s 2015 fuel consumption (FC) data and production of each auto manufacturer. It presents auto manufactures individual FC performance, evaluates New Energy Vehicles (NEVs) contribution to corporate and overall car market performance, and proposes recommendations towards the 2020 target of 5L/100km and translates to CO 2 emissions of 167kg/km (from the 2015 target of 6.9L/100km or about CO 2 120kg/km). The report s key findings are summarized below: 1. In 2015, domestic passenger vehicle manufacturers CAFC reached an average of 6.95L/100km. After including FC credits from NEV production, the average CAFC decreased to 6.60L/100km, outperforming Phase III FC target. The 2015 domestic passenger vehicle FC target of 6.9L/100km was first announced in the Energy Saving and New Energy Automobile Industry development plan ( ). icet s analysis found that, if calculating FC values and production volumes of internal combustion engines vehicles (ICE) alone, China s domestic passenger vehicle manufacturers corporate average fuel consumption (CAFC) reached 6.95L/100km. However, when accounting for new energy vehicles (NEVs, namely electric power engine vehicles) production and FC figures, the 2015 domestic average CAFC score improved by 0.35L/100km to 6.60 L/100km, well below the average FC -2-

4 FC, L/100km target. On the other hand, importing enterprises CAFC was much higher than that of domestic passenger car manufacturers, reaching 8.44L/100km if excluding NEVs, the national average fuel consumption was improving slightly to 7.02L/100km if excluding NEVs, still some 0.12L/100km higher than the national average fuel consumption. Generally, the Phase III target is relatively easy for manufactures to achieve % % % 95% % 93.2% 92.4% 95.1% 91.5% 90% 4.0 National Average Domestic JV Independent Import 85% CAFC2015 TCAFC-III CAFC2015/TCAFC-III Note: TCAFE-III stands for Target CAFC for the year 2015, the last implementation year of Phase III; By definition, domestic manufacturers CAFC is inclusive of both joint ventures (JVs) and independent manufactures CAFC versus 2015 Target CAFC (By manufacturer type) 2. In the past decade, passenger car fuel consumption (excluding NEVs) has improved slowly, in large part due to a gradual increase in the production of bigger and heavier vehicle models. Thus, the standard and management regime can have a greater impact on fuel consumption and emissions by encouraging the production of smaller and lighter vehicles. Overall FC levels have shown an average annual decline of less than 2% over the past decade. This represents a modest 0.10 to 0.25 L/100km annual reduction rate. Independent enterprises FC reduction rates were the slowest with an average annual decline of less than 1% (0.5L/100km decrease in the last decade). Increases in large weight-group models manufacturing helps to explain the annual slowing FC improvements. Statistics indicate that, between 2012 and 2015 (Phase III duration), domestic passenger cars average curb weight increased by 70kg while the average increase for independent passenger cars was 150kg. Generally, a 100kg increase in curb weight is accountable for an increase of about L/100km. Therefore, independent -3-

5 Fuel Consumption,L/100km Curb Weight, kg CAFC,L/100km Curb Weight,kg enterprises FC performance declines L/100km due to an increase in curb-weight. Better FC results could be achieved through an increased attention to model type and production volumes in China s FC standards regime % % % Phase I Phase II Phase III National Average Fuel Consumpiton Average Curb Weight National Average Fuel Consumption and Curb Weight Trends Phase I Phase II Phase III JV FC Independent FC JV CW Independent CW Fuel Consumption and Curb Weight Trends for JVs and Independent Manufacturers 3. The NEV super credits in CAFC calculation helps independent manufacturers reach short-term targets, but also weakens the motivation behind technological upgrades for traditional cars, undermining the long term goal of the standard. -4-

6 CAFC,L/100km Prodution In 2015, independent car enterprises produced about 95% of the NEVs (including imports) in China, delivering a 17% FC decline from 7.01L/100km to 5.82 L/100km, in contrast with a more modest decline of 0.5 L/100km achieved through technological upgrading of ICE vehicles. Over the past two years, the average fuel consumption of independent brand cars did not make any improvement and some manufactures CAFC even rebounded. Based on icet analysis, some independent NEV manufacturers has almost abandoned fuel saving technological upgrading after reaching a critical production volume of NEVs. For example, Jiangnan Auto and Jiangling Motors FC levels increased by 10% in 2015, followed by BYD Auto, with a 5% FC increase, as illustrated in the below figures. The two biggest independent car producers Chongqing Chana and Great Wall saw an increase in fuel consumption in , , , , , ,000 50, % 78% 126% 80% 41% 21% 42% 17% 198% 64% ICE Production NEV production Proportion 2015 NEVs Production vs. ICE Production by Major Domestic NEV Producers % % -2.2% 4.9% 10.7% -7.4% -5.3% -4.2% -8.0% 4.2% CAFC(excluding EV) 2015 CAFC(excluding EV) 2015 vs CAFC Performance (Excluding EVs) of Major Domestic NEV Producers -5-

7 L/100km % -46% -58% -49% -33% -20% -32% -17% -70% -43% Geel y BYD BYD Indu stry Jiang nan BAIC - Mote r Cher ry SAIC - Mote r JAC Linfa n- Mote r CAFC(excluding NEVs) CAFC(including NEVs) JMC- Hold ings CAFC(excluding NEVs) CAFC(including NEVs) 2015 NEVs CAFC Credits Effects on CAFC of Major Domestic NEV Producers 4. Greater FC improvements, on the vehicle and corporate levels, are still in need and fuel saving technologies could effectively deliver the necessary FC improvements on the vehicle and corporate levels. The increased stringency of the CAFC Phase IV standards requires profound strategic changes in corporate technological development. icet s 2016 CAFC analyses reveals that the CAFC 2015/T CAFC-IV ratio is 136% and decreases to 129% only after including NEVs. Moreover, about 25% of the vehicle models produced in 2015 do not reach the FC limits of CAFC Phase IV, despite the fact that the new FC limits should have been met by 1 January 2016 for newly certified models, and by 1 August 2018 for produced models. While the first implementation years of Phase IV allow for some flexibility, with a five-fold calculation privilege for NEVs (with FC counted as 0 for EVs), the task of meeting the standards that increase in stringency over time will be tough. From 2018 to 2020, the required 10% decrease in CAFC 2015/TC AFC-IV ratio (annual FC decline of 0.5L/100km on average) will suffice fuel saving technologies. The projected three or two-fold calculation privilege for NEVs replacing the current five-fold in later stages of Phase IV, or re-considerations of NEVs energy consumption (from the current value of zero), poses a great challenge in meeting the CAFC target. Furthermore, icet s scenario analysis reveals that a 40%-80% FC decline can be obtained through fuel saving technologies, and another 5%-25% FC decline can be gained through off-cycle energy saving technologies (e.g. kinetic energy recovery systems, efficient air conditioning, idle start-stop system, and shift reminder). That means 65%-85% FC declines for CAFC Phase IV still depends on energy saving technologies, making it essential for the corporate sector to advance its traditional manufacturing lines. -6-

8 Fuel Consumpiton (L/100km) MT Phase III target & Phase IV limit AT Phase III target & Phase IV limit Phase IV target for Row<3 Phase IV Target for Rows>= new passenger car fleet Curb Weight (kg) 2015 China New Passenger Car Fleet Fuel Consumption Distribution 5. An effective CAFC credits exchange mechanism that reward first movers is believed to be useful in advancing commercial technological developments. However, lack of enforcement and information gaps may lead to discrepancies and ineffectiveness of such market mechanisms, therefore, icet calls for the separation of CAFC credits from any other NEV-related credits mechanism (e.g. the highly debated ZEV-credits inspired program). The CAFC credits mechanism was introduced three years ago to allow manufacturers greater flexibility in meeting their targets. However, because the standards lead authority, the Ministry of Industry and Information Technology (MIIT), lacks any clear management and enforcement mechanisms, it is believed that the flexibility mechanisms unfairly serve the corporate sector by enabling them to avoid incurring higher costs. icet s 2016 CAFC analyses show that CAFC credits and debts are limited to a mere number of market players, and that credit volumes are higher than debt implicating that the CAFC credits mechanism is ineffective. More effective and comprehensive CAFC mechanism needs to be put in place before advanced energy saving technologies are promoted, translating to a long-term impact on China s overall auto sector fuel consumption. CAFC credits and NEV credits (ZEV-like credits) differ greatly in their policy goals and credits allocation mechanism. Moreover, potential mutual offsetting and adverse effects of the two different systems, should they be linked, calls for the independency of each of these regulatory tool at early stages. After reaching -7-

9 CAFC credits/debt,10000 L/100km maturity and proving their effectiveness, an integration of some sort should be considered CAFC credits producers CAFC debt producters Main CAFC Credits/Debts Producers for Domestic Car Companies -8-

10 Content Foreword China s Fuel Economy Development Fuel consumption standard regime Introduction to China s fuel consumption standard regime Introduction to Phase IV Fuel Consumption Standard CAFC calculation method CAFC NEV credits calculation CAFC s Governing Framework Management Framework Administration A Comparison Between China and Global Fuel Economy Standards Target Comparison CAFE Management Systems Comparison Average Fuel Consumption of Companies Vehicle Fuel Consumption Distribution Passenger Car Domestic Manufacturer s CAFC Phase III CAFC Compliance Company Phase III CAFC Credits CAFC Trends and Technical Development Developing Trends of CAFC National Level CAFC and Curb-Weight Domestic Auto Companies: Major CAFC Trends Importing Auto Companies: CAFC Trends Conclusions Technology and FC Development of Popular Models Volkswagen-Lavida Ford Focus Honda Accord Hyundai Verna BYD F Summary of Energy-Saving Technologies on Different Models

11 4. NEVs Impact on CAFC Performance NEVs Development in NEVs Contribution to CAFC The Contribution of NEVs to China s 2020 FC Goal Phase IV Implementation Phase IV Target Analysis Compliance Pressure Focus on Late Phase IV Stage The importance of advanced energy-saving technologies CAFC Credit Should be Introduced as Soon as Possible and Implemented Independently CAFC Appendix I: Limit Values and Target Values of Vehicle FC in Phases I, II, III and IV Appendix II: Domestic Auto Companies Producing > 10,000 Vehicles Appendix III: Importing Auto Companies Appendix IV: FC for Domestic Auto Companies Appendix V: FC for Auto Importing Companies

12 List of Figures Figure 1: Light-Duty Vehicle Production Volume from 2006 to Figure 2: Light-Duty Vehicle Import Volume from 2006 to Figure 3: China's By-Phase Fuel Consumption Limits and Targets for Passenger Cars Figure 4: Management Organizations and Responsibilities of China Passenger Cars Fuel Consumption Figure 5: CAFC Reporting Responsibilities by the Corporate and the Public Sectors Figure 6: Passenger Car Actual FC and Target Comparisons China and Abroad Figure 7: 2015 New Passenger Car Fleet Fuel Consumpiton Distribution Figure 8: 2015 CAFC Versus 2015 Target CAFC (by Manufacturer Type) Figure 9: Best CAFC2015/TCAFC-III Performance of Domestic Manufactures in Figure 10: Best CAFC2015/TCAFC-III Performance of Importers in Figure 11: 2015 Major CAFC Credits Producers - Domestic Manufactures Figure 12: Major CAFC Credits/Deficits Domestic Manufacturers Figure 13: 2015 Major CAFC Credits Producers of Passenger Car Importers Figure 14: Major CAFC Credits/Deficits of Importers Figure 15: National Average Fuel Consumption and Curb Weight Trends Figure 16: Fuel Consumption and Curb Weight Trends for Domestic Car Fleet. 37 Figure 17: Fuel Consumption and Curb Weight Trends for JVs and Independent Manufacturers Figure 18: Best CAFC Improvement Domestic Manufactures Figure 19: SUVs FC Related Characteristics, 2015 Average Data Figure 20: Average Fuel Consumption of Compact Cars/SUVs/MPVs Figure 21: Fuel Consumption and Curb Weight Trends of Auto Importers Figure 22: CAFC Trends for Import Cooperates Figure 23: Passenger Vehicle Fleets CAFC Development Trend Figure 24: China Passenger Vehicle Fleet CAFC/T CAFC III Trend Figure 25: Fuel Consumption/Curb Weight/Displacement Trends of VW-Lavida Models Figure 26: Fuel Saving Technology Applications Adoption Ratio in VW-Lavida Models Figure 27: Fuel Consumption/ Curb Weight/Displacement Trends of the Ford Focus Figure 28: Fuel Consumption/ Curb Weight/Displacement Trends of the Honda Accord Figure 29: Fuel Consumption/ Curb Weight/Displacement Trends of the Hyundai Verna Figure 30: Fuel Consumption/ Curb Weight/Displacement Trends of the BYD F Figure 31: DCT/CVT Application Trend in the BYD F Figure 32: New Energy Vehicles (NEVs) Production and Imports Figure 33: 2015 NEV Preferential Accounting Impacts on CAFC by Cooperates Type Figure 34: 2015 ICE vs. NEV Volume of Major NEV Producers (IEC vs. 5 times NEV) Figure 35: 2015 NEV Preferential Accounting Impacts on CAFC for Main NEV Producers Figure 36: 2015 vs ICE Fuel Consumption of Major NEV Producers Figure 37: NEVs Preferential Accounting Impacts on FC Target Achievement of Phase IV Figure 38: ICE FC Requirements with Different Accounting Ways with NEV Energy Consumption Figure 39: 2015 CAFC/ TCAFC IV by Corporation Type

13 Figure 40: 2015 Domestic and Import Cooperates TCAFC IV Distribution Figure 41: CAFC 2015/T CAFCIV of Domestic Corporation (Excluding NEVs) Figure 42: CAFC 2015/T CAFCIV of Domestic Corporations (Including NEVs) Figure 43: CAFC2015/TCAFCIV for Import Cooperates (excluding EVs) Figure 44: Annual Average FC Reduction Rate Needed for Meeting the Coming Target in Various Regimes Figure 45: ICE Fuel Saving Technology and NEVs Preferential Accounting Impacts on National Fuel Consumption Target Achievement List of Tables Table 1: China s Passenger Car Fuel Economy Standards System Table 2: Explanation of Terminologies in China s Fuel Consumption Regulatory System Table 3: China s By-Phase Fuel Consumption Standard System Table 4: New Energy and Energy Saving Vehicles Production Privilege in CAFC Calculation (production volume multiplier) Table 5: CAFC/T CAFC-IV Requirement for Car Producers and Importers During Phase IV Table 6: Comparison on FC Standard Targets of Main Countries and Regions Table 7: Regional FC Management Approaches Comparison Table 8: Average Fuel Consumption for Domestic Produced Car Fleets in Table 9: Average Fuel Consumption for Imported Car Fleets in Table 10: 2015 NEV Preferential Accounting Impacts on CAFC of Major NEV Producers Table 11: Annual NEVs Relative Production to ICE Production Assumptions Table 12: 2015 CAFC/TCAFC-IV by Cooperate Type Table 13: The Implementation Plan of CAFC/ TCAFC Phase IV Table 14: Advantages and Disadvantages Analysis for Separate or Joint Management of CAFC and NEV Credits

14 Production, Million Foreword China's light duty vehicle production and sales reached over 24.5 million units in 2015, marking China s seventh consecutive year as the world's largest auto market. The production of this year only increased 3.3%, marking a slow-down in annual growth 7. Passenger vehicles accounted for 20 million, or 86% of the total vehicle production, indicating a higher annual growth than that seen by the entire vehicle market (Figure 1) LDVs PCs Year Figure 1: Light-Duty Vehicle Production Volume from 2006 to 2015 Last year, China s imported cars amounted to million vehicles, representing a decade annual decrease of 22.7%, and accounting for 4.5% of the total vehicle sales 1. 1 CAAM auto industry economy operation situation summary, Checked online at July of

15 Import volume, thousand % Imported car accounted for 4.5% of the total market in Year Figure 2: Light-Duty Vehicle Import Volume from 2006 to 2015 In order to alleviate pressures brought on by energy security and environmental degradation driven by China s growing car use, the government recognized that vehicle fuel consumption should be reduced and vehicle energy efficiency should be increased. The State Council set clear objectives through its recently announced "Energy-Saving and New-Energy Automotive Industry Development Plan ( )" stating that by 2015 and 2020 the average fuel consumption of passenger cars should reach 6.9 L/100km and 5.0 L/100km, respectively 2. In the recent Made in China 2025 plan, a target of about 4L/100km by 2025 was suggested 3. Both domestic and international experience confirms that the implementation of fuel consumption standards is instrumental in improving vehicle fuel efficiencies and facilitating technological upgrades. China started implementing the first phase of its fuel economy standards in July 2005, since then, domestic passenger car average fuel consumption was reduced from 8.05 L/100km to 6.95 L/100km, an overall fuel economy improved of 13.6%. Since China entered its third phase of fuel economy standards in 2012, fuel consumption of imported cars reached an average annual decline of 3%-5% 4. China is gradually forming an effective management system for overseeing the sound implementation of passenger car fuel consumption standards. The Innovation Center for Energy and Transportation (icet) is a unique China-based non-profit independent organization that has been involved in the development of fuel economy policies in China since Leveraging its deep market understanding and regulatory outreach, icet developed China s first and most MIIT-Interpretation of Made in China 2025 plan. 4 Based on research results of this report, as well as icet s previous fuel economy annual reports. -14-

16 comprehensive vehicle database from This year s report is icet s fourth annual report, which tracks China s fuel economy implementation status, trends and recommendations. The analysis is based on fuel consumption and curb-weight data, which is available through vehicle labeling (based on official type-approval test results) and published on the Ministry of Industry and Information Technology (MIIT) website. Imported vehicles data is based on information purchased from China Auto CAIEC Ltd. (overseeing vehicle importation in China). Sales and production data is based on China Auto Industry Development Annual Report provided by China Association of Automotive Manufacturers (CAAM) and China Automotive Technology Research Center (CATARC). -15-

17 1. China s Fuel Economy Development This section will review the development of China s fuel economy standards, compare previous, current, and projected fuel consumption targets and limits, and highlight the standard management framework and describes corporate average fuel consumption (CAFC) calculation methods Fuel consumption standard regime Introduction to China s fuel consumption standard regime There are two standards that govern passenger vehicles fuel economy in China: (i) "Vehicle fuel consumption limit standard" (GB19578) is the first and core standard, which outlines fuel consumption limitations for passenger cars, steering China s fuel economy as of 2004; (ii) "Passenger car fuel consumption evaluation methods and indicators" (GB27999) introduces evaluation methods and indicators for passenger car fuel consumption, as well as introduces corporate average fuel consumption, governing the current standards as of The complete fuel consumption standard regime is outlined in Table 1. Table 1: China s Passenger Car Fuel Economy Standards System Standard type Standards name and number Testing standards Measurement methods of fuel consumption for light duty vehicles (GB/T ) Test methods for energy consumption of light-duty hybrid electric vehicles (GB/T ) Label standard Fuel consumption label for light vehicle (GB ) Mandatory standards Other voluntary standards Fuel consumption limits for passenger cars (GB ) Fuel consumption evaluation methods and targets for passenger cars (GB ) Conversion methods for energy consumption of hybrid electric vehicles (in process) Off-cycle technology/device energy saving effects evaluation methods for passenger cars (in process) The "vehicle fuel consumption limit" (GB ), is China's first mandatory vehicle fuel consumption management standard, which was implemented in two phases. The first phase ran from 1 July 2005 and 1 July 2006 steering the production of new -16-

18 vehicles and existing vehicles respectively. The second phase commenced on 1 January 2008 and 1 January 2009, steering the new vehicles and existing brands production respectively. The two phases grouped vehicles into 16 weight-bins according to each car s curb weight, therefore fuel consumption limits and requirements are less for lower curb-weight vehicles. By the end of 2011, China issued the "passenger car fuel consumption evaluation methods and indicators" (GB ), which included the first-ever introduction of corporate average fuel consumption (CAFC) standards. Again, according to a car s curb weight-bin, a 2015 target was set and subsequently, the first CAFC accounting methods and indicators were outlined. The CAFC targets all manufacturing enterprises (including domestic and imported) and sets corporate target as well as an annual gap from the target. These are determined and calculated according to the manufacturer s vehicles actual fuel consumption and corresponding production volume. Manufacturers can therefore flexibly adjust their vehicles technologies (and weight) and vehicles production volume in order to meet the required annual CAFC. China s Phase III sets the implementation requirements for 2015 CAFC at 6.9 L/100km. Table 2 explains the terminologies in China s passenger car fuel economy standards. In January 2014, the forth phase of both the "vehicle fuel consumption limit standard" and "passenger car fuel consumption evaluation methods and indicators" was introduced, and has entered implementation in January 2016, targeting a CAFC of 5.0 L/100km by Phase IV is designed to increase fuel consumption limits by about 20% and fuel consumption targets by 30%-40%. The new standard provides more detailed technology pathways for reducing fuel consumption and further promotes new energy vehicles by detailing their relative fuel consumption calculation. The new standard requires an accelerated annual corporate average reduction rate of roughly 3% in the first year (2016) to about 9% in the last two years (2019 and 2020). Table 3 summarizes China s fuel consumption s by-phase development. China s passenger vehicle fuel economy standards have quickly evolved in the past decade and continue to advance vehicle efficiency technology improvements by aligning China s vehicle market with global fuel economy standards by Figure 3 shows the four phases of the governing framework of fuel economy (more details can be found in Appendix I). Table 2: Explanation of Terminologies in China s Fuel Consumption Regulatory System Measurement Index Fuel Consumption Limit Target Fuel Consumption Acronyms Explanation Reference Standard and timeframe FC Every individual vehicle models have to Starting 2005:GB meet their corresponding weight-bin limit. (Phase I) The limit value of the fourth phase is about Starting 2016: B % lower than that of the third phase, (Phase IV) equal to the target value in the third phase; T FC Phase III implemented in 2012, also Starting 2012: introduced a FC target value associated with GB (Phase III) -17-

19 each vehicle model (according to its Starting 2016 weight-bin classification). There is no :GB requirement for meeting the individual (Phase IV vehicle model FC target, however T FC is used to calculate the target value of average fuel consumption (T CAFC) of auto companies. Actual Average Fuel CAFC Targeting auto companies, the CAFC is Same as above Consumption of calculated according to the annual vehicle Auto Manufacturers model type and volume output and the model s actual fuel consumption. CAFCxxxx means CAFC for specific year, for example CAFC Target Average Fuel T CAFC-III Target CAFC for the current phase period; Same as above Consumption of T CAFC-IV Automakers have to meet their corporate Auto Manufacturers average fuel consumption (CAFCxxxx) target (T CAFC-xxxx) is each model year (xxx). Actual and Target CAFC 2015 Annual CAFC actual /Target CAFC; By using Same as above FC Ratio /T CAFC-III this calculation method, one can track the annual CAFC % gap from meeting the CAFC 2015/ ultimate target: T CAFC-III represents Phase III CAFC Credits (announced 2013) T CAFC-IV (6.9L/100km by 2015) while T CAFC-IV represents Phase IV (5L/100km by 2020). --- Auto manufacturers can earn credits if their CAFC is above the annual target (CAFC/T CAFC value is less than 100% in Phase III). Otherwise, they will be penalized details of this regulation are still under discussion. The method for calculating average fuel consumption of passenger car enterprises Table 3: China s By-Phase Fuel Consumption Standard System Phase Timeframe Title Comments new models Phase I in production GB models Single vehicle FC limit new models (imported vehicles not included) Phase II in production GB models Phase III GB GB Single vehicle FC limit and corporate average FC target; (imported vehicles included); including imported vehicles. -18-

20 Fuel Consumption(L/100km) Phase IV new models in production models GB GB Single vehicle FC limit and corporate average FC target; (imported vehicles included); including imported vehicles phase I -MT FC limit phase I- AT FC limit phase II and III-MT FC limit phase II and III- AT FC limit phase III MT FC target & phase IV MT FC limit phase III AT FC target & phase IV AT FC limit phase IV FC target<3 phase IV target for rows>=3 30%-40% increase in stringency Curb Weight (kg) Figure 3: China's By-Phase Fuel Consumption Limits and Targets for Passenger Cars Introduction to Phase IV Fuel Consumption Standard Phase IV of China s fuel consumption standard for light duty vehicles sets by-weight bin limits similar to the targets of Phase III, some 20% stricter than the limits set by Phase II. The standards provide 30% lower fuel consumption target requirements for most vehicles and over 35% lower requirements for vehicles exceeding the 1660kg curb-weight. The new draft differs from the previous phase mainly through the following additions and updates: i. Expanding the scope of the standard to include electric vehicles, plug-in hybrid vehicles and gas-powered vehicles. ii. Although the new standard is not differentiating between automatic or manual models, it provides 3%-5% higher fuel consumption target for passenger cars with three seat rows and above. iii. Encouraging the use of off-cycle energy-saving technologies such as tire pressure -19-

21 monitoring systems, efficient air conditioning, idle start-stop system, and shift reminder, by rewarding vehicles that implemented one or more of these technologies with fuel saving credits of up to 0.5 L/100km from their Test-Approval FC value. While two off-cycle technologies and device energy saving effects evaluation methods for passage cars (start-stop system and eco-driving indicator device) have been drafted and recently entered into the public consultation stage 5, the evaluation of the other two off-cycle technologies is still under research (air conditioning and shift reminder) and projected to be released next year. iv. The energy consumption of NEVs will not be calculated with 0, but converted into gasoline or diesel fuel consumption. The specific converting method has entered the public consultation process 6. v. In advancing the adoption of new-energy and energy-saving vehicles, production or import volumes are encouraged to be gradually reduced as shown in Table 4. vi. The annual corporate average fuel consumption (FC) target will gradually increase in stringency, as detailed in Table 5. The standard directs less stringent FC reduction earlier during the standard period and more stringent reductions towards its end. While the annual reduction in the CAFC/T CAFC2020 ratio is required in the first year of Phase IV is 2.9%, the annual reduction in the last year of Phase IV ( ) can be translated into an annual reduction of about 9.1% in fuel consumption values. During the last two years, an annual decrease of 10 percentage points from the previous year CAFC/T CAFC2020 ratio is required, translating to about a 0.5L/100km decrease in absolute fuel consumption value. Table 4: New Energy and Energy Saving Vehicles Production Privilege in CAFC Calculation (production volume multiplier) PEV FCV PHEV* ESV** ~ * Plug-in electric vehicles (PHEVs) are defined as cars with electric range of at least 50km. ** Energy Saving Vehicles are defined as cars with fuel consumption lower than 2.8L/100km. Table 5: CAFC/T CAFC-IV Requirement for Car Producers and Importers During Phase IV Year Required ratio (CAFC/T CAFC-IV) % 5 Recommended national automobile standard Evaluation methods of the energy-saving effects of off-cycle technology units for passenger vehicles (exposure draft) Access in 22 nd July Recommended national automobile standard Energy conversion method for EVs and PHEVs (exposure draft). Access in 22 nd July

22 % % % % CAFC calculation method In the below detailed explanation of the T CAFC calculation, CAFC/T CAFC will represent the indicator national standard (GB27999) target implementation status. The CAFC uses vehicle model, year, and annual sales to calculate a weighted average for fuel consumption based on the New European Driving Cycle (NEDC), as shown in the formula below: CAFC N i 1 N i 1 FC V i i V W i i N: the vehicle model number FC: fuel consumption of the i th model V: annual production of the i th model Wi: production times of the i th model, if i th model is qualified NEV or ESV The CAFC Target is based on individual vehicle fuel consumption targets, which uses the quantity of annual production of each model to calculate a weighted average. See the formula below: T CAFC N i T N i i V V i i N: the vehicle model number T: fuel consumption target of the i th model V: annual production of the i th model -21-

23 The gradually changing fuel consumption targets are designed to account for the time that vehicle manufacturers require for product planning, technology upgrade, and new vehicle models development. The CAFC requirement was enacted in 2012 and allows automotive manufacturers until 2015 to gradually reduce their fuel consumption levels and meet the target, towards the CAFC binding period that started in 2015 and is at the heart of Phase IV ( ). The annual target for phase IV does not decease at a steady annual rate as in phase III, but rather gradually increases in stringency year by year. The years 2019 and 2020 would require an annual FC decrease of 0.5 L/100km, a target that is projected to be achieved only should the flexibility mechanism (NEV supper credits) be employed by manufacturers CAFC NEV credits calculation In 2013, a credits system for managing corporate FC values beyond or below the FC target was introduced through the the method for calculating average fuel consumption of passenger car enterprises 7. Should CAFC be between the corporate limit and target (T CAFC), the corporate is not eligible for credits (0), whereas should the actual CAFC be below the target, credits could be gained. Before 2015, credits could be carried forward for three years. Credits surplus = (CAFC T CAFC ) V i N i=1 Credits deficit = (T CAFC R CAFC) V i N i=1 Whereas the i th of Vi represents the vehicle production volume; R represents the subject s year CAFC/T CAFC ratio, which between 2012 and 2015 allows for 109%, 106%, 103%, 100% respectively. Appendix I lists the score of large corporation between 2012 and Corporations achieving CAFC /T CAFC <100% in 2015, can accumulate credits. 7 Five ministries jointly published Calculation method of Passenger Vehicle Corporation Average Fuel Consumption Access in 22 nd July

24 1.2. CAFC s Governing Framework Management Framework Currently, China s average corporate fuel consumption standard implementation for passenger cars is jointly governed by several ministries the Ministry of Industry and information Technology (MIIT), the National Development and Reform Commission (NDRC), Ministry of Commerce (MOFCOM), General Administration of Customs, and the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), as illustrated in Figure 4. MIIT governs motor vehicles verification, such as domestic manufacturers fuel consumption and manufacturing volume. The Customs Administration, AQSIQ, and MOFCOM are responsible for overseeing the fuel consumption, import volumes, and importing entities verification of imported passenger cars, while NDRC is mainly responsible for the planning, dissemination, and development of energy saving and new energy cars. MIIT Management lead and policy initatior NDRC Planning and Management Executive Management MOFCOM CUSTOMS Imported vehicles management CAFC Management AQSIQ car production Certification NTCAS Auto manufacture participation Standard System SSC CATARC techinical support Figure 4: Management Organizations and Responsibilities of China Passenger Cars Fuel Consumption Administration In order to improve vehicle management and in accordance with the 2012 announced "State Council s energy-saving and new energy automotive industry development plan ( )" a joint-ministerial effort comprised of the Ministry of Industry and Information Technology (MIIT), the National Development and Reform -23-

25 Commission (NDRC), the Ministry of Commerce (MOFCOM), and Customs General Administration (AQSIQ) jointly developed an "Accounting Approach for Passenger Vehicle Corporate Average Fuel Consumption" 8. The accounting approach was announced in March 2013 and went into effect on 1 May According to the accounting approach, passenger car manufacturers and importers are required to submit their projected annual production or importation volume and each vehicle fuel consumption data as well as resulted CAFC, and report mid-year and year-end actual CAFC, according to the timeline described in Figure 5. The government is releasing the companies reported data by 20 March, and is supposed to report the final annual CAFC details and compliance status of China s auto corporations (after scrutiny by five related ministries) by 1 June annually, however the reports in the previous couple of years have been postpones (for example, 13 July in 2016). Figure 5: CAFC Reporting Responsibilities by the Corporate and the Public Sectors No specific effective enforcement measurements were carried out to manufacturers to improve their fuel economy and fulfil the standards requirements. Afterword, MIIT published a management strengthening memo in October 2014 stating shaming as an approach, and threatened car makers that no new product models will be approved if they fail to meet the required demand. On 15 May 2014, MIIT announced that a working group led by its Industry Division and Equipment Department would inspect approval testing to ensure the sound implementation of China s third phase fuel consumption aimed at an average of 6.9L/100km by In September 2016, MIIT 10 published its intended plan for the

26 implementation of CAFC with an inclusion of an NEV credits trading program. NDRC 11 has separately published plans for creating an independent NEV credits system to the CAFC system as part of its ETS management system. Those proposals have entered the phase of public consultation. The final enforcement of the regulation is still pending final decision. Carbon Trading Law is part of NDRC s planning authority. A feasibility reporting and auditing system is required for MIIT planning to avoid credit cheating. 1.3 A Comparison Between China and Global Fuel Economy Standards Target Comparison Europe, the US, Japan, and other developed countries are all advancing fuel economy standards with increasingly stringent goals for 2020 and beyond. This includes technology roadmaps development for ensuring market effectives, implementation and enforcement mechanism for steering technological improvements, and even creating corresponding CO 2 emissions standards for ensuring linkage to policy-makers pollution reduction commitments and goals. In 2009, the EU replaced the voluntary CO 2 emissions reduction agreement with mandatory legal standards, including CO 2 emission limits and labeling requirements. These set a target requirement of 130g/km by 2015 (the equivalent of 5.6L/100k) and 95g/km by 2020 (the equivalent of 4.1L/100k). Japan has proposed the 2020 light vehicle fuel economy standards target to be set at 20.3 km/l (the equivalent of 4.5L/100k), representing a 20.3% reduction from Japan s average of 16.3 km/l (the equivalent of 5.5L/100k). In April 2010 and August 2012, the United States issued light vehicle fuel economy and greenhouse gases (GHG) standards for governing (first phase) and (second stage) vehicle development. The standards are aimed at restricting 2025 US light vehicle average fuel economy at 54.5mpg (the equivalent of 4.6L/100k). Table 6 compares by-country FC standard targets. Each country s fuel consumption test conditions are different, so is the standard expression unit; therefore, all were transformed into the next level of the European conditions, namely the L/100km units to allow the annual comparison illustrated in Figure 6. Although China s fuel economy standard has a rigorous 2020 target of 5L/100km, its stringency is moderate in relation to the advanced EU and Japanese standards

27 Table 6: Comparison on FC Standard Targets of Main Countries and Regions Countries and regimes Target Requirement NEDC operating conditions (L/100km*) Target Requirement NEDC operating conditions (L/100km*) Target NEDC operating Requirement conditions (L/100km*) EU 130g/km g/km** g/km 3.2 US 36.2 mpg mpg mpg 4.2 Japan 16.8km/L km/L 5.2 N/A N/A China 6.9L/100km L/100km L/100km** 4.0 * Converting the fuel economy level of various countries and regions into the value based on the EU NEDC operating level through ICCT conversion tool, 12 and the results are slightly different from that of the interpretation of the passenger car fuel consumption in the Phase IV published by MIIT 13 due to differences in factors used. ** 95g/km is the EU target for *** The goal of 4.0L/100km was proposed for the first time in "China made 2025" plan. Since different countries use different test conditions and these are represented in different units, a method for comparison between the systems is needed. We ve chosen the NEDC and L/100km, as these are the method and units used in China (and introduced throughout this report). All countries that have implemented a fuel economy system seem to have enjoyed reduction in their average FC. In 2014, the US passenger car fuel consumption reached approximately 7.0L/100km (35.2MPG), Japan s FC reached approximately 4.9L/100km (21.8km/L), and the European Union achieved about 5.24L/100km (123.4 gco2/km). China reached an average passenger FC of 6.98L/100km in 2015, as shown in Figure 6. Japan, the EU, and the US have all reached their FC targets ahead of time. 12 ICCT. Converting Tool The interpretation of the passenger car fuel consumption in the fourth phase

28 Fuel Comsuption,L/100km US Japan EU China Japan US 4.0 EU China 3.0 Note: Fuel consumptions are unified based on the NEDC driving-cycle by using the ICCT conversion tool (L/100km). Figure 6: Passenger Car Actual FC and Target Comparisons China and Abroad CAFE Management Systems Comparison All major countries, excluding China, manage their fuel consumption standard through penalties. Financial penalties are generally higher than the cost of technology integration. In the EU, for example, the penalty for the first 1g/km exceeding the target value is 95/vehicle, while the marginal cost of 1g CO2/km emissions reduction for most of fleet is about 25, meaning that the penalty was set much higher than cost for technology improvement, encouraging manufactures to enhance their technology in order to meet the standard. In Japan, non-compliance penalty can reach 1 million (nearly $10k, or RMB53k). In addition, several non-financial means are adopted, including product type certification and public shaming 14, as summarized in Table 7. China s corporate average fuel consumption management model is mainly imitating the United States model, enabling implementation flexibility and utilizing administrative penalties rather than financial ones, due to lack of an adequate governing law and detailed management mechanisms. 14 In here, public shaming refers to when company s poor fuel consumption performance and inability to meet the standard is being made public through postage on MIIT s official website. -27-

29 Table 7: Regional FC Management Approaches Comparison Revoking product type Countries and Monetary penalty certification, limit or Public shaming regions stop production US EU Japan China -28-

30 Fuel Consumpiton (L/100km) Average Fuel Consumption of Companies Vehicle Fuel Consumption Distribution In 2015, MIIT published a total of 4,292 light vehicle models fuel consumption data on its dedicated China Auto Fuel Consumption website, including 2,555 passenger car models (class M1) and 352 imported models, as shown in Figure 7. About one quarter of 2015 models have not met their projected Phase IV limit, indicating no improvement was made in this respect from Phase IV requires new vehicles implementation as of 1 Jan 2016 and in-use vehicle implementation as of So more than 600 car models that were able to meet the standard prior to the required period can enjoy a two-year grace period is projected to become a turning point for model upgrades by Chinese auto manufacturers and importers. Overall, it is the hybrid vehicle models (for example: Toyota Ralink, Corolla, Land Rover), electric vehicle models (for example: BYD Qin, TangShang, BMW i3, BMW X5, Chuan Qi GA5, etc.), as well as some diesel cars (for example: BMW X5) that have met weight-bin phase IV fuel consumption requirements MT Phase III target & Phase IV limit AT Phase III target & Phase IV limit Phase IV target for Row<3 Phase IV Target for Rows>= new passenger car fleet Curb Weight (kg) Figure 7: 2015 New Passenger Car Fleet Fuel Consumpiton Distribution -29-

31 Passenger Car Domestic Manufacturer s CAFC In July 2016, MIIT published the 2015 corporate average fuel consumption (CAFC) results of 89 domestic passenger car companies and 27 importing auto companies 17, covering million passenger cars. There were 22 domestic passenger car companies which did not meet the standard requirements, most of them are small independent brands, accounted for 1.6% of the national market. The other 67 domestic manufacturers, accounting for 98.4% of national production, met the standard requirements. Eight importing auto companies did not meet the standard requirements, most of them focused on sports and luxury cars. However the volume only accounted for mere 3.3% of total imports. Others accounted for 96.7%. In the past three years, the country has not imposed strict penalties on non-complying companies other than the notification and online shaming. icet s CAFC analysis yielded results slightly different that those published by MIIT. This nearly 1% gap, illustrated in Table 8 and 9, most likely stems from differences and production data sources. This report is not meant to challenge MIIT s official CAFC results in any way but rather is aimed at reflecting on the general direction, implications, and efficiency of the CAFC standard regime as a whole. Table 8: Average Fuel Consumption for Domestic Produced Car Fleets in 2015 Index FC FC Difference MIIT published icet evaluation Production volume,10k * -0.8% CAFC 2015,L/100km % T CAFC-III,L/100km % CAFC 2015/T CAFC-III 93.2% 93.2% 0.0% Note: NEVs are excluded. Table 9: Average Fuel Consumption for Imported Car Fleets in 2015 Index FC MIIT published FC icet evaluation Difference Imported volume,10k % CAFC 2015,L/100km % T CAFC-III,L/100km % CAFC 2015/T CAFC-III 90.7% 91.6% 1.1% Note: NEVs are excluded. According to icet s calculations, domestic manufacturers CAFC reached 6.95L/100km. However, given the growing overall average curb weight of passenger vehicles nationally, the effective FC target value increased compared to previous years. In 2015, the corresponding target value (T CAFC-III) was 7.46L/100km and -30-