A Review of Future EU Automotive Legislation

GLOBAL INSIGHT AUTOMOTIVE SEMINAR 13-14 SEPTEMBER 2007 FRANKFURT A Review of Future EU Automotive Legislation Sarah Kingsbury Senior Market Analyst, Europe

EU CO 2 Strategy 3 Pillar Approach Industry Commitments Consumer Information Fiscal Measures CO 2 Reduction Strategy for Passenger Cars COM (95) 689 Aim to reduce average CO 2 emissions of new cars to 120g/km by 2012 COM(98) 495 Final Implementing Community Strategy to reduce CO 2 emissions from cars Copyright 2007 Global Insight, Inc. 3

EU CO 2 Strategy 2004 EU15 Average CO 2 Emissions EU-15 average CO2 emission of new passenger cars by fuel type 200 190 189 CO2 Emission g/km 180 170 160 150 186 179 171 170 ACEA Only Fleet Average EU15 2003 = 163g/km 164 163 2004 = 161g/km 157 Unofficial ACEA Fleet Average* 155 2005 = 161g/km 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2006 = 160g/km * T&E report based on sales and CO 2 data from EU25 excluding Malta supplied by EU Commission Petrol Diesel Petrol+Diesel Caution: Data release delayed later each year! 2004 data released August 2006 Uneven playing Field! Source: www.europe.eu.int Copyright 2007 Global Insight, Inc. 4

Progress Towards CO 2 Goals 190 EU-15 Average CO 2 Emission of New Passenger Cars CO2 Emission g/km 180 170 160 150 140 130 120 110 186 Spain 158g Italy 148g France 148g Germany 172g U.K. 167g 140 Trendline 120 100 90 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 95* Source: www.europe.eu.int & Global Insight Extrapolation Copyright 2007 Global Insight, Inc. 5

The Voluntary Regime Has Failed to Deliver The Commission has concluded that this regime has failed to deliver The average emissions from new cars sold in the EU15 fell from 186g/km in 1995 to 163g/km in 2004 Recent progress has been slow, T&E s EU25 data shows we moved from 161g/km in 2005 to 160g/km in 2006 Global Insight estimates that average emissions will be closer to 150g/km by the end of 2008, as technical progress has been almost neutralised by increases in the weight, size, and power of vehicles that customers want to buy Copyright 2007 Global Insight, Inc. 6

New Intentions from the European Commission February 2007 the European Commission sets out its intention to force through mandatory targets for average CO 2 output sticking to a figure of 120g/km by 2012 For OEMs the effective target actually becomes 130g/km Due to complementary measures which have been factored in, contributing to further cuts of up to 10g/km The Commission also recommends that member states levy car taxes based on CO 2 emissions This is already beginning to happen UK started this, recently seen Portugal and Spain Finally, the European Commission proposes an EU code of good practice on car marketing and advertising to promote more sustainable consumption patterns Copyright 2007 Global Insight, Inc. 7

Consultation Nearing an Outcome? 7 February to 15 July 2007 Consultation took place, examining: 1) best way to measure the 120g/km target 2) to quantify the other measures which will count towards the CO 2 reduction target 11 July 2007: Public Hearing in Brussels, attracting views from variety of stakeholders, Industry, Supplier, Consumer, NGOs July Sept: Considering a number of legislative options, (down from 46 to 8 options) EU Parliament Environment Committee due to vote on an opinion in second week of Sept 2007. Weight or footprint to dictate calculation? Expect a formal legislative proposal in December from EU Commission Copyright 2007 Global Insight, Inc. 8

Inconsistent Approach to CO 2 Taxes Member State Registration Tax Annual Circulation Tax In Force? UK Yes, VED & Company Car Tax New VED : from 2001 New CCT : from 2002 Annual Budget reviews values France Carte Grise New TVTS (Company Car Tax) linked to CO 2 + income tax incentives for green cars From 1 January 2006 Comp Car Tax -Mid 2006 Sweden Green Car Bonus at purchase if less than 120g/km New CO 2 based Annual Road Tax 1 May 2006 (Law) 1 October 2006 (Implemented) Green Car bonus from April 2007 to December 2009 Portugal New ISV (was IA) uses engine size & CO 2 emissions New IUC based on engine size and CO 2 emissions New ISV and IUC: from 1 July 2007, revised from Jan 2008 Spain Registration Tax (was Impuesto Especial) moves to 4 CO 2 bands. Incentives for hybrids/electric vehicles Environment Ministry wants to bring CO 2 element to ACT also New Reg Tax = Jan 2008 New ACT = later in 2008? Copyright 2007 Global Insight, Inc. 12

2007 More Countries Announce New CO 2 Taxes Member State Belgium Iceland Germany Denmark Registration Tax 15% Bonus <105g/km 3% Bonus >105 but <115g/km CO 2 related Purchase Tax CO 2 linked Purchase Tax replacing current system based on engine size Announced new fuel consumption incentive in April 2007 Annual Circulation Tax Company Car Tax reform to favour low emission vehicles CO2 related ACT In Force? Just announced in March Budget 2007, from 2008? Proposal presented in February 2007. Likely to be implemented after May 2007 elections Plan is underway, was due to be implemented from January 2008. Still needs approval by national and federal government, and disagreements about how to measure CO 2 could delay further. Effective April 2007 Still a variety of a methods to tackle CO 2 reduction and to encourage shift towards lower CO 2 emissions vehicles. Copyright 2007 Global Insight, Inc. 13

Case Study: Portugal and CO 2 Taxes Mid 2006 Portugal announced that it would be changing its Imposto Automovel, the purchase tax Introducing a CO 2 element, which comprised two tables of bands of CO 2 for petrol and diesel vehicles Initially the CO 2 element of the tax would account for 10% of the purchase tax Later in 2006, we learned from ACAP that the government was planning to shift upwards the % of purchase tax derived from CO 2 This would take place over the next 2 years January 2007 Prime Minister Jose Socrates, announced further changes to the IA which would increase the % of CO 2 derived tax from July 2007 and January 2008 becomes ISV (Imposto sobre veiculos) Within 18 months, CO 2 portion rises from 10% to 60% Copyright 2007 Global Insight, Inc. 14

Case Study: Portugal and CO 2 Taxes According to ACAP, the changes to the ISV (was Imposto Automovel) will tackle the proportion of tax derived from Acquisition versus Ownership Jan 2007 Prime Minister announced specific dates for the new tax and also raised the % to come from CO 2 in 2008 from an initially reported 40% to 60% Acquisition Tax 90% based Cylinder Capacity 10% basedco 2 90% Acquisition Tax 10% Ownership Tax Acquisition Tax - Of which 30% based on CO 2 70% based on Cylinder Capacity 80% Acquisition Tax 20% Ownership Tax Acquisition Tax - of which 60% based on CO 2 40% based on Cylinder Capacity Increased from 40% in initial proposal 2006 1 July 2007 Specific dates also now fixed 1 January 2008 Copyright 2007 Global Insight, Inc. 15

UK VED Bands (CO 2 -based Circulation Tax) Budget 2007 Changes in Red No current diesel or petrol cars (!) Now 35 Now 115 Now 140 Now 165 Band C to F see smaller rate rises of 5 per year out to 2011 Now 205 Now 300 Band G expected to see more rapid increases next year rate rises to 400.. Copyright 2007 Global Insight, Inc. 16

Fiscal Measures UK CO 2 Related Taxation Viewed as Benchmark by the EU UK system intends to reduce CO 2 emissions moving target of CO 2 bands, reducing each year UK Company Car Tax is of particular interest UK Company Car Tax G/Km of CO 2 140g/km of CO 2 (or below) +5g/km of CO 2 235 g/km of CO 2 (or higher) Diesel supplement Tax liability (2006/2007 tax year) 15% of new vehicle tax price (incl VAT) payable at prevailing rate of income tax For each 5g/km add 1% of list price 35% of new vehicle list price, payable at prevailing rate of tax Diesel cars add 3% (only up to 35%) 165g 155g 145g Budget 2006 moves the Band to a new low, from 2008 140g Budget 2006 introduces new lowest band of 120g in 2008/09 @ 10% tax rate for petrol. 135g 120g 2002 2003 2004 2005 2008 2009 New low emissions band <120g/km of CO 2, the band is 10% from 2008/09 Copyright 2007 Global Insight, Inc. 17

Trends in CO 2 Based Tax Systems Trend Bands of CO 2 Variety of different components Benefit Ratchet up or down, narrow bands Flexing, shifting emphasis increase % of CO 2 derived tax Examples? UK forerunner, followed by PRT, ESP, DNK Sweden uses fuel type and CO 2, Portugal uses cylinder capacity and CO 2 Example: Sweden able to manipulate by fuel type or segment SEK 15/EURO 1.60 per gram of CO 2 for petrol Multiplier of 3.5 for diesel SEK 10/EURO 1.07 per gram of CO 2 for alternative fuels Copyright 2007 Global Insight, Inc. 18

Spanish Registration Tax: to 31 December 2007 13 % Tax 12 11 10 petrol diesel 9 8 7 Petrol 1600cc break-point Diesel 2000cc break-point Engine CC 900 1150 1400 1650 1900 2150 2400 2650 2900 3150 3400 Copyright 2007 Global Insight, Inc. 19

Spanish Registration Tax: From January 2008 16 New tax = technology neutral 200g/km 8.5% 14 12 10 160g/km 27% Tax % 8 6 120g/km 56% % = % market share in this CO 2 bracket 4 2 7.7% <120g/km = zero tax 0 CO2 g/km 99 109 119 129 139 149 159 169 179 189 199 209 219 229 239 249 Copyright 2007 Global Insight, Inc. 20

Spain CO 2 Taxation: From January 2008 Old tax up to 31 Dec 2007 7% 12% New tax from Jan 2008 no fuel differentiation CO 2 Band % Volume % Share <1600cc Gasoline >1600cc Gasoline <120g/km 0 125,662 7.7% <2000cc Diesel >2000cc Diesel 120-160g/km 4.75 915,778 56.0% 160-200g/km 9.75 453,846 27.0% Quite small % of market to get hit by top level of tax, and even smaller % to benefit from zero tax! 200g/km 14.75 130,309 Too early to assess effect on sales, but could have positive impact on vehicles <160g/km 8.5% Copyright 2007 Global Insight, Inc. 21

Emissions and Fuel Consumption, CO 2 and Fiscal Policy Situation September 2007 EU Biofuels Directive targets 2% biofuel share EU MS target 1.4% but actually hits closer to 1% Euro 5 Limits Published Euro 4 EU Biofuels Directive targets 5.75% biofuel share Euro5 Euro 6 focus on NOx Euro 6? Beyond 2010, Commission indicates that a Revised Biofuels Directive could raise targets to 10% for 2020. Emissions Trading extends to Autos? 2005 2007 2008 2010 2012 2015 2016 2017 2020 Fiscal Policy - ACT CO 2 ACEA Voluntary Agreement Move to mandatory agreement indicated by Commission 25% CO 2 based CO 2 Target 140 g/km Legislative framework to rule on CO2 based tax? 50% CO 2 based Expect a legislative proposal by late 2007, approved framework mid 2008? EU CO 2 Target 120 g/km Registration tax abolished by 2016 EU CO 2 target 130g/km 120g/km. Final 10g accounted by other measures TBD Copyright 2007 Global Insight, Inc. 22

Future Regulatory Landscape Stronger classic legislation, introduction sooner and harder hitting, emphasis on information and labelling to assist consumer Biofuels and fuel quality Fuel quality limits amended, allowing higher blends e.g. 10% biodiesel by 2010, rising to 25% by 2020 Higher biofuels volume target revised Biofuels Directive Credits as part of the other measures for the ACEA target? Move from final user (polluter) pays to manufacturer and/or distributor pays e.g. Renewable Transport Fuel Obligations; Emissions Trading Schemes, greater accountability, measurability e.g. OEMs responsible for their fleet, penalised if exceeds CO 2 allowances Integrated Approach greater adherence - vehicle technology, fuel and fuel supply, infrastructure, consumer) without dilution of the newly imposed EU mandatory requirements Copyright 2007 Global Insight, Inc. 23

Increase in Supplementary Measures Deter Road Use and City Ownership Non-tax measures which penalise heavy polluters and reward low CO 2 emitters, tend to be occurring on a local basis Congestion charging London and now Stockholm from August 2007, Paris Mayor introduced free bicycle scheme pay and ride In London, hybrids go free, with lobbying continuing to discount E85 vehicles Parking charges Carrot/stick approach depending on emissions/fuel type, e.g. free parking in some Swedish cities for environmentally friendly cars and electric vehicles One-third of London Councils implementing parking charges related to emissions level, or fuel type and rising Copyright 2007 Global Insight, Inc. 24

Future Regulatory Landscape Effective Price Signals? Trading Schemes, an EU Emissions Trading scheme for the Automotive Sector only? UK keen to go down this route Operated as a Cap and Trade scheme.. OEMs get credits for renewable fuel content? More congestion charging and road pricing UK government paved way in May with local Transport bill that would allow local councils to set up their own road charging schemes to reduce congestion London announcing its Low Emission Zone from February 2007 (hits HCVs initially, but extends to LCVs from 2010). Madrid moving towards excluding older vehicles from a central zone from 2008. Milan announced pollution charge for city centre entry from late 2007. Cologne wants to do similar from early 2008 Put price on Demand and CO 2 Copyright 2007 Global Insight, Inc. 25

In the Mandatory CO 2 Reduction Era.. Move towards a new 3 or maybe 4 or 5 Pillar approach, but with Harder Hitting Policies, Using Price Signals to Encourage Changes in Consumption and Behaviour.the Soft Voluntary Approach Has Not Worked! Mandatory CO 2 Reduction Era Consumer Behaviour Demand Management Fiscal Mechanisms?? Speeding Limiting, Eco- Driving Information for Consumers Congestion Charging Intelligent Road Tolls Parking Schemes Tougher CO 2 -linked Ownership and Acquisition Taxes, Emission Trading Schemes Copyright 2007 Global Insight, Inc. 26

GLOBAL INSIGHT AUTOMOTIVE SEMINAR 13-14 SEPTEMBER 2007 FRANKFURT Thank You Sarah Kingsbury Senior Market Analyst, Europe E-mail: sarah.kingsbury@globalinsight.com