Today, a big read assessment of the full ramifications of Government’s push for a low emission light vehicle standard – and promise of penalties for those who cannot make the cut.

 WE’VE been tardy about creating an emissions standard, but finally something is being done. 

The clean car import standard laid out on January 28 sets an average emissions target of 105 grams per kilometre and follows a swift timeline; legislation will be progressed this year and a standard will be in place in 2022.

Next year the only onus is on distributors of new vehicles and importers of ex-overseas’ used (and parallel imported new) cars is to report CO2 data. From 2023, penalty will begin to apply to any player who fails to meet targets.

These will start at $50 for every exceeded gram, rising to $75 per gram in 2025. Used car importers will be charged half this amount.  In 2025 there’ll be a review. An even lower emissions target could very well result. The European Union already has a target of 95g/km.

It’s a grand plan, and perhaps you’re still struggling with understanding how it might affect you. Certainly, the industry has views, too, and today’s piece results from discussion with numerous figures within that business, to get a handle on what they are thinking.

And one point before going further. Though it has cautioned this is an especially steep challenge to meet Government’s expectation within the cited timeframe, the Motor Industry Association, which speaks for distributors, is supportive of Green motoring initiatives.

 This, after all, is why all the key makers have already committed to electric and, in some cases, hydrogen fuel cell. It’s their future. The biggest concern is the timeframe: We’re not necessarily taking on too much, but the rollout might be too fast.

Why the standard?

The Government cites the average vehicle in New Zealand as having CO2 emissions of around 171 grams per kilometre (g/km). It says our cars and SUVs alone average 161 g/km, compared to 105 g/km in Europe.

 It suggests that, in 2017, the most efficient vehicle models on our market had, on average, 21 percent higher emissions than their counterpart models in the United Kingdom.

The industry involvers spoken to generally opined that the comparison that created this data was overly simplistic, but they all agreed the sentiment is correct. There’s concession, too, that NZ likely has less fuel-efficient cars than many markets, mainly because fuel is cheap and we don’t tend to like driving under-powered cars.

In respect to the national output, NZ is slightly ahead of Australia, primarily due to our higher electric vehicle uptake per head of population. There’s reminder that NZ regulations insist on all new passenger product meeting at least the Euro 5 emissions standard, which dates back to 2009 and focuses mainly on reducing CO2 emissions, and some now meet Euro 6 (which dates to 2014), which reduces some pollutants by 96 percent compared to 1990s’ limits but primarily focuses on cutting diesel-associated nitrogen oxide emissions.  

Commented one contributor: “Our emissions are not bad; we have better standards (Euro 5) than the likes of India and we have some Euro 6 cars here because our fuel quality is so good, unlike Australia. Our vehicles aren’t necessarily all that dirty, just thirsty.” 

How strong is the argument for change?

 According to the Government, the light vehicles coming into the country are among the most fuel inefficient, and emission intensive, of any OECD country.

The Government consistently cites New Zealand as being only one of two countries in the OECD without a vehicle CO2 standard. The other nation it cites is Russia. That’s not a good example. Last time we checked, Russia is not, and has never been, in the OECD.

The Government also says the target set for 2025 was already achieved by Japan in 2014 and by Europe in 2020.

The industry reminds that the latter is a bit disingenuous; it says the vehicle industry performers in Europe have not actually hit the mark; the average for 2020 has not been published yet, but in 2018 and 2019 it was 121 and 122 (yes, it went up) grams per kilometre. There is expectation that it won’t be unanimously achieved. Same goes for this year; some brands are steeling for being hit big in the pocket.  

Makers are trying. The production and availability of low-CO2 product, particularly electrics, has rocketed – and they are popular, take-up being fuelled by incentives. Most countries in Europe also have fuel economy standards and high-emitting vehicles are subject to higher tax loading. 

Is this just some Government plot to force us into hybrids, mains-replenished plug-in hybrid and full electric vehicles?

The Government says on average, New Zealanders pay 65 percent more in annual vehicle fuel costs than people in the European Union, even though Europe’s petrol prices are higher.

Reality is that Government hardly needs to force change; it’s coming ready or not.

Most car makers have decided to wean out of wholly fossil fuelled products and some have made quite radical commitments.

General Motors, perhaps not the best example with Holden now defunct, has decided to phase out vehicles using combustion engines by 2035. It’s pinning hope on electric (and will have 30 pure battery models out by 2025) and fuel cells. On February 7, Ford announced intent to commit $US29 billion to electric and self-driving cars. Toyota, already the world’s top gun by far in the hybrid sector, also sees itself heading in the same route; again, it sees big merit with hydrogen, but alongside electric solutions. Stellantis, the new co-op between France’s PSA and Fiat-Chrysler, is the same. Mercedes, BMW, Audi – in fact all of VW Group – Nissan and so on. And so on. All are looking to battery-enabled motoring.

However, the Government is jumping the gun if it imagines all brands have non-fossil fuelled solutions for all situations right now. This decade is very much a period of transition.

EV production is ramping up and will continue to do so annually. Production of PHEVs is also increasing and it’s the same with hybrids. Yet overall, these do not account for a huge percentage of annual global vehicle manufacture. As much as Tesla is leading the way, it still only produced 500,000 vehicles last year. That didn’t even get it into the top 10 of global light car manufacturers.

Toyota and premium affiliate Lexus have hybrid in most of their models now; those brands have together put 15 million cars with this tech on the road since the original Prius emerged in 1997. The technology has reduced CO2 emissions by more than 120 million tonnes worldwide to date compared to sales of equivalent petrol vehicles. Great work, but hybrids still only account for 52 percent of total Toyota annual production. 

The EU gave car makers 10 years’ prior warning of its expectation and, even so, that was barely enough time to develop and produce the right kind of cars. Remember, in 2011, electrics were still a novelty, there was barely any infrastructure to support them and range was poor. All that’s changed.

Europe is a core car market; because of that, and because of the CO2 penalties, it’s become a priority market for EV suppliers.

At present, most Euro EV action is contained to the premium market. The challenges are at the affordable end. Before Government’s intent was clarified, the Euro with potential to best shake up our mainstream EV choices, Volkswagen Group, was also putting us low on the shipping list.

At one time, the new-generation VW, Skoda, SEAT and Audi products on the electric-dedicated MEB platform were set to roll in from this year; now entry in late 2022 seems a best – and even that’s optimistic.

Says one involver whose brand sells fully electric and electric-assisted product. “It’s all about getting the right cars … at the moment, Europe is accounting for most (of his brand’s) production. Supply for us is not as good as we want; we take everything we can get – and can sell it – but we cannot get enough and that’s unlikely to change for years.”

FYI: The Climate Change Commission report proposing future trends reckons just 40 percent of our fleet will have electric assist by 2035.

Okay, so how will this scheme work? 

ANSWER: Each supplier will have a different target to meet, reflecting its fleet of vehicles. Across the vehicles it brings in it has to ensure the average CO2 emissions are equal to, or less than, the target for its vehicles.

As it works by averaging, vehicles exceeding the CO2 target can continue to be brought in so long as they are offset by enough zero and low emission vehicles.

The 2025 target will be phased in through annual targets that get progressively lower. This gives vehicle suppliers time to adjust and source enough clean vehicles to meet the targets and to encourage buyers to opt for low emission vehicles. 

These penalties – won’t they just be passed onto the consumer; meaning cars will get more expensive?

No-one’s offering any comment on this, though several people spoken to reminded that, at present, the average CO2 count is 65g/km above target. Translate that into initial penalty dollars and it represents as an average $3500 impost on stickers. 

Will distributors have any support?

ANSWER: Waka Kotahi will develop an online tracking and forecasting tool to allow importers to see how their CO2 accounts would be affected if they purchase particular vehicles in international auctions. It would also help importers complying on a fleet-basis by easily allowing them to monitor how their actual average fleet CO2 emissions are tracking, against their fleet targets. 

Flexibility will be given for the industry by allowing them to bank, borrow and transfer. Banking will allow suppliers to carry over any overachievement of their CO2 targets to offset the following three years.

Borrowing allows suppliers to miss their targets for one year as long as they make it up the following year.

Transferring allows suppliers to transfer overachievement of their CO2 target to one or more other suppliers operating within the same compliance regime.

That’s all well and good, says one commentator, but he remains convinced that the best incentive is … well, incentives.  

That’s been proven time again overseas. More than 30 countries have EV incentives and these commonly take form of comprehensive electrification strategies, not just handouts.

“Our products are popular, but they aren’t the most popular vehicles we sell. We always ask ‘will customers automatically want to buy them’. You have to pay more for electric, that’s just an unavoidable. Some people are keen, not everyone is. The economies (of widespread acceptance) won’t work without support.”

How easy will it be for all distributors to meet the new standard – might we see some brands or vehicles, even vehicle types, simply disappear?

The Government does not address this but some in the industry would not be surprised if this scenario plays out.

The easiest way to get the make-wide average CO2 down is to slot in an electric-assisted model into the range. EVs are of course best, because it’s only CO2 out from the vehicle: For those cars, that count is ‘zero.’

All well and good, but some makes simply do not have that luxury. The idea is for them to buy credits from those do, and have some to spare. Tesla has effectively come into profit on Fiat-Chrysler payments.

It’s not fair to name names, but it’s easy enough to find out which brands have EV strategies and which do not. Those without will be hurt.

One comment: “It’s not just the obvious gas guzzlers that are impacted by this. The requirement is for even small cars to improve and that’s a much harder ask for them than it is with big ones.” 

The impact on the current fleet will be interesting, we were told. “More consumers will start to look at fuel economy.”

If this all about improving our environment, why aren’t used importers having to follow the same regime as new vehicle distributors? After all, we’re all breathing the same air. Also, there’s no mention of importers of effectively brand-new cars from overseas – what’s their responsibility?

The average ago of used imports is 10 years. The effective requirement is for these to meet Euro 5; a standard implemented 12 years ago.  

So, theoretically, imports will be within this mandate. All the same, the used importers’ association, which was not approached for comment, has already expressed distaste for the requirement.

The feeling, from the new car industry, seems to be that everyone should do their share. Thought that importers of as-new product might only have to pay half the penalty the same vehicle, if over the limit, would be hit with is not welcomed. On the other hand, there’s also sentiment that those operators shouldn’t achieve any incentives, should these materialise, for favoured models. The reason? Those operators have not invested in the infrastructure required to support those cars.

Are the penalties stiff enough?

The reason why brands selling in the EU are so compelled to meet the target there is that the penalty is much steeper than it will be here; $160 per gram exceeded.

The Government says this will impact on vehicles being delivered from a certain date – it won’t be retrospective, so what we are driving now won’t be affected. Or will it? What impacts could this have on, say, on residual values – will some cars become unsaleable and, if so, what types might raise a red flag?

It’s too soon to tell. However, the potential for this legislation to change vehicle buying seems obvious.

Said one respondent: “Our cars are heavier on average than those sold in Europe. This has a massive impact on fuel economy. The best way to get average economy counts down is to drive more efficient cars.”

At the moment, some said, we have cheap fuel and use too much of it. “We love powerful and large vehicles, and 23 percent of new vehicles sold are utes, which on average are all emitting more than 200 grams of CO2. 

“That factor alone makes us very different to Europe. Utes aren’t at all popular over there. 

What drives that interest? Perceived superior versatility (which is often not realised in reality – many vans are better choices), opportunity to circumvent Fringe Benefit Tax and our love of towing.  

The whole swing to utes has rankled some. One thought expressed: “The high level of ute uptake by businesses is a direct result of the Inland Revenue Department’s failure to police their FBT rules.

“Check out your local boat ramp and I bet you’ll see plenty of sign-written utes and just know their owners aren’t paying FBT, though they should be.”

Beyond that? “The older and thirstier – and that’s not necessarily the same thing – vehicles will become less popular,” one involver suggested.

“If the cost of carbon continues to rise, and we can expect this, fuel will get more expensive and interest in thirsty cars will continue to decline … hopefully this will be supported by a scrappage scheme.” 

And potential red flags? A hard one, but potentially ultimately anything with a six or eight-cylinder petrol engine that isn’t considered a classic. Perhaps some turbocharged four-cylinder mainstream cars.

Are there any circumstances where vehicles might be subject to dispensation; we hear that in the EU, all the really exotic stuff – you, know, your Ferraris, McLarens and Rolls-Royces and so on – are exempt because their production runs are so low. Will that happen here, do we know if there is a registration count cut-off for what excludes and what doesn’t?

The exemptions so far explained are for: vehicles intended primarily for military operational purposes; agricultural vehicles/equipment that are primarily driven on farms, such as tractors, harvesters, mowers, toppers, bailers; vehicles with historic value, or vehicles such as classic cars; motor vehicles constructed before 1 January 1919; motor vehicles constructed on or after 1 January 1919 and are at least 40 years old on the date that they were registered, reregistered, or licensed and scratch-built vehicles and modified vehicles certified by the Low Volume Vehicle Technical Association.

It’s still unclear if that same leniencies that have allowed the high-end exotic brands to keep selling in the EU will impact here. However, it is worth noting that many are intensifying the electric efforts nonetheless. Though, in the case of Rolls-Royce, the potential of a fully electric car before too long has nothing to do with consumer demand. It’s more because big cities around the world are increasingly deciding to shut themselves off the high-emissions traffic.

Anything else we need to know?

Australia.

We historically often collude with our neighbour on common market selections. Car makers love volume. NZ doesn’t buy many new cars but, if we take the same stock as our neighbour, then often it’s enough to win a production priority and a stronger negotiating status. 

Our tastes were already distancing but the new legislation might lead to a complete divorce. Our respective national visions are far from alike.

 Australia has no mandated CO2 regulation now and, more disturbingly, is disinclined to adopt one; a situation that in itself has so alarmed the car industry they’ve rolled out a voluntary code. 

Even then, they face a different core challenge. A catalyst for our neighbour’s relatively lax emissions regs is that the fuel sold there is of lower quality than we receive. This means Australia’s fuel and Euro 5-based noxious emissions standards are lax by global standard; to the point where they act as an impediment to introduction there of internal combustion engines that can be sold here. The standards are being tightened. But not until 2027. 

Like us, they’ve ruled out EV subsidies in favour of encouraging companies to electrify their vehicle fleets. We aim to make EV owners pay Road User Taxes (though when is still unclear). Over there, some states are pushing for EV road taxes to compensate for lost fuel excise earnings; Victoria is considering fiting EVs with GPS trackers for per kilometre charging. Why would anyone keen to kick the oil habit been keen on that?

Beyond that, Prime Minister Scott Morrison’s administration seems largely indifferent to the matters we are aiming to address. 

The Federal Government seems to be happy with indulging in what a senior writer with Wheels magazine has called an “embarrassing fossil fuel addiction while the rest of the world joins the e-volution.”

Daniel Gardner, who said his views about electric cars and the positives of their involvement in any roadscape came from (pre-Covid) visits to Europe, particularly time spent in Germany, says he is embarrassed that the Australian Federal Government's 2020/2021 Federal Budget included money to upgrade a coal-fired power station in New South Wales, and $A52.9 million expanding Australia’s gas industry “while allocating a measly A$5 million for electric vehicles.”

He added: “Get chatting to a German and, regardless of their political inclination, they simply won’t believe why we are so opposed to electric vehicles and gorging ourselves on fossil fuels. And when you see just how feasible Germany makes the transition to electric cars appear, you probably wouldn’t either.”

He wrote of exasperation that “Australia has a government that sees absolutely nothing wrong with digging millions of tons of filthy brown coal out of the ground and burning it to power the nation. A government that not only refuses to invest in renewable energy despite being one of the most suitable countries in the world, and instead favours more coal mines. 

Australia’s indifference has also fired up the country’s peak electric vehicle lobby, which says the latest future fuels strategy, which released in draft form late last year, as “yet another flaccid, do-nothing document that will prevent Australians getting access to the world’s best electric vehicles”.

They’re right. Limited electrified vehicle production is being allocated to places where incentives are greatest and/or restrictions on CO2 are the most painful. Australia? Said Wheels magazine last month: “As the Federal Government’s ideological constraints and contradictions extend its environmental and electric vehicle policy vacuum, Australia is slipping down the shipping list.”

NZ distributors are finding themselves having to negotiate directly with makers to achieve any kind of product and often there’s a cost – which has to ultimately be passed on – and, in many cases, acceptance of compromise (so, a car might arrive in another right-drive country’s spec: Latterly, it’s been Ireland).

Having a neighbour we can’t live with, but cannot live without is hardly helpful.