This post was authored by Noah Lerner, HyoungMi Kim and Alvin Lin.
China is adding its name to a growing list of countries that want to do away with fossil-fuel powered vehicles. Vice-Minister Xin Guobin of China’s Ministry of Industry and Information Technology (MIIT) announced on September 9 that MIIT is working on a timeline to ban the domestic production and sale of petrol cars. This move is part of China’s broader efforts to curb air pollution, including rising ozone levels, and position itself as the dominant leader in the global electric vehicle (EV) market.
By developing a plan to phase out oil-powered vehicles, China, the world’s largest vehicle market, is adding critical momentum to the emerging international movement to phase out the use of internal combustion engine (ICE) vehicles. Other countries that have announced plans to ban the sale of ICE vehicles include: the Netherlands (by 2025), India (by 2030), Scotland (by 2032), and the UK and France (by 2040). Germany is debating a ban, and Norway plans to reach 100% EVs by 2025 through an aggressive tax scheme.
China’s Coming New Energy Vehicle Regulations
In 2016, China sold 507,000 new energy vehicles (NEVs), which include battery electric vehicles, plug-in hybrids, and fuel-cell cars, accounting for over 40% of global EV sales. And it’s only getting started. China plans to have 5 million new energy vehicles on the road by 2020, with 2 million sold that year, and to ramp up sales to 7 million NEVs per year by 2025 – about one-quarter of its current annual total vehicle sales.
While China’s call to phase out the sale of conventional petrol vehicles is an important signal to industry and other global leaders, China’s final issuance of New Energy Vehicle regulations—expected soon—will have a much more immediate impact on shifting the car market to new energy vehicles.
In September 2016, the Ministry of Industry and Information Technology issued a proposed regulation to add a New Energy Vehicles (NEV) credit program to the existing Corporate Average Fuel Consumption credit program. The final regulation, expected to be issued later this year, would require car manufacturers to meet targets for new energy vehicles credits, similar to California’s zero emissions vehicle (ZEV) program. Under the current draft of the policy, automobile manufacturers would be required to achieve NEV credits equivalent to 12% of the total traditional petrol vehicles manufactured or imported by 2020. However, because manufacturers may receive 2, 3 or more NEV credits per vehicle depending on the technology type, in practice this means that manufacturers would need to reach a share of around 2.4% - 4.6% NEVs out of their traditional vehicle production and imports by 2020.
The existing CAFC credit system requires car manufacturers to meet fuel efficiency credit targets for their petrol vehicles, with the current target requiring manufacturers to raise their average fleet fuel efficiency to 5 liters/100 kilometers by 2020 or about 47 miles per gallon. Under the current draft of the regulation, manufacturers that fail to meet CAFC credit targets can purchase additional credits from higher performing companies under either the CAFC scheme or the NEV scheme. However, allowing for “super credits” for NEVs, where for example production of one EV would be worth 2-3 CAFC credits, would reduce the stringency of the CAFC program, allowing car makers to build less efficient conventional vehicles. (For a more detailed overview and recommendations for improving the second draft of the proposed rules issued in June, see the Innovation Center for Energy and Transportation’s brief.)
While the announcement of these policies has led almost all foreign car manufacturers to ask the government for less aggressive targets, it has also motivated companies like Volkswagen, Nissan, Ford and Toyota to push forward their plans to manufacture EVs in China. Ultimately, the devil will be in the details as both domestic and foreign car manufacturers have lobbied to delay the timing of the requirements and to allow NEV “super-credits” to be traded to meet CAFC credit obligations.
China will also be implementing its toughest ever emissions standards – “National VI” – in China’s largest cities in 2018, two years earlier than initially planned. These standards, limiting air and climate pollutant emissions, will be on par or even higher than standards in the U.S. and E.U.
Banning Petrol Vehicles Will Help China Peak Its Oil Consumption Earlier and Become a Leader in Electric Vehicles and Batteries
China’s consumption of diesel, used mainly in trucking and shipping, may have already peaked, but its oil consumption is expected to rise so long as conventional petrol car use continues to expand. In 2016, only about 31% of Chinese households owned cars, compared to over 90% in the U.S., suggesting that Chinese vehicle sales will continue to lead the world. Recognizing this, the government is looking to expanding electric vehicle sales in order to control its oil consumption, given that it is currently 64% dependent on oil imports, the most of any major country.
Even China’s state-owned oil company CNPC’s most recent forecast sees oil consumption peaking by 2030 and gasoline consumption peaking by 2025. China’s electric vehicle policies and future ban on petrol car sales will help it to achieve peak oil even earlier. Moreover, as it has done with new vehicle fuel quality and emissions standards, China’s government will likely choose to implement the petrol vehicle ban earlier in congested and polluted mega-cities, like Beijing and Shanghai, in order to maximize the health and climate benefits of its transportation decarbonization efforts. By taking a pro-active approach to incentivizing the clean energy transition in its vehicles sector, China is cleaning up its air, fighting climate change, and ensuring its competitiveness in the future of transportation and battery technology.