What would a "no deal" scenario mean for vehicle manufacturers in relation to CO2 emissions targets?

Following on from HSF's blog last week on the second batch of Brexit "no deal" technical notes released by the Government, this blog looks at the changes proposed for vehicle manufacturers in relation to carbon dioxide (CO2) tailpipe emissions if there is "no deal".

What are the CO2 emissions targets?

The CO2 Regulations (Regulation (EC) 443/2009 and Regulation (EU) 510/2011) set EU-wide mandatory annual fleet CO2 emissions targets for new cars and vans registered in the EU, Iceland, Lichtenstein and Norway. The Commission can levy hefty fines for failure to meet the targets.

Vehicle emissions are in the public eye as a result of "Dieselgate" whereby Volkswagen (VW) falsified emissions data. As well as damage to its reputation and fines (€1billion fine in Germany and $4.3billion in the US), VW has been taken to court again by its shareholders seeking compensation of £8.2 billion for the decrease in value of VW's shares.

What happens next if there is no deal?

• Vehicles registered in the UK (it doesn't matter where the vehicles were manufactured) would no longer be within the scope of the EU emissions targets – so UK and EU27 manufacturers will cease to be bound by the CO2 Regulations for UK sales.
• But the Government has said it wants to ensure continuity for the automotive industry and maintain regulations that are at least as ambitious as currently. Therefore, it will as in other areas bring the CO2 Regulations into domestic legislation at Brexit and correct any "deficiencies" to make them operable in the UK.
• It appears that UK manufacturers will still need to comply with the CO2 Regulations for their sales within the EU market, via a manufacturer's representative established within the Community.

What are the implications of a "no deal" scenario for emissions testing?

The biggest issues for EU manufacturers are:

• Pooling: manufacturers that have pooled together to meet specific emissions targets jointly will have to remove their UK registrations from their EU pools. Although UK registrations could be pooled under a separate UK registration pool, this separation of registrations would have an impact on a pool's CO2 emission calculations (see below);
• Recalculations for EU data: UK data would have to be removed from EU fleet average calculations, requiring recalculations based on EU27 data. UK data is valuable because there is a high proportion of low carbon vehicles registered in the UK, so removing it will mean manufacturers will have to alter their strategies to comply with the CO2 Regulations emissions targets (which were based on data from all 28 member states). The European Automobile Manufacturers Association has previously stated that in this scenario, it wants the Commission to review the CO2 emissions targets for EU registrations.

Implications for manufacturers with UK registrations include:

• UK enforcement: although fines would be levied by the Department for Transport (DfT) rather than the Commission, they would be "at the same rate as currently issued", so very little change but no pooling with EU manufacturers would be allowed to hedge any carbon heavy UK models;
• UK specific targets and derogations: there wouldn't be much change in the CO2 emissions targets to be met – the government would set targets for UK registered cars and vans that would keep pace with those set by the Commission. Derogations or eco-innovation credits would apply for UK registrations, except applications would be made to the DfT.

How may the VW scandal feed into the "no deal" scenario?

UK Prime Minister Theresa May has said that the DfT is "looking into the [VW] matter" and that "there are a number of issues that have come up in relation to this question of emissions tests and what has happened with a number of manufacturers".

Pressure is currently being applied by the Commission on Member States to get on with taking enforcement action against manufacturers found to be in breach of emissions testing requirements. However, once outside the EU, enforcement will generally be a matter for the national regulators without the threat of sanctions initiated by Brussels.

Although emissions testing is driven by climate change objectives which the Government has sworn to continue to uphold, it is not certain that vehicle testing (being currently within the remit of the DfT rather than the Department for the Environment, Farming and Rural Affairs (DEFRA)) will necessarily be under the auspices of the proposed 'Green Watchdog'.