EU CO2 legislation

Derogation for Small Volume Manufacturers

Proposal post-2020
1. Introduction

ESCA welcomes the opportunity offered by the European Commission to provide its proposal for a
derogation regime for small volume manufacturers in light of the Commission’s review exercise on
the CO2 legislation.

2. About ESCA

ESCA represents the interests of European manufacturers who make advanced and high
performance cars, with individual production of less than 10,000 units per year, recognised by EU
legislation as small volume manufacturers (SVMs).

Its members include Aston Martin-Lagonda (UK), McLaren (UK), KTM (Austria), Koenigsegg
(Sweden), Alpina (Germany), Rimac (Croatia), Wiessmann (Germany) and Radical Sportscars (UK).

European SVMs are actively and continuously contributing towards improving fuel efficiency and
have revealed plans to invest in the next generation of powertrains, hybridisation, lightweight
materials and advanced aerodynamics, which will deliver significant improvement in fuel
consumption and in turn benefit the wider industry.

3. Current CO2 Regulation: derogation and exemption.

Under the current EU regulatory framework, small volume car manufacturers -registering less than
10,000 vehicles a year in the EU- can apply for a derogation1. In order to be granted a derogation,
manufacturers must show a reduction in CO2 emissions levels and this must be proven to be in
accordance with the companies’ overall reduction potential.

Independent small volume car manufacturers support a derogation regime because:

- their contribution to the automotive sector’s overall emissions is negligible, on

both European and global level.

- they have limited resources and depend to a great extent on buying in

technologies from other manufacturers.

- the average life cycle of their models is considerably longer than for larger
manufacturers: the design and engineering cost of a vehicle model has to be
amortised over a very small sales volume.

Moreover, small volume car manufacturers responsible for less than 1,000 new car registrations in
the EU also benefit from a de-minimis exemption under the CO2 Regulation2.

Small volume car manufacturers support the need of having an exemption because:

- the derogation procedures are a lengthy and complicated process, requiring

significant resources for both the European Commission and ESCA members.

1
Article 11 of Regulation 443/2009 to define the modalities for reaching the 2020 target to reduce CO2
emissions from new passenger cars.
2
Article 2 (4) of Regulation 443/2009 to define the modalities for reaching the 2020 target to reduce CO2
emissions from new passenger cars

European Small Volume Car Manufacturers’ Alliance (ESCA)

c/o Interel, 22-24 Rue du Luxembourg, Brussels, B-1000. Tel. + 32 2 213 1331
frederic.aertsens@interelgroup.com|ESCA EU Transparency Register ID Number: 006279722684-12
 - according to the Commission’s impact assessment, the scale of CO2 emissions from
vehicles produced by manufacturers registering less than 1,000 cars a year is
estimated to be around 5,000 tonnes per year, “which is a marginal impact”.3

- excluding the first 1,000 cars from EU CO2 legislation will not generate any issue in
terms of competitiveness, as vehicles produced in this range typically do not have
competition from large volume manufacturers.

ESCA calls on the Commission to continue to uphold both the derogation and exemption regimes in
the new CO2 legislation.

4. SVMs Practices and Measures in the USA

ESCA would like to use the opportunity to refer to the SVM policies applicable in the USA, in terms
of sales thresholds, operational criteria, alternative targets and credit trading system.

Sales threshold and operational independent criteria

- The manufacturer's average US sales for the three most recent consecutive model
years must remain below 5,000.

- The following criteria apply and the manufacturer should have met them for at least
24 months prior to the submission of the request for an alternative standard:

- No financial or other support of economic value provided by related manufacturers

for purposes of design, parts procurement, R&D and production facilities and
operation. Any other transactions with related manufacturers must be conducted
under normal commercial arrangements like those conducted with other parties.
Any such transactions shall be at competitive pricing rates to the manufacturer.

- The applicant maintains separate and independent research and development,

testing, and manufacturing/production facilities.

- The applicant does not use any vehicle engines, powertrains, or platforms
developed or produced by related manufacturers.

- Patents are not held jointly with related manufacturers.

- The applicant maintains separate business administration, legal, purchasing,

sales, and marketing departments as well as autonomous decision making on
commercial matters.

- Overlap of Board of Directors is limited to 25 percent with no sharing of top

operational management, including president, chief executive officer (CEO), chief
financial officer (CFO), and chief operating officer (COO), and provided that no
individual overlapping director or combination of overlapping directors exercises
exclusive management control over either or both companies.

- Parts or components supply agreements between related companies must be

established through open market process and to the extent that manufacturer sells
parts/components to non-related auto manufacturers, it does so through the open
market at competitive pricing.

3
Commission Impact Assessment accompanying the Proposal for a Regulation of the European Parliament
and of the Council amending Regulation (EC) No 443/2009 to define the modalities for reaching the 2020
target to reduce CO2 emissions from new passenger cars

European Small Volume Car Manufacturers’ Alliance (ESCA)

c/o Interel, 22-24 Rue du Luxembourg, Brussels, B-1000. Tel. + 32 2 213 1331
frederic.aertsens@interelgroup.com|ESCA EU Transparency Register ID Number: 006279722684-12
Alternative targets

A. US Environmental Protection Agency (EPA)

The EPA allows small volume manufacturers to apply for alternative standards to be developed on
a manufacturer-by-manufacturer basis, in a public process. The process is equivalent to the EU
approach.

B. California Air Resource Board (CARB)

The CARB’s approach consists in the following process:

- At the beginning of the model year, that is 3 model years prior to the model year for which
an alternative standard is requested, each small volume manufacturer (SVM) shall identify
all vehicle models from the previous model year which are certified by a large volume
manufacturer and are comparable to the SVM’s own vehicle model, based on model type
and footprint value.

Year -4 Year -3 Year -2 Year -1 Year 0

SVM identifies vehicle Entry into force of

models from previous alternative standard for
year (-4) certified by large SVM model
volume manufacturer
and comparable to
SVM’s own model, based
on model type and
footprint value.

- The small volume manufacturer shall demonstrate to the public authority the
appropriateness of each comparable vehicle model selected.

- The public authority shall provide to the small volume manufacturer the target grams CO2
per mile for each vehicle model type and footprint value that is approved. The small volume
manufacturer shall calculate its fleet average CO2 standard in accordance based on
these target grams CO2 per mile values provided by the public authority.

A small volume manufacturer shall either:

- not exceed its fleet average CO2 standard calculated based on the target grams CO2
per mile values provided by the public authority; or

- if a small volume manufacturer demonstrates a vehicle model uses an engine,

transmission, and emission control system and has a footprint value that are identical to a
configuration certified for sale in California by a large volume manufacturer, those small
volume manufacturer vehicle models are exempt from meeting the requirements.

Credit trading

SVMs are allowed to use credits purchased from other manufacturers, and to generate credits for
over-compliance with the CO2 standards and use those credits internally, including credit carry-
back, credit carry-forward.

European Small Volume Car Manufacturers’ Alliance (ESCA)

c/o Interel, 22-24 Rue du Luxembourg, Brussels, B-1000. Tel. + 32 2 213 1331
frederic.aertsens@interelgroup.com|ESCA EU Transparency Register ID Number: 006279722684-12
5. ESCA’s proposal for the derogation regime under the future CO2 legislation

Following to the meeting ESCA had with DG Climate Action, the Commission requested ESCA to
provide it with a proposed way forward for the derogation regime for SVMs post-2020.

ESCA understands that the Commission is reflecting on more efficient derogation procedures.

ESCA believes that, in this respect, the intermediate yearly targets bring too much of a burden for
SVMs and public authorities to, respectively, comply with the intermediate targets and verify their
compliance. ESCA would therefore propose to the Commission to eliminate the intermediate yearly
targets.

Instead, a small volume manufacturer would, on a case-by-case basis, agree with the Commission
on an overall reduction to be achieved at the end of the derogation period. Under ESCA’s
proposal, penalties would only apply in case the manufacturer would not meet this final target.

In order to attain the agreed reduction by the end of the derogation period, the manufacturer and
Commission would also agree on a per-manufacturer baseline year, from which the agreed overall
reduction can be evaluated, in order establish the final target.

Baseline CO2 emissions

X g CO2/km
g CO2/km

Final target
Overall reduction X g CO2/km

2019 2020 2021 2022 2023 2024 2025 2026

6. Conclusion

In recent year ESCA members have proven their dedication to reducing CO2 emissions and paving
the way in developing new technologies. This commitment will remain.

ESCA’s proposal for a future derogation regime for SVMs would have a beneficial impact on both
the industry and European Commission in terms of reducing administrative burden and costs.

ESCA is looking forward to continuing the dialogue with EU policymakers and other stakeholders in
order to find a fair and workable solution ESCA is looking forward to continuing the dialogue with EU
policymakers and other stakeholders in order to find a fair and workable solution.

_________________

European Small Volume Car Manufacturers’ Alliance (ESCA)

c/o Interel, 22-24 Rue du Luxembourg, Brussels, B-1000. Tel. + 32 2 213 1331
frederic.aertsens@interelgroup.com|ESCA EU Transparency Register ID Number: 006279722684-12