The Chinese Automotive Fuel Economy Policy

1.1 Background

China has become the largest emitter of greenhouse gases, overtaking the U.S. However, China has also taken action to reduce its road transport greenhouse gas footprint by setting fuel economy standards and putting in place a tax structure that seeks to give consumers an incentive to purchase more fuel efficient vehicles. Since 2005, the country’s rapidly growing new passenger vehicle market has been subject to fuel economy standards.

China has more small cars overall than most other developed or developing countries, but larger cars are taking a larger share of the market. As of 2008, the largest portion of the fleet had 1200-1600 cc engines (about 40% of the market), while 1600 to 2000 cc engines had about 22 percent of the market.

China has been experiencing sales growth rates of 20 – 30% year-on-year since the beginning of the decade and assumptions of the continuation of these growth rates raise concerns of enormous annual vehicle sales by 2020. Even conservative estimates point to 2020 sales rate of 50 million units per year, which is comparable to total global vehicle sales in 2009.

Projected Market Share of Each Vehicle Type (%), China


Credit: Wang, 2006

1.2 The Chinese Light-Duty Vehicle Fleet

Over the last 25 years China has experienced annual vehicle stock growth rates of over 10%, with tremendous growth projected within the next 40 years. A study by Wang (2006) predicts that the number of on-road vehicles in China will outnumber any other country in the world, including the United States, by 2035. By 2050 China could have 486-662 million highway vehicles and 44 million motorcycles, based on business-as-usual vehicle growth. With these estimates, the Chinese vehicle fleet could consume approximately 614-1,016 million metric tons of oil per year (12-20 million barrels of oil per day), and emit 1.9-3.2 billion metric tons of CO2 per year by 2050.

Sales data for calendar year 2008 by nameplate and engine size indicate total China light vehicle sales of 6.755 million, which includes sales of vans, pickup trucks and SUVs of 1.71 million and 5.045 million cars. The figure above shows the projected market share of light duty vehicles, 1990- 2050.

Cities within China are taking the independent initiative to stem the growth of GHG emissions from transportation. Shanghai and Beijing are two cities that have led the promotion of CNG and LPG vehicles in China. Shanghai’s alternative-fuel vehicles and supporting infrastructure went up quickly, with 103 stations supplying 37,000 taxis by May 2002. The Shanghai Municipal Government provided financial support for R&D on CNG/LPG vehicle technologies and subsidies for the retrofitting of taxis to use LPG. Beijing implemented stringent environmental standards governing auto emissions and other considerations prior to the 2008 Olympic Games, and has one of the largest bus and taxi fleets in the world implementing LPG and CNG, with around 5500 buses (of 11,000 buses in Beijing) and 37,000 taxis. However, there is some concern over this due to natural gas quality issues.

1.3 Status of LDV fleet fuel consumption/CO2 emissions

Europe and China use the “New European Driving Cycle”, or NEDC, which is a stylized cycle consisting of 4 repeats of a city cycle with an average speed of 18.7 km/h and a highway cycle of with an average speed of 62.6 km/h and a maximum speed of 120 km/h.

China has attracted advanced and efficient technologies in the automotive sector, and introduced Fuel Economy Standards (FES) for light duty passenger vehicles in September 2004, with the first phase rolled out from July 2005 and the second phase from January 2008. Phase 1 (2005) of the FES increased the overall passenger vehicle fuel efficiency by approximately 9%, from 26 mpg in 2002 to 28.4 mpg in 2006, despite increases in gross weight and engine displacement. It is estimated this saved approximately 575,000 tonnes of oil and 1.7 million tones of CO2 emissions between 2002 and 2006. This has made Chinese FES the 3rd most stringent in the world, behind the EU and Japan, and has led to the successful reduction of average fuel consumption (litre/100km) of the light duty personal vehicle fleet by 11.5%. However, there is some concern that the increasing size of the vehicle fleet in China may overwhelm these initial gains.

2.0 Regulatory Policies

2.1 National Standard

China has put in place a set of fuel economy standards (see also information in section 1.3). These are unique in the world because there is no corporate averaging allowed in meeting the standard. Every individual car must meet the standard, compliance is determined at the time of type-approval and non-compliance vehicles cannot be sold in that model year. For more on China’s fuel economy metrics – see the Fuel Economy Regulations section of this tool.

China approved regulations for new fuel economy standards for its passenger vehicle fleet in 2004 to regulate the country's rapidly growing vehicle market. These standards are primarily designed to mitigate China's increasing dependence on foreign oil, but another objective is to encourage foreign automakers to bring more fuel efficient vehicle technologies to the Chinese market. The new standards will be implemented in two phases: Phase 1 took effect on July 1, 2005, for new vehicle models, and on July 1, 2006, for continued vehicle models. Phase 2 took effect on January 1, 2008, for new models and on January 1, 2009, for continued vehicle models.

The standards are classified into 16 weight classes, ranging from vehicles weighing less than 750 kg (approximately 1,500 lbs) to vehicles weighing more than 2,500 kg (approximately 5,500 lbs). The standards cover passenger cars, SUVs and multi-purpose vans, with separate standards for passenger cars with manual and automatic transmissions. These standards will target a fleet wide average of 42.2 miles per gallon by the year 2015, and Chinese fuel efficiency standards are considered to be the third most stringent globally.

The standards are listed below with an equivalent to the U.S. fuel economy standard for comparison purposes.


Credit: Feng 2004: 14

2.2 Import restrictions

New Vehicles

N/A

Second Hand

China bans the import of used vehicles for uses other than personal. Also diesel vehicles (except Jeeps) and two-stroke engine cars are prohibited from importation.

2.3 Technology mandates/targets

There are no technology mandates in China.

3.0 Fiscal Measures and Economic Instruments

3.1 Fuel Taxes

In 2008, the National Development and Reform Commission said that the country will raise the gasoline consumption tax from the current 0.2 yuan to one yuan per liter and diesel consumption tax from 0.1 yuan to 0.8 yuan per liter.

3.2 Fee-bate

As part of plan to cut fuel emissions in the worlds largest vehicle fleet, China will spend at least 12 billion Yaun ($1.76 billion) to subsidize smaller, fuel efficient cars by 2012. For cars with 1.6 litre engines or smaller and consume 20 per cent less fuel than current standards, 3,000 Yuan will be offered. The Chinese National Development and Reform Commission announced that 71 hybrid, electric and fuel efficient models would be eligible for the subsidy. It is estimated that by 2012, 4 million such vehicles will be covered, according to the National Development and Reform Commission.

Subsidies will also be offered to buyers of electric vehicles and plug-in hybrid models in five selected cities. Citizens of Shanghai, Shenzhen, Hangzhou, Hefei and Changchun would receive up to 50,000 Yuan ($7,320) in subsidies if they buy plug-in hybrid cars. For those who purchase fully electric vehicles, the subsidy is 60,000 Yaun. The subsidies are not handed out to the consumer however, but forwarded to the automakers who will then lower the sticker price of the vehicles in car showrooms.

Although it is expected that these subsidies will have a large impact on the sale of green cars, it will at least give citizens an opportunity to purchase an electric or hybrid vehicle, at a subsidized price. Further, the government will fund the construction of recharge points and battery recovery networks in the pilot cities.

3.3 Buy-back

N/A

3.4 Penalties

China also has put in place a tax structure that penalizes large-engine cars and encourages the purchase of fuel efficient cars. The schedule for this tax structure is shown below.

Category by engine displacement (L)

Tax rate prior to 4/1/2006 (%)

Tax rate 4/1/2006-8/31/2008 (%)

Tax rate beginning 9/1/2008 (%)

<1.0

3

3

1

1.0-1.5

5

3

3

1.5-2.0

5

5

5

2.0-2.5

8

9

9

2.5-3.0

8

12

12

3.0-4.0

8

15

25

4.0 and greater

8

20

40

 

3.5 Other tax instruments

China has revised its taxation of motor vehicles to strengthen incentives for the sale and purchase of vehicles with smaller engines. The taxation has two components: an excise tax levied on automakers and a sales tax levied on consumers. The excise tax rates are based on engine displacement. In 2006, the Chinese government updated excise tax rates to further encourage the manufacture of smaller-engine vehicles. Specifically, the tax rate on small-engine (1.0-1.5 liter) vehicles was cut from 5 to 3 percent, while the tax rate on vehicles with larger-engines (more than 4 liters) was raised from 8 to 20 percent. Also, as the preferential 5 percent tax rate that applied to SUVs has been eliminated, all SUVs are now subject to the same tax schedule as other vehicles with the same engine displacement.

3.6 Registration fees

The Vehicle Acquisition Tax (one time registration fee) shall be calculated using the ad valorum rate, in accordance with the following formula: Vehicle Acquisition tax payable = Taxable value x tax rate. The vehicle acquisition tax rate is 10%. Adjustments to this rate shall be determined and announced by the State Council.

3.7 R&D

N/A

4.0 Traffic Control Measures

4.1 Priority lanes

On October 1, 2009 China's environment authorities banned motor vehicles registered outside Beijing from entering the capital city if they fail to meet exhaust emissions standards. The Ministry of Environmental Protection mandated that petrol vehicles are not allowed to travel along or within Beijing's Sixth Ring Road, the city's outermost highway loop, if their exhaust emissions do not comply with National Emission Standard I. Diesel-driven vehicles must comply with National Emission Standard III or above before they can operate in the same area. The rule applies to vehicles registered outside Beijing because many regions have not yet made the standards mandatory. In order to further reduce pollution caused by car exhausts, vehicles entering Beijing must comply with the standards that 3.7 million local vehicles currently do.

The rule would likely affect older vehicles because stricter emission standards are already applied to new cars. Standard I, which is equivalent to the Euro I standard, allows an average petrol sedan to emit a maximum of 2.7 grams of carbon monoxide per kilometer among other exhausts, whereas Standard IV requires less than 1 gram of carbon monoxide and 0.08 gram of nitrogen oxide per kilometer. China introduced Standards I, II and III respectively in 2000, 2005, and 2007. Standard IV will be adopted nationwide in 2010.

4.2 Parking

N/A

4.3 Road pricing

N/A

5.0 Information

5.1 Labeling

Cars in China are required to display fuel economy labels from 2009. The label is as follows:

The white box top left (where it says 企业标志) is the place for the car manufacturer's logo. The white box center right contains 3 economy listings in litres per 100 km. The first is for urban conditions -- 市 区 工 况 , the second good driving conditions -- 续合工况 , and the third for congested city conditions - 市 耜 工 况

5.2 Public info

N/A

5.3 Industry reporting

N/A

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The text above is a summary and synthesis of the following sources:
  • An, Feng, et al. "Passenger Vehicle Greenhouse Gas and Fuel Economy Standards: A Global Update." The International Council on Clean Transport (2007): 1-36.
  • An, Feng and Sauer, Amanda. "Comparison of Vehicle Fuel Economy Standards and Greenhouse Gas Standards Around the World." Pew Center on Global Climate Change, 2004: 14.
  • "China revs up green car industry with fresh subsidies." BusinessGreen.com, 30 June 2010. Available on-line (http://www.businessgreen.com/business-green/news/2265718/china-fuels-green-car-industry).
  • Fulton, L. "International Comparison of Light-duty Vehicle Fuel Economy and Related Characteristics." International Energy Agency Working Paper Series, 2010: 1-70.
  • Walsh, M. Car Lines. Issue 2010 (3), June 2010 : 45.
  • Oliver et al. (2009). "China’s Fuel Economy Standards for Passenger Vehicles: Rationale, Policy Process, and Impacts" Discussion Paper, Cambridge, Mass.: Belfer Center for Science and International Affairs, 2009: 4.
  • Oliver, H. "Assessing the Impacts of Chinese Fuel Economy Standards for Light-duty Passenger Vehicles." 11 October 2007. Accessed 7 October 2009.
  • "Passenger Vehicles, GHG and Fuel Economy Standards." International Council on Clean Transport, 2007
  • Zhao, J. and Meliana, M. "Transition to hydrogen-based transportation in China: Lessons learned from alternative fuel vehicle programs in the United States and China." Elsevier, 2006: 1604.
  • Wang, M. et al. "Projection of Chinese Motor Vehicle Growth , Oil Demand, and CO2 Emissions Through 2050." The Energy Foundation, 2006

Further Sources Used:

The information contained on this website is intended as practical guidance coupled with examples of auto fuel economy policies and approaches in use around the world. It is not a complete collection of all national examples, nor does it track national and global progress on improving auto fuel economy. It is a work in progress and is updated regularly.This website does not support IE 5 and below.

 


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