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China: New System Relating Corporate Average Fuel Consumption to New Energy Vehicle Sales Takes Effect

(May 9, 2018) On April 1, 2018, the Measures on Parallel Administration of Passenger Car Enterprise Average Fuel Consumption and New Energy Vehicle Credits took effect. The Measures establish a “parallel administration” system for auto companies’ corporate average fuel consumption (CAFC) and new energy vehicle (NEV) sales, aiming to promote new energy cars and provide additional compliance flexibility to the existing fuel consumption regulation. The Measures were jointly issued by China’s Ministry of Industry and Information Technology (MIIT) and several other central government departments in September 2017. (Measures on Parallel Administration of Passenger Car Enterprise Average Fuel Consumption and New-Energy Vehicle Credits (issued by the MIIT; Ministry of Finance; Ministry of Commerce; General Administration of Customs; and General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) on Sept. 27, 2017, effective Apr. 1, 2018), MIIT website (in Chinese).)

The Measures apply to passenger cars only. (Id. art. 2.) NEVs refer to pure electric passenger cars, plug-in hybrids, and fuel-cell passenger cars. (Id. art. 4.) Auto companies producing or importing over 30,000 non-NEV passenger cars per year will be required to earn NEV credits equal to a set percentage of their non-NEV sales in China, starting from 2019. The NEV credit percentage targets are 10% for 2019 and 12% in 2020. (Measures art. 17.)

The percentage targets are for NEV credits, not NEV sales. Each NEV may generate multiple credits, as follows:

  • Each plug-in hybrid may generate two credits.
  • Credits each pure electric car may generate depend on the electric range.
  • Credits each fuel-cell car may generate depend on the rated power of fuel cell systems. (Id. annex II.)

For example, if a company produces 100,000 non-NEVs in China in the year 2019, with a 10% NEV goal, it needs 10,000 NEV credits. The goal may be achieved by producing 5,000 plug-in hybrids (two credits per vehicle), amounting to 5% of the company’s non-NEV sales.

A company generates surplus NEV credits if its actual NEV credits are greater than the NEV target and a NEV credit deficit if its actual NEV credits fall short of the target. (Id. art. 14.) Similarly, it generates surplus CAFC credits if its actual CAFC is lower than its CAFC target under the existing fuel consumption regulation, and a CAFC credit deficit if its actual CAFC exceeds its CAFC target. (Id. art. 8.)

Moreover, surplus NEV credits can be used to offset the company’s CAFC credit deficit. (Id. art. 26.) The Measures provide for many other ways in which the NEV credits and CAFC credits may be used and traded, including

  • selling surplus NEV credits to other companies,
  • banking and carrying forward surplus CAFC credits to help with CAFC compliance in future years, or
  • transferring surplus CAFC credits to affiliated companies to help offset a CAFC credit deficit. (International Council on Clean Transportation (ICCT), China’s New Energy Vehicle Mandate Policy (Final Rule) (Jan. 2018), ICCT website.)

To offset a NEV credit deficit, a company may purchase NEV credits from other companies. To offset a CAFC credit deficit, more options are provided, including

  • using banked CAFC credits,
  • transferring CAFC credits from affiliated companies,
  • using self-generated NEV credits, and
  • purchasing NEV credits from other companies. (Id.; Measures arts. 26 & 27.)

China’s Energy-Saving and New Energy Vehicle Industry Development Plan (2012–2020) sets the expected fleet average targets of 6.9 L/100km by 2015 and 5.0 L/100km by 2020. (State Council, Energy-Saving and New Energy Vehicle Industry Development Plan (2012–2020) (June 28, 2012), State Council website (in Chinese).) National fuel-consumption-limits standards have been set for various types of vehicles. Taking effect January 1, 2016, the Phase IV standards for passenger cars also include a CAFC standard for manufacturers, and each manufacturer’s passenger car fleet must meet the CAFC target for the given year. (Fuel Consumption Limits for Passenger Cars, GB 19578–2014 (issued by the AQSIQ and Standardization Administration of China on Dec. 22, 2014, effective Jan. 1, 2016), MIIT website (in Chinese); China: Light-Duty: Fuel Consumption, TRANSPORTPOLICY.NET (last visited May 8, 2018).)