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RR RUEHAG RUEHDF RUEHHM RUEHIK RUEHLN RUEHLZ RUEHMA RUEHPB RUEHPOD
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DE RUEHBS #0605/01 1131413
ZNR UUUUU ZZH
R 221413Z APR 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEHAAA/WHITE HOUSE WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC

UNCLAS SECTION 01 OF 03 BRUSSELS 000605 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EB OES (NELSON), OES/PCI, EUR/ERA 
STATE PASS TO CEQ (GBANKS) 
STATE PASS TO DOT (CARAZO, RESENDES) 
 
E.O. 12958: N/A 
TAGS: SENV ELTN ECON EPET EUN
 
SUBJECT: EU Automakers: Greater Flexibility in Implementing 
EU and US Emissions Regulations Please 
 
 
¶1. (SBU) Summary: On April 11, USEU held a Chatham House 
rules discussion with leading EU and U.S. automakers on the 
European CommissionQs  proposal to reduce CO2 emissions 
from automobiles.. Participants stressed the need for as 
much flexibility as possible in both U.S. and EU regulation 
to reach car emissions targets, as well as increased 
information sharing and conversion on fuel standards and 
testing.  The EU proposal has many faults, including 
unreasonable fines and an unworkable QpoolingQ system. 
This may be a potential area of positive US-EU cooperation 
on climate change issues. End Summary. 
 
¶2. (SBU) On April 11, Special Envoy Gray hosted a meeting 
with representatives of leading EU-based automakers under 
Chatham House rules to exchange views on auto emissions 
policies and legislation.  Participants were from: BMW, 
Daimler, the European Automobile Automakers Association, 
General Motors and Volvo.  (Note: Ford was unable to 
attend, but reviewed the meeting later with Econoff and its 
comments are included.  End Note) 
 
Background: The EU Auto Emissions Proposal 
------------------------------------------ 
 
¶3. (SBU) In December 2007, the European Commission (EC) 
proposed a regulation to limit average CO2 emissions from 
the new car fleet to 130g CO2/km (approx. 42 mpg) by 2012. 
Automakers could form a pool to meet their targets.  If a 
manufacturer fails to meet its  target, it will be required 
to pay an excess-emissions fine.  Member States will 
monitor compliance.  The European Parliament (EP) has 
called for binding targets by 2011 so that average CO2 
emissions from the new car fleet reach 125 g/km by 2015 and 
95 g/km by 2020. 
 
4.(SBU) This fall, public disagreement between France and 
Germany flared up as German automakers (high-performance 
and heavy models) believed the proposal was too skewed to 
favor lighter car models (where French automakers excel). 
France and Germany have formed a high level working group 
to resolve their differences. European automakers also 
publicly raised concerns about: a too-soon compliance date; 
too heavy a focus on changes in vehicle technology rather 
than a more holistic approach; price increases (estimated 
at 3,000 Euros per car on average) and potential loss of EU 
jobs due to relocation.   The proposal will begin first 
reading this spring, with the idea that it could be 
finalized before EP elections in Spring 2009. 
 
More Flexibility Please 
----------------------- 
 
5.(SBU) During our meeting, our participants cited a number 
of problems with the auto emissions proposal: 
 
-- There should be greater flexibility in the means to 
achieve targets.  Participants praised the U.S. Corporate 
Average Fuel Economy (CAF) standards for their 
flexibility, citing the QcarryoverQ credits concept as an 
example (automakers which exceed targets on a model and 
earn credits may apply those credits towards emissions 
targets three years earlier or later). 
 
-- Adding QsupercreditsQ to the proposal would stimulate 
bringing alternative fuel vehicles onto the EU market.  One 
participant gave the example that a new electric model 
should be able to claim ten times the number of credits a 
new gas model might generate. 
 
-- The proposed fines are QhorrificQ: equivalent to a 450 
Euro per ton CO2 penalty, ten times the penalty faced by 
other industries that fall under the EUQs emissions trading 
system. 
 
-- A longer lead time is needed.  US automakers have twelve 
years to meet targets, Japanese automakers eight, the EU 
has only until 2012.  60-65 percent of the 2012 EU models 
are now off the drawing board, thus only about 35 percent 
can be changed to be made compliant. 
 
-- Pooling details remain undecided and participants saw 
few benefits.  For 2012 pooling to work, at least one 
 
BRUSSELS 00000605  002 OF 003 
 
 
manufacturer has to over-achieve to qualify for credits; 
participants claimed that this would be nearly impossible, 
given the model situation outlined above.  Even if an 
automaker did over achieve, the price they would charge for 
selling the credits would probably be only slightly below 
the penalty charge.  Pooling outside QlinkedQ automakers is 
unviable as any automakers who form a pool with a lower 
credit price must offer both membership and that price to 
any other interested automaker. 
 
-- Automakers should be able to buy/trade credits from 
stationary emitters. 
 
-- All monies raised by the proposal are currently 
earmarked for the EU budget.  Participants felt that, like 
the U.S. Energy Independence and Security Act, some or all 
of this revenue should be earmarked for auto R&D, retooling 
of plants, and other adaptation initiatives. 
 
Taxes Good, Image Bad, DonQt Discuss Global Ideas 
--------------------------------------------- ---- 
 
¶6. (SBU) Some automakers plan to launch very small, 
efficient vehicles over the next few years, but current 
demand is for large vehicles for comfort, power and safety 
and this is expected to grow.  Additional fuel efficiency 
gains on large vehicles are limited, however and smaller 
vehicles also mean smaller profits.  Our participants 
stressed that the biggest influences on consumer demand in 
Europe are car taxes and congestion taxes.  One participant 
called for a harmonized EU CO2-based car tax, noting that 
in Spain and France such a tax is successfully driving 
consumers to purchase small vehicles. 
 
¶7. (SBU) Our participants have tried extensive lobbying, as 
well as raising ideas such as letting automakers pay for 
emissions reductions in other sectors, and threatened to 
leave Europe unless financial/credit allowances are 
provided.  These efforts have gained no traction. All 
participants lamented the fact that EU oil companies have 
secured a QgreenQ public image through extensive outreach 
and advertising.  Interestingly, two participants 
speculated that the oil companies and the food industry 
were behind the anti-ethanol/biofuels campaign, sponsoring 
seminars and studies to highlight the negative impact of 
such alternative fuels. 
 
¶8. (SBU) Regarding global initiatives, our participants 
said automakers favor a global system focused on upstream 
activities, and favor an upstream approach to cap and trade 
for the auto industry such as the one contained in 
legislation to be considered on Capitol Hill.  However, 
they can not/not say this publicly, as it gets twisted into 
claims that the car industry is trying to avoid becoming 
more efficient.   Participants also stressed that any 
mention of a trading system is very dangerous, due to the 
EU proposalQs strict focus on car technologies, and that 
the EUQs Emissions Trading Scheme is inappropriate for 
cars.  It is better to remain silent on such alternatives 
until the current round of EU legislating is finished. 
 
US-EU Cooperation Ideas 
----------------------- 
 
9.(SBU) The Special Envoy asked if there were ways we could 
better harmonize regulations and standards. On this topic 
and broader US-EU cooperation, our participants suggested: 
 
-- Greater flexibility and choice in both US and EU 
legislation in the methods for implementing regulations. 
Sharing US experience in designing flexible regulations 
could be of real benefit to EU legislators in showing that 
flexibility and choice can net positive results. 
 
-- Greater information flow between the US and the EU on 
standards, regulations, studies, and results.  Also 
exchanges of information on potential new regulations and 
legislation, such as CaliforniaQs car emissions proposal. 
 
-- Harmonizing the US and EU fuel efficiency standards and 
agreement on a worldwide standard test cycle. 
 
 
BRUSSELS 00000605  003 OF 003 
 
 
-- Allowing technological innovations (e.g. sixth gear 
technology, electric steering) which make cars more 
efficient but are not/not examined in the emissions test to 
receive a credit value which would reduce the carQs overall 
emissions rate.  This would reward innovation. 
 
-- The U.S. should keep publicly supporting a pro-biofuel 
approach, noting the need for sustainability criteria, and 
provide objective information on ethanol and biofuels. 
Participants also stressed the need to keep working towards 
US-EU common standards on biofuels. 
 
-- The U.S. should stress the need for energy security. 
The EU needs a more robust internal debate about moving 
away from oil. Efforts to foster this debate are helpful. 
 
Comment 
------- 
 
10.(SBU) According to US 2007 trade figures, EU exports of 
autos to the US were valued at approximately USD 41 billion 
and US exports of autos to the EU were valued at 
approximately 17 billion.  Thus, we will need to keep an 
eye on the evolution of the EU proposal.  One way we could 
have a positive impact Q and further our hands-on climate 
change cooperation on tough issues Q would be to engage 
further with the EU on auto emissions standards, in 
particular sharing lessons learned from our own system and 
recent legislative debate.  End Comment