China’s success in electrifying vehicles is largely attributable to favorable government policies that have subsidized the manufacture of electric vehicles (EVs) in addition to sales, and penalizing internal combustion vehicles that emit more carbon. Additionally, China is likely to replace its current green car credit system with a new policy that will largely focus on reducing carbon emissions. This change is expected to help China meet its “Paris Climate Agreement” and its goal of carbon neutrality by 2060, and create a sustainable electric vehicle economy, said GlobalData, a data and analytics company. leading.

In recent years, China has gradually reduced subsidies for electric vehicles as demand stabilizes.

The green car credit system or NEV credits is a credit-based mechanism active until 2023 where the automaker is credited with points for the sale of electric or fuel efficient vehicles. Credits can be traded with other companies to generate additional income and offset deficits in Company Average Fuel Consumption (CAFC) or simply penalties on more carbon intensive models.

Bakar Sadik Agwan, Senior Automotive Analyst at GlobalData, comments: “The policy aims to replace ‘multiple’ regional incentives with a standard national policy that emphasizes automakers to achieve carbon neutrality through electric vehicle sales. While the intentions were right and aimed at achieving the broader goal of carbon neutrality, it had its own set of challenges and gaps.

“Replacing it with the new Carbon Emissions Trading System (ETS) could solve these problems. Existing credit policy has prompted many manufacturers to turn to electric vehicle manufacturing rather than ICE, but the industry is now grappling with overcapacity and market fragmentation, which is the concern of the government. “

In addition, the focus on electric vehicles inhibited the development related to fuel efficiency and carbon emissions in the ECI, which was not the expected result. Improvements in CAFC or fuel economy for ICE vehicles have declined in China since 2018, as the poor performance of CAFC can be offset by a greater focus on electric vehicle production.

Mr. Agwan concludes: “The new Chinese Emissions Trading System is similar to the EU Emissions Trading System which is based on the ‘cap and trade principle’, where a cap is set on the emissions allowed in automobile manufacturing which will be reduced over time. Under the cap, manufacturing companies can purchase emission allowances that can be traded with other manufacturers when needed. ETS would ensure emissions control throughout automotive manufacturing, which is very energy intensive.

Given the growing electricity / energy shortages in China with a limited stock of coal, the government needs to seriously monitor energy consumption trends and promote alternatives – this is where ETS would play a role. important and is also being implemented successfully across Europe.

Credits: GlobalData