Fuel Efficiency

Background

In 2018, the average fuel economy of new passenger cars sold in China was roughly 5.8 liters per 100 kilometers (L/100 km)—equivalent to roughly 40.5 miles per gallon. This was an improvement of roughly 4.3% over the 2017 average.[5]

For at least the past decade, the average fuel efficiency of new cars sold in China has been better than in the United States and Australia but worse than in Europe and Japan.[6]

Note on Units

Policies

The Chinese government requires all new passenger vehicles to meet fuel efficiency standards. The Ministry of Industry and Information Technology (MIIT) issues these standards.

According to the State Council, the purpose of China’s fuel efficiency standards is “to ease fuel supply and demand contradictions, reduce emissions, improve the atmospheric environment, and promote the automotive industry and technological progress.”[7] MIIT specifically identifies CO2 emissions reduction as among the “expected social benefits” of the standards. MIIT estimates that China’s 2020 fuel efficiency standards will reduce CO2 emissions by 113 million tons, as compared to the 2015 standards.[8]

The Chinese government’s fuel efficiency standards have two main parts. First, each vehicle must meet specific fuel efficiency standards based on its weight. The vehicle fleet is divided into 16 categories by weight for this purpose. These standards were first promulgated in 2005 and have been tightened every few years since.[9]

In addition, each vehicle manufacturer must achieve Corporate Average Fuel Consumption (CAFC) limits. These limits apply on an annual basis to each manufacturer’s new vehicle fleet as a whole. The standard for 2016 was 6.7 L/100 km. The standard for 2020 is 5 L/100 km.[10]

Manufacturers are offered several “flexibility schemes” to help meet the CAFC standards.

  • First, manufacturers may use “NEV credits” to help meet the standards. These credits allow manufacturers to count electric vehicles (which use 0 L/100 km) up to five times in determining fleet-wide averages. NEV credits can be (i) earned by manufacturing electric vehicles, or (ii) purchased from electric vehicle manufacturers.
  • Second, manufacturers may average performance over several years, using overperformance in one year to compensate for underperformance in other years.[11]

Enforcement of fuel efficiency standards is uneven, with some experts saying manufacturers face few penalties for failing to comply. In 2018, nearly 50 out of 113 domestic auto manufacturers exceeded their CAFC limits, according to MIIT. Under MIIT’s regulations, these manufacturers must come into compliance by applying NEV credits or using other flexibility tools.[12]

Nevertheless, one analysis found that China’s domestic vehicle manufacturing industry as a whole met the government’s fuel efficiency standards in 2016. According to the Innovation Center for Energy and Transportation, a nongovernmental organization, in 2016 the fuel efficiency of the Chinese domestic new vehicle fleet was 6.56 L/100 km, meeting the government standard of 6.7 L/100 km. (When credits for electric vehicles were removed, the fuel efficiency was 6.83 L/100 km.)[13]

The next phase of China’s vehicle fuel efficiency program is currently under development. Some stakeholders have expressed concern that an oversupply of NEV credits is adversely affecting fuel efficiency of the Chinese new vehicle fleet under the existing program and recommended changes to address this.[14]

Chinese taxes on the manufacture and import of passenger cars vary by size, with larger cars paying more. This promotes fuel efficiency. There is also a 10% tax on “super-luxury vehicles” (priced above 1.3 million yuan, equal to roughly $190,000). The Finance Ministry says this tax is aimed at encouraging “rational consumption” and promoting energy conservation.[15]

References

[5] “Average Fuel Consumption of Chinese Passenger Car,” China Net Car (July 3, 2019); Ministry of Industry and Information Technology, "2017 Chinese passenger car companies average fuel economy” (July 2, 2018) (average fuel economy for new passenger cars in 2017 was 6.05 liters per 100 km).

[6] IEA, Fuel Economy in Major Car Markets (March 20, 2019) at figure KF1 and data sets; Zifei Yang and Anup Bandivadekar, 2017 Global Update Light-Duty Vehicle Greenhouse Gas and Fuel Economy Standards, International Council on Clean Transportation (ICCT) (2017)

[7] State Council, “Notice on the issuance of energy-saving and new energy automotive industry development plan (2012–2020)” (June 28, 2012); See generally Innovation Center for Energy and Transportation, China Passenger Vehicle Fuel Consumption Development Annual Report 2017 (September 2017).

[8] Ministry of Industry and Information Technology, “Stage 4 Fuel Consumption Standards for Passenger Cars” (January 26, 2015) at part VII.

[9] Josh Miller et al., “China: Light-duty: Fuel Consumption”, TransportPolicy.net (accessed August 12, 2019); Innovation Center for Energy and Transportation (ICET), China Passenger Vehicle Fuel Consumption Development Annual Report 2016 (September 2016) at p.2.

[10] Innovation Center for Energy and Transportation, “China Passenger Vehicle Fuel Consumption Development Annual Report 2017” (December 2017); Zheng Yu, “China—Energy-Saving and New Energy Development Plan for the Automobile Industry” (October 28, 2017);

[11] Josh Miller et al., “China: Light-duty: Fuel Consumption,” TransportPolicy.net (accessed August 12, 2019); Innovation Center for Energy and Transportation (ICET), “China Passenger Vehicle Fuel Consumption Development Annual Report 2016” (September 2016) at p.6.

[12] “Nearly 50 passenger car companies failed to meet fuel consumption in 2018,” Beijing Daily (April 10, 2019); “工信部公示2016年度汽车企业平均油耗 43家未达标” [43 Companies failed to meet the standards in 2016] (April 14, 2017; Feng Hao, ”China’s EV push hurting fuel economy standards,” China Dialogue (November 21, 2016).

[13] Feng Hao, “China’s EV push hurting fuel economy standards,” China Dialogue (November 21, 2016); Innovation Center for Energy and Transportation (ICET), “China Passenger Vehicle Fuel Consumption Development Annual Report 2017” (December 2017) at pp.29, 34.

[14] See Discussion on the Management of CAFC-NEV Credits (June 21, 2019).

[15] Ministry of Finance, “Notice about Additional Taxation on Luxury Vehicles.”

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