Comments to MIIT on proposed Accounting Rule

8/2/2019 Comments to MIIT on proposed Accounting Rule

http://slidepdf.com/reader/full/comments-to-miit-on-proposed-accounting-rule 1/13

ICCTCommentsinResponsetotheProposedAccountingRuleofthePhase

ThreeFuelConsumptionStandardsforNewPassengerVehiclenChina

March2nd,2012

TheInternationalCouncilonCleanTransportation(ICCT)wouldliketothanktheManufacturingEquipmentDepartmentofMinistryofIndustryandInformation

Technology(theDepartmentbelow)fortheopportunitytoprovidecommentson

theproposedAccountingRuleofthePhase3Corporate-AverageFuelConsumption

standardsforNewPassengerCars(AccountingRuleortheRulebelow).

WecommendtheDepartment’seffortsandleadershipindevelopingChina’sfirst

evercorporate-averagefuelconsumption(CAFC)standardsforpassengercars,

includingadoptingthetargetvaluesandtestmethodsinDecember2011,and

proposingthisAccountingRule.Thecorporate-averageapproach,comparedwithbanningtheproductionofnon-compliantvehiclesasintheprevioustwostagesof

standards,providesautomanufacturerstremendousflexibilitytoreducetheircompliancecost.

WearedelightedthattheDepartmentproposes,forthefirsttime,toincludebothdomesticallymanufacturedvehiclesandimportvehiclesunderthescopeofthe

regulation.Thedramaticgrowthofimportvehicles,combinedwiththefactthatthe

majorityofimportvehiclesarelarger,morepowerfulcarandSUVmodelswith

relativelyhighfuel-consumption,meansthatimportvehiclesareplayingabigger

andbiggerroleintotalcarenergyconsumptioninChina.Includingthesevehiclesin

theupcomingcarfuelconsumptionstandardwillnotonlyclosethisloophole,italso

createsalevelplayingfieldforimportanddomesticallyproducedvehicles.

WealsowelcometheDepartment’seffortinincludingnon-conventionaltechnology

vehicles(suchasbatteryelectric,fuelcell,andplug-inhybridvehicles)intherule.

Trulyadvancedtechnologyvehiclescansubstantiallyreduceconventionalfuelconsumption,andhavegreatpotentialinoverallenergyconsumptionand

greenhousegasemissionsreductionifcoupledwithloworzeroGHGenergy

supplies.Properlydesignedtemporaryincentivesmayhelpthecommercialization

processofsuchvehicleswhiletheirproductioncostisbeingbroughtdownto

competitivelevels.(Seebelowforourcommentsandsuggestionsforimprovingthedesignofincentivesfornewenergyvehicles.)

WeunderstandthemultiplechallengesthattheDepartmentisfacinginintroducingthenewcorporate-averagecomplianceapproach,includingsettingupawholenew

accountinganddataverificationsystemthatrequiresmulti-agencycoordination,

andbelievetheAccountingRuleisanimportantstep(thoughnotafinalone)to

haveacompleteandcomprehensiveregulatoryandenforcementsystem.However,

tofullydeliverthepromiseofenergyconservationbenefitsfromtheCAFCstandard,

aneffectivecomplianceandenforcementplanthatincludesprohibitivenon-





InternationalCouncilonCleanTransportation 3

Enforcementisacrucialcomponentinvehiclefuelconsumptionregulation,and

consideredasimportantasthestandardvaluesthemselves.Acompleteregulationshouldcomprisetargetvalues,testproceduresandmethods,implementationplan

andenforcement.

TheAccountingRuledoesnotspecifyanypenaltyfornotcomplyingwiththeCAFCstandards,butonlymentionsbrieflyintheAnnexthattheregulatoryagencywill

issueaseparateenforcementplaninthefuture.Therulealsomentionsbrieflythat

forvehiclesthatfailthepost-productionconformitytest,theDepartmentwould

publicizethetestresultsandannouncethefailedmodelstothepublic.However,

pastexperienceintheEUsuggeststhatmanufacturerswilllackincentivetoimprove

technologiesandmeetfuelconsumptionreductiontargetswithoutatrulystrong

enforcementscheme.

Evenwiththeexistingtargetvalues,andpresumingthisAccountingRulewouldbeimplementedasplannedinJulythisyear,thephase3fuelconsumptionstandards

fornewpassengercarswillnothaveanybindingeffectonmanufacturerswithoutatrueenforcementsysteminplace.Thismeansthereishighriskofcompliancedelayofthestandards,whicharesupposedtophaseinstartingthisyear(2012).

EnforcementofacorporateaveragestandardismorecomplicatedthaninthePhase

IandIIper-vehiclefuelconsumptionstandards,whichprohibitproductionofnon-

conformingmodelsbynotgrantingtype-approvalcertificates.Thestandardsapply

toamanufacturer’sentirefleetforaregulatoryyear,andcomplianceisjudgedupon

thesales-weighted(orproductionvolume-weighted)averagefuelconsumptionof

themanufacturer.Thissystemrequiresanewenforcementmethodeffectiveafter

theproductionorsalesofthevehicles.

TheUnitedStatesandtheEuropeanUnion,aswellasothermajorvehiclemarketsin

theworldthathaveadoptedacorporateaveragestandardsystem,allhave

establishedrelativelystringentandstrongenforcementprogramsfortheirlight-dutyvehiclefueleconomyorGHGemissionsregulationsthatfeatureoneormore

non-compliancepenalties,includingbothfiscalandnon-fiscalmeasures.Table1

belowsummarizesenforcementapproachesinvariousregions.

Table1.Enforcementschemesinvariousregionsthathaveadoptedcorporateaveragefuel

efficiencyorGHGregulation

Region

Enforcement scheme

Fiscal: civil penalty orpayment to the

government to offset

excessive emissions

Non-fiscal: voiding of

certificate

Non-fiscal: publishing

name of manufacturer

U.S. x x

EU x

Japan x x




Canada x x

S. Korea x

Asshowninthetable,fiscalpenalties(orcivilpenalties)areadoptedbyallregions

andareconsideredthemosteffectivewayofpenalizingnon-compliance.Althoughimplementingfiscalpenaltiesmaycreateanadditionalrevenuestreamforthe

government,thatisnotthegoal.Instead,theprimarygoalistoincreasethecostofviolatingthestandardstothemanufacturer,sothatthemanufacturerwillchooseto

comply.

Thisdeterminesthebasicprincipleforsettingthemagnitudeofafiscalpenalty:the

marginalpenaltyshouldbehigherthanmanufacturers’marginalcompliancecost.Ideally,inorderforallmanufacturerstocomply,thepenaltyshouldbehigherthan

thehighestcompliancecostamongallmanufacturers1.Andthebottomlineis,the

penaltyrateshouldbesethigherthanatleastthecompliancecostofthemajorityof

manufacturers.

IntheUSandEU,regulatoryagencieshaveconductedcomprehensiveresearchto

evaluatecosttomanufacturersofmeetingthestandards.Astudycommissionedby

theEuropeanCommission2showsthatthecurrentlyproposedpenaltyrateof€95

perexcessgramperkilometerishigherthantheaveragemarginalcompliancecost

ofallmajormanufacturersinEurope.WerecommendthattheDepartmentconducts

similarstudiestoassessthecostofcomplianceforChinesemanufacturersasabasisfordetermininganeffectivelevelofpenalty.Ifadetailedanalysiscannotbe

undertaken,theDepartmentmayconsideradoptingthehigh-endofthepenalty

leveladoptedbyothercountries,liketheEuropeanlevelof€95perexcessivegram

perkilometer—roughlyequivalentto1,860 yuanperexcessive0.1liter/100kmoneachvehicle.

Theauthoritytoimposenon-compliancepenaltiesisgrantedbylegislationintheEU

andUS.WeunderstandthatinChinathereisnosuchlegislativelygrantedauthority,

andrevisingthelawtograntthisauthoritymaybealengthyprocess.However,we

believethatsuchauthorityisnecessarytoanyeffectiveenforcementofthestandard

andurgetherelevantagencytomakealleffortstopursueit.Whilepursuingthis

authority,theDepartmentmayconsiderimposingotherpunitivebutnon-fiscal

penalties,suchasvoidingthetypeapprovalcertificatesandbanningtheproduction

ofhighfuelconsumptionmodelsproducedbyamanufacturerinthenextregulatory

yearifthatmanufacturerfailstomeettheCAFCtargetforoneyear.

1Inpractice,itisextremelyhardforsomemanufacturersthattargetnichemarketsandbuilda

limitedproductlinetomeetthestandardsdesignedforthemajorityofthefleet.2 SupportfortherevisionofRegulation(EC)No443/2009onCO2emissionsfromcars

Servicerequest#1forFrameworkContractonVehicleEmissions,Nov.2011.Figure4onpage13.






AdvancedTechnologyVehicleIncentives

NewEnergyVehicle(NEV)incentives,suchasthoseprovidedinthisAccounting

Rule,willprovidethegreatestbenefitiftheyencourageenergyefficient,fullperformanceadvancedtechnologyvehicles.Toaccomplishthatgoal,wesuggest

thatinthisRuletheDepartmentaccountforNEV“tanktowheels”energyusage,varyNEVmultipliersonthebasisofvehiclerange,andonlyprovidemultipliersto

advancedbatteryvehicles.Lookingtothelongterm,werecommendthatinthe

forthcomingPhase4standardsetting,theDepartmenttransitiontoafullwell-to-

wheelsaccountingofenergyuse,andeliminatetheuseofmultipliersentirely.These

stepswillencouragethemostefficientNEVsandavoidorlimittrade-offswith

conventionalvehicletechnologyimprovements.

Morespecifically,weencouragetheDepartmenttofirstincludetank-to-wheels

energyconsumptionforbatteryelectricvehiclesandhydrogenfuelcellvehiclesinthePhase3AccountingRule,consistentwiththetreatmentofothervehicles,rather

thanassigningthesevehiclesadefaultvalueofzero.ThecurrentUSvehiclefueleconomylabelingsystemandtheJapanese2020fueleconomyregulationcompliancesystemhaveprocedurestoconvertbatteryelectricityorhydrogen

energyconsumptiontoanequivalentamountofpetroleumenergy(seeTechnicalAppendixAforexamples).ThisapproachwouldprovidesignificantcreditsforNEVs

whilealsocreatinganincentiveforefficientoperation.

Second,wesuggestthattheDepartmentindexproposedmultipliersforbattery

electricvehicles,hydrogenfuelcellvehiclesandultralowfuelconsumptionvehicles

(vehicleswithfuelconsumptiononthecombinedNEDCcyclenottoexceed2.5

Liter/100-km)inthePhase3AccountingRuletorange.Rangeisakeyperformance

criterion,asrecognizedinCalifornia’sZeroEmissionVehicleprogram,andwillbenecessaryforglobalcompetitivenessintheadvancedtechnologyvehiclemarket.

Californiarequireszeroemissionvehiclestoreachatleasta50-mile(81km)

minimumrangetobeeligiblefortheZEVcredits3.Inprinciple,thelowerscorescouldbesetbasedonthemostcommontypeofpureelectricdrivevehicleavailable

now.Themediumscorescouldbesetbasedonthetoprunnerswiththehighest

pureelectricdriverangeavailableinthecurrentmarket,whilethehighestscore

couldbereservedforfuture“toprunners”withevenhigherelectricdriverange

thanthecurrentbest.

Wealsoencourageanadditionalcriteriontospecificallyexcludelead-acidbattery

vehicles,whichdivertresourcesfromdevelopingtheadvancedbatteriesnecessaryforgloballycompetitiveadvancedtechnologyvehicles.TheCaliforniaAirResources

3TheCaliforniaAirResourceboardhassetathresholdforZEVcreditsat50milesrangeonthe

UrbanDynamometerDrivingSchedule,whichwillapplywhenthelatestrulerevisionsbecome

effectivein2018.Thisminimumrangeisbasedonanassumptionthatvehicleswitharangeunder50

mileswillnotmeetcustomerexpectations.California’sZeroEmissionVehicleprogramusesrangeas

akeycriterionforissuingcredits,withcreditvaluesincreasinguptoarangeof350miles.CARB.

2011.ZEVISOR.p.36.




Board(CARB)hasdefinedanadvancedbatteryas”abatterywithaspecificenergy

of…atleast50W-hr/kgfor1999andsubsequentcalendaryears.”4AsimilarminimumspecificenergyrequirementshouldbeincludedinthePhase3Accounting

Rule.AsshowninthebatterydensityfigureintheTechnicalAppendixB,advancedtechnologiessuchaslithium-ionbatterieswouldmeetthisdefinitionandlead-acid

batterieswouldnot.

Lookingtothelongterm,ICCTencouragestheDepartmenttogofurtherinthe

Phase4ruletoincludeafullwell-to-wheelsaccountingasNEVsbecomemore

common.Theinclusionofwell-to-wheelsenergyusagesupportsoverallenergy

savinggoalsbyfullyaccountingfordifferencesintheupstreamenergyneededto

producegridelectricityorhydrogenascomparedtoproducingpetroleum.Wellto

wheelsenergyaccountingwillalsohelpsupportGHGreductiongoals,andestablish

animportantprincipleforaccountingforNEVupstreamemissionsinairquality

plans.

Thereareseveralwell-to-wheelsaccountingexamplesthattheDepartmentcanadaptforthePhase4rules.CARBhasadoptedawelltowheelsGHGaccountingapproachandhasproducedtechnicalmemosonupstreamenergyconsumptionfor

theLowCarbonFuelStandard.TheUSEPAwillincludewell-to-wheelsGHGemissionsforvehiclesproducedbeyondspecifiedcapsandhaspreparedsome

relatedtechnicalanalysis.5WeexpectthattheEUwilltransitiontowell-to-wheels

aswell.TheTechnicalAppendixCprovidesexamplesofcreditsthatNEVscould

achieveunderawell-to-wheelsenergyaccountingsystemadaptedtoChina’sPhase

4rule.

WealsorecommendthatthePhase4Ruleeliminatetheuseofmultipliers.NEV

multipliercreditscanbeimprovedwithperformancecriteriaduringPhase3butshouldeventuallybephasedoutentirely.Pickingtheright“winners”fortechnology

bonusesischallenging,andthebonusescanresultinwindfallcreditsand

undermineimprovementsinothertechnologiesasNEVdeploymentsincrease.TheEUwillreducethevalueofmultipliersintheirruleeachyearstartingin2013and

sunsetthemultipliersin2015.6TheUSEPAhasproposedintroducingmultipliersin

MY2017withanannualdeclineandaMY2021sunsetbuthasnotyetdecided

whethertofinalizethesemultipliers.TheICCThascommentedtoUSEPAthat

4

CARB.1998.StaffReport1998Zero-EmissionVehicleBiennialProgramReview,July6,p45CARBandUSEPAtechnicalreportscontaininformationthatishelpfulfordeterminingpowerplant,

refineryandother“upstream”energy.Thisvaluecouldthenbeconvertedtoanequivalentliters/100

kmscorebasedonequivalentCO2emissionsasshownintheTechnicalAppendixC.SeeCARB2011.

InitialStatementofReasonsforProposedRulemaking,PublicHearingtoConsiderthe“LEVIII

Amendments”etc.December7.p136;andUSFederalRegistervol76p75013December12011.See

alsoadditionaltechnicaldocumentsfromCARB’sLowCarbonFuelStandards,andtheUSEPAmemo

“CalculationofUpstreamEmissionsfortheGHGVehicleRule”September14,2009byCraigHarvey. 6Regulation(EC)No443/2009oftheEuropeanParliamentandoftheCouncilof23April2009.

Article5.




MY2017-2021multipliersshouldnotbefinalizedbutiftheyareICCTwouldagree

thataphase-outshouldbeincluded.7

Finally,theICCTnotesthatinordertofullyrealizethepotentialGHGandairqualitybenefitsofNEVs,theefficiency-orientedmeasuresrecommendedheremustbe

combinedwithothermeasuresthatreduceupstreamemissionsfromenergyproduction.

Incompletemarketconformitytest

Westronglysupporttheideaofincludingamarketsamplingconformitycheck,

proposedinthisruleinChapter7.However,theruledoesnotspecifyanydetailed

requirementsandtestproceduresforconductingthosechecks.Neitherdoesthe

Chapterspecifyanyenforcementactionsexceptforannouncingthetestresultsand

thefailedmodelstothepublic.TheDepartmentisintendingtoreleaseaseparateprovisionondetailsoftheconformitytestinthefuture.

Hereweoutlinesomekeyelementstobeconsideredinthedetailedrule,basedontheUSin-useverificationtestexperiences.Theruleshouldinclude,butnotbe

restrictedto,thefollowingelements.

1) Clearpass/failcompliancemarginsforcheckingthefuel-consumptionlevelof

post-productionvehicles.Thecompliancemarginshouldbedetermined

basedonfactorssuchasrun-ineffect,andtestandproductionvariation.

Chinacertifieseachmodeltypeanditsvariants,whichmeanseachpost-

productionvehiclecorrespondstoonlyonecertifiedfuelconsumptionlevel.

Theallowablemarginshouldapplyontheexactcertifiedfuelconsumption

levelofavehicle.

TheDepartmentisintendingtousean8percentmarginforrun-ineffectand

anadditional4percentmarginfortestvariation—thesamesetofmarginsspecifiedinthefuelconsumptioncertificationtestmethods.8Forrun-in

effect,webelievetheproposedmarginiswithinthereasonablerangeoffuel

consumptionlossforvehiclesproduced20yearsago.However,wealsothink

thatrun-ineffectismuchsmalleronmodernvehiclesduetotighter

manufacturingtolerancesandtheeffectlargelydisappearsafterabout2,000miles(about3,200km).Therefore,weinprincipleencouragetheregulatory

7USEPApublishedtheirproposalinFederalRegistervol76p75013,December1,2011.ICCT’s

February13,2012commentstoUSEPAareavailableat:http://www.theicct.org/news/us-2017-25-

cafeghg-standards-comments-nprm-13-feb-2012,lastaccessedMarch2,2012.8TheChineselight-dutyvehiclefuelconsumptiontestmethodsallowmanufacturerstousevehicles

withzeroaccumulatedmilesforthetesting,andallowmanufacturerstousea0.92adjustmentfactor

onthevehiclefuelconsumptiontestresultofazero-milevehicletoreflecttherun-ineffect.But

typically,therulerecommendsmanufacturerstoruntheirvehiclesbetween3,000kmand15,000km

beforetesting.Source:TestMethodsofFuelConsumptionforLight-dutyVehicles,Docketnumber:

GB/T19233-2003.




agencytoconductteststodeterminefuelconsumptionimpactofrun-in

effectamongnewvehiclestodaybeforeadoptingthe8percentcompliancemargin.Fortestvariation,theUSEPArequiresretestsifthetestresultsdiffer

bymorethan3percent.ThisvalueissetbasedondataandexperiencesfrompastEPAfueleconomytests.Wesuggestcuttingthe4percentmargin

proposedbytheDepartmentto3percent.

2) Criteriaforsamplingvehicles.Theselectioncanbecompletelyrandom,or

targetvehiclesthathadproblemsatthecertificationstageorthatadoptnew

andadvancedfuelefficiencytechnologies.Thetotalnumberofvehicles

testedissubjecttothebudgetlimitationoftheregulatoryagency;themore

vehiclesandmodelscovered,themorecomprehensiveandinformativethe

testresultswillbe.Theregulatoryagencycanalsomandatethat

manufacturersconductlarger-scalein-usetestsattheirowncost,withthe

officialtestsservingasaspotcheck.

3) Detailedtestproceduresanddeterminationofcompliance.Theregulatoryagencyshouldsetrequirementsonnumberofvehiclestobetestedforeachmodelandvarianttype,numberofteststoberunoneachvehicle,andhow

toaveragethemultipletestresultstodeterminecompliance.

4) Enforcement.Theruleneedstospecifywhatactionsorpenalties

manufacturersmayfacefornon-compliance.Wesuggestthattheregulatory

agencyrequirerecallofnon-compliantvehiclesonlyiffiscalpenaltiescannot

beimposed,andthatthatrequirementbeeliminatedimmediatelyupon

adoptionoffiscalpenalties.AccordingtotheU.S.2012-2016modelyear

regulationforlight-dutyvehicles,failuretomeetthein-useCO2standard

mayresultinrecallliability,undertheCleanAirAct.Inothercases,EPAcanfallbackonassessingacompliancepenalty.

5) Fortheconformitytests,theregulatoryagencyshouldperformthetestsinagovernment-ownedlaboracompletelyneutraltestlab,insteadof

contractingamanufacturer’slaboralabwhosemajorclientsarethevehicle

manufacturerstoavoidconflictofinterests.Thisrecommendationalso

appliestopre-productionverificationtests,butthatisbeyondthescopeof

thisAccountingRuleandourcomments.




The International Council on Clean Transportation is an independent

nonprofit organization founded to provide first-rate, unbiased research andtechnical and scientific analysis to environmental regulators. Our mission is

to improve the environmental performance and energy efficiency of road,

marine, and air transportation, in order to benefit public health and mitigate

climate change.




AppendixA:NEVTanktoWheelsExample

ThecurrentUSvehiclefueleconomylabelingsystemandtheJapanese2020fuel

economyregulatorycompliancesystemuse“tanktowheels”energyaccountingforbatteryelectricvehiclesasnotedinourletter.Tanktowheelscoversdirectenergy

usefromthevehiclebattery(includingexternalvehiclechargerandbatteryloses)andnottheindirector“upstream”energyusage.Theelectricalenergyusageis

convertedtoanequivalentamountofgasolineenergyusagewiththefollowing

equation.Thismethodcanalsobeusedforthegridelectricityfractionofplug-in

hybridsandforfuelcellelectricvehicles.

Gasolineequivalentfuelconsumption=NEVefficiency(inkWh/100-

km)×Electricenergyunitconversion(inMJ/kWh)÷Gasolineenergy

density(inMJ/L)

Theresults(asshownbelowinTableA-1)varyslightlyforJapanandtheUnited

States,presumablyduetoslightlyhigherethanolcontentofUSfuels,whichresultsinalowerenergycontentperliter.

TableA-1:TanktoWheelsdirectenergyusageaccounting,NissanLeafefficiencyonNEDC

testcycle(sources:multiple9)

JapanCompliance

System

USEPALabeling

System

NEVefficiency(kw-hr/100km) 13.7 13.7

Electricalenergyunitconversion(MJ/kw-hr) 3.6 3.6

Gasolineenergydensity(MJ/liter) 32.9 32.0

Gasolineequivalentfuelusage(l/100km) 1.50 1.53

9Sources:

•

NEDCefficiencycalculatedfromNissanrangeandbatterycapacity:http://www.nissan.co.uk/#vehicles/electric-vehicles/electric-leaf/leaf/pricing-and-

specifications/specifications,lastaccessedMarch6,2012.

• USEPAfueleconomyrating(inmilespergallon):

http://www.fueleconomy.gov/feg/evsbs.shtml,lastaccessedMarch6,2012.

• Japanfueleconomyrating:Kajiwara,A.2012“OverviewofFY2020FuelEfficiencyStandardsfor

PassengerVehicles”January.Availableat

http://www.unece.org/fileadmin/DAM/trans/doc/2012/wp29grpe/GRPE-63-07e.pdf ,last

accessedMarch6,2012.




AppendixB:AdvancedBatteryDefinition

FigureB-1belowshowstheperformancecharacteristicsofvariousbattery

chemistries.Specificenergy(thexaxis)istheamountofenergyperunitofweightandthusdetermineshowmuchenergycanbestoredinabatteryofagivenweight.

Theamountofstoredenergyinthebatteryinturndeterminesavehicle'srange(alongwithvehicleefficiency).Asthefigureshows,advancedbatterychemistries

suchasLi-ionhaveamuchhigherspecificenergythanleadacid.10Giventhewide

gapinperformance,avarietyof"cut-off"pointscouldbeusedtodifferentiate

advancedchemistries.The50wh/kglevel,measuredatthepacklevel,waschosen

bytheCaliforniaAirResourcesBoardasadefinitionofan“advancedbattery”11as

notedinourletter.ThisdefinitionhashadtheeffectofrulingoutleadacidandNi-

CdbatterieswhileallowingtheuseofNi-MHandLi-ionbatteries.ICCTsuggests

usingCARB’sdefinitionasanappropriatedividinglinefordeterminingwhich

chemistriesqualifyasan“advancedbattery”.

FigureB-1:Energyandpowerdensityofbatterychemistries(source:USNationalRenewableEnergyLab)

10Some"veryhighpower"Li-ionvariantshavealowerspecificenergybutarenotexpectedtobe

usedinplug-invehiclesduetohigherspecificenergydensitydemandsandlowerspecificpower

demandscomparedtonon-pluginhybrids.11CARB.1998.StaffReport1998Zero-EmissionVehicleBiennialProgramReview,July6,p4

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Comments to MIIT on proposed Accounting Rule