New way of testing emissions may also test our wallets

Have you noticed your car’s Co2 emissions going up lately? No, you probably haven’t as it’s hardly the sort of thing you would notice, unless you’re the sort of person who habitually inserts measuring equipment into the exhaust of your family runaround. But, going up your emissions most certainly are.

It’s because of the WLTP (the Worldwide Harmonised Light Vehicle Test Procedure), which is the new laboratory test for fuel economy and emissions, adopted by the EU. It replaces the current discredited system known as the New European Driving Cycle (NEDC), originally promulgated in the 1970s, and heavily updated in the 1990s.

NEDC is the test that works out your car’s official economy and emissions figures, but it has been shown in recent years to be so full of holes that you could use its rule book as a tennis racquet.

Car makers (not just Volkswagen Group, although inevitably that’s a name that floats to the top) have become so adept at playing the NEDC test, that the WLTP test has been designed to replace it. It’s tougher, it takes longer to do, it is arguably more realistic, and it’s driving up the emissions of your car. The roll-out of WLTP enforcement started last September, for vehicles newly launched onto the market, and by this September all cars currently on sale will have to be put through the test.

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So, a tougher test means higher Co2 figures, for almost all models. It’s not quite that simple though. In order to give car makers time to get their houses in order, the EU has allowed a bedding-in period for WLTP, between now and 2019 (but more likely 2020, the introduction date is flexible). In that period, the official figure for your car’s emissions will be a so-called NEDC Correlated figure, a sort of half-way fudge between old test and new test.

Price increases

The increase in emissions, for now, will be relatively small for all but a handful of models, and the price increases also relatively benign. Across the board, for most cars, it will equate to probably no more, or not much more, than 1 per cent of the current price tag.

Kevin Hennebry is head of marketing for BMW Group Ireland, and said that in this crossover period, things won't change much. "If you had a car moving to Band C, the VRT jumps from 19 per cent to 23 per cent, then you're going to have a bit more pain, but for the most part those will be outlier models," he said. "The margins are relatively, if I may say, marginal in the short term. You don't want to put the prices of your cars up, of course, but for most core models it's around 1 per cent of an increase, so that's manageable. The big determinant is the VRT rate. There's probably been a challenge to explain it to people, but we're there or thereabouts now. In many cases, the Co2 emissions have gone up but the car has stayed within the same band, so that's an easy conversation at that level."

Tougher times ahead

These salad days won’t last, however. In 2020, the full force of the WLTP test will be unleashed and then things will get seriously messy. The test not only differentiates between engines, transmissions and wheel sizes, but every single piece of optional equipment will be tested to ascertain its impact on the car’s Co2 and economy ratings. Given the proliferation of optional extras over the past two decades, that’s going to mean staggering levels of complication when it comes to working out how much a new car, net of options, will cost. Not only will the cost of each option drive up the price, as now, but the effect of those options on the Co2 figure may cause the car to jump a Vehicle Registration Tax (VRT) band, which means the price will go up.

“It is going to be massive, more so in the future. Right now, we’re still operating on the NEDC correlated figure, which is relatively simple to administer. The ‘full-whack’ WLTP, to use the common language, which is coming in 2020, that will be hugely complex because every option will make a difference” said Hennebry.

“Right now, we have model-transmission-wheel, but from 2020 on it’s everything, every option, and every option combination that could potentially change the Co2. It’s not a case that you, for instance, add a rear-view camera and that adds 2g/km of Co2. Most likely, it’s not adding anything, because you probably already had the systems pre-installed in the car, the wiring loom, etc. But being able to sit down and quote a customer their price, determining that price, with all those variables, will be very complicated. We’re working on systems, quotation systems, to be able to cope with that but the worry is that something – WLTP – which has been designed to be more transparent, could end up leading to a lot of confusion, and difficulty.”

Taxation system

When the current Co2-based vehicle taxation system was introduced in 2008, car makers swiftly began to introduce more and more low-emissions models (mostly diesels) which kept both prices (by sticking to the lower end of VRT bands) and the cost of motor tax under control. The introduction of full WLTP regulations will see that wiped out, as many mainstream vehicles could see jumps of as much as 20-30g/km in their Co2 ratings. Such jumps could cause an Armageddon-like shock to the Irish new car market, if the current system of VRT remains unchanged.

Emma O'Carroll from Volvo Car Ireland said she hoped the Government would carefully consider all its options. "The Government is yet to confirm if they will implement the changes in January 2019 or January 2020," she said. "With the UK holding off until 2020 we would hope that the Irish Government would take the same time to consider all implications the changes will have on the industry and introduce the changes in a phased approach so the industry is fully prepared. We would also ask that the Government take a balanced view and are not overtly biased towards one powertrain system."

UK imports

The big worry is that, when the full regulations are in force, there will be a massive incentive for car buyers to import one to two year-old cars from the UK, whose emissions will be officially stated under the old system, making them far cheaper to tax, and which will have a far lower rate of VRT applied. Given that the weakness of sterling has opened the floodgates of cheap imports in the past two years, since the Brexit vote holed the UK’s currency below the waterline, a combination of cheap sterling and cars with, technically, lower emissions just across the water could be disastrous for the Irish car industry.

"Knowing that this is a worldwide measure affecting all motor manufacturers, one can only hope that governments will be conscious of the possible effects that any harsh measures could have on budgetary forecasts and likely tax revenue," said Ciaran Allen, sales director at Motor Distributors, the Irish agent for Mercedes-Benz. "For that reason, the industry in Ireland is hopeful that if any measures are introduced they will be of a scale that motorists can comfortably absorb."

In fact, the introduction of WLTP is supposed to be tax-neutral. While maintaining its traditional hands-off role when it comes to national tax policy, the EU Commission has said that “the move to the new WLTP test should not negatively impact vehicle taxation by increasing costs for the consumers. To that end, national governments need to ensure that Co2-based taxation will be fair. If they fail to do so, the introduction of the new test procedure will increase the financial burden on consumers.”

The Irish Government has shown some reluctance, of late, to tinker too much with the VRT system, cognisant of the potential for a backlash if, as happened in 2008, the introduction of a new system has a parlous effect on the used values of older models. Something's going to have to change, though. According to figures seen by The Irish Times, one popular current model, which has seen a modest €600 increase in price with the switch to the transitional period figures, would see a €3,700 increase under full WLTP, if the VRT system were left unchanged. As one motor industry figure told us: "€600 we can live with; €3,000 we can't".

So, the price you pay for your new car in 2020, or whether you choose to hop on a ferry and bring back a (cheaper) nearly new UK car hinges on what the Department of Finance, Revenue, and the Government chooses, and is lobbied to do, between now and then.

Consumers

Alan Nolan, director general of the Society of the Irish Motor Industry (SIMI), said the likelihood was that the systems would be changed, to ensure consumers aren't short-changed. "Our view is that consumers shouldn't be facing a tax increase, because of WLTP," he said.

“That’s in line with what the EU says, and we know that the Irish Government will be looking at that. The numbers coming through now give an indication of what sort of adjustment is needed. Some degree of stability is required, because otherwise you run the risk of a reduction in sales, and a step backwards environmentally, because people would be putting off buying newer, more efficient models.”

Kevin Hennebry agrees, saying: “In the longer term, it requires a wholesale rethinking of the way that VRT is administered and priced. It would cause quite significant price inflation if the system isn’t changed. The more fundamental question is not how we administer it but how it is priced. If there’s no change, there’s going to be massive incentive for people to import used cars, which will be on the older, lower VRT rates. So there needs to be fair and equal treatment, where the import of used cars is concerned.”

Different ratings

Another concern is that the current taxation system won’t be able to cope with the proliferation in the number of different Co2 ratings and models. The motor trade has, sotto voce, voiced worries that neither Revenue nor the various Government departments quite know what they’re getting into, with one insider saying that “it hasn’t really hit home at Revenue”.

A spokesperson for Revenue said: “As part of our normal IT enhancement programmes over the past 18 months, Revenue systems have been upgraded to prepare for the revised versions of the Certificate Of Conformity (e-CoC) that will be received with WLTP data. For several months now, this system has been operating satisfactorily and the revised e-CoCs have been sent by distributors to Revenue. Revenue is prepared and continues to be in regular contact with both members of the trade and relevant State agencies to ensure a smooth transition to WLTP.” The spokesperson did not, however, confirm whether or not Revenue’s system for assessing the VRT payable on imported, second-hand, cars was similarly ready.

WLTP was designed to be better for the consumer. It was designed to make the official test harder for car makers to sidestep, and to produce a more realistic set of emissions and fuel economy figures at the end. On both those counts, it succeeds. But combine WLTP with the complex, occasionally Byzantine, structure of the Irish vehicle taxation system and you have the potential for confusion, complication and serious price hikes. A system designed to protect the consumer from the car makers could end up costing both, in the long run.