On September 22, 2016, China’s Ministry of Industry and Information Technology (MIIT) proposed a Temporary Management Regulation for Corporate Average Fuel Consumption (CAFC) and New-Energy Vehicle (NEV) Credits for public comment. This proposal was rolled out in the context of the Chinese central government’s decision to phase out its decade-long subsidy program for NEVs in 2021. The proposal essentially would add a new NEV credit program to the existing corporate average fuel consumption regulation for passenger cars overseen by MIIT. This regulation applies to all enterprises selling passenger cars in China, including domestic manufacturers and importers. All passenger cars sold in China, regardless of fuel type, will be taken into account.
This integrated program aims to improve the fuel efficiency of traditional-fuel vehicles and to promote the deployment of NEVs in China. The following bullet points provide an overview of the key elements of the proposal:
- Each auto company is subject to a specific annual CAFC target, depending on its fleet mix, for each calendar year. - Large-scale auto companies must also meet their NEV target score.
- CAFC credits can be banked and carried forward for as many as the next three years, with different weighting factors applied to the credits. The credits cannot be carried back, meaning auto companies cannot borrow their future CAFC credits to help offset a current year’s CAFC deficit or non-compliance.
- NEV credits can be traded among auto companies but cannot be banked or carried forward. Purchased NEV credits can be used only in the current year and cannot be sold again.
- For any regulated auto companies, both the CAFC deficit and the NEV score deficit from the previous year (reported in the current year) must be zeroed out by the end of the current year.
- Failure to meet CAFC targets (after adopting all possible compliance pathways), in other words noncompliance, will lead to: 1) MIIT’s denial of “type approval” for new models that cannot meet their specific fuel consumption standards, and 2) Suspension of production of certain existing high-fuel-consumption models until the recalculated CAFC based on the adjusted production plan is in compliance.