After a long course of deliberation, the official version of the Measures for the Parallel Administration of the Average Fuel Consumption and New Energy Vehicle Credits of Passenger Vehicle Enterprises (“乘用车企业平均燃料消耗量与新能源汽车积分并行管理办法”, hereinafter referred to as “Parallel Credit Administration” ) has finally been promulgated on September 27, 2017 by the Ministry of Industry and Information Technology (“MIIT” ), Ministry of Finance, Ministry of Commerce, General Administration of Quality Supervision, Inspection and Quarantine. The Parallel Credit Administration will come into effectiveness as of April 1, 2018.
It is popularly believed that the Parallel Credit Administration, which functions as an enterprise-to-enterprise direct subsidy mechanism, will provide strong and continuous impetus for the new energy vehicle (“NEV” ) industry, esp. after upcoming sharp reduction of financial reimbursement as of 2020. It is also believed that the Parallel Credit Administration will directly stimulate effective NEV capacity and contribute to the national NEV promoting strategy in China Manufacture 2025.
Under the Parallel Credit Administration, all the OEMs shall fulfill targets regarding Corporate Average Fuel Consumption (“CAFC” ) credits as well as NEV credits. The targeted CAFC credits and actual CAFC credits of an OEM should be calculated in accordance with the national standard GB 27999, in which NEVs enjoy greater advantage. The targeted NEV credits shall be the annual production/import volume of fuel energy vehicles multiplied by the NEV quota set by MIIT, while the actual credits are to be the credits of each NEV type (e.g. for PEV the credits should be calculated according to a formula in which the variable is endurance mileage, and then adjusted with reference to the power consumption of the vehicle model) multiplied by respective NEV production/import volume. Therefore the NEV will enjoy “double preference” both in relation to the calculation of CAFC and NEV credits.
The CAFC credits surplus of an OEM can be carried over to next years, transferred among affiliates or traded, however, it cannot be used to make up for NEV credit deficit. In contrast, an OEM’s NEV credits surplus may be used to make up for either deficit of NEV credit or CAFC credit of the same OEM, but cannot be carried over, transferred or traded other than on the MIIT official platform. The differentiated treatment might be understood as a negative signal for R&D and investment in energy-saving technologies that are not qualified as NEV per definition by Chinese authorities.
Other highlights of the official version of Parallel Credit Administration in comparison with the last draft also include:
1. Grace Period for implementation of NEV quota
For the year 2018, no NEV quota is required. And the NEV credits surplus in the year of 2019 can be carried over to the next year. The NEV credit deficit of an OEM in the year of 2019 may be offset by its NEV credits surplus generated in the year 2020.
Major OEMs may have sought some comfort in the granting of such grace period. High economic loss owing to not being able to gain adequate NEV credits surplus before 2019 has been avoided, and both foreign and domestic OEMs may gain sufficient time to implement their NEV investment plan in China in order to better adapt to the Parallel Credit Administration.
The respective NEV quota required for the year of 2019 remains at 10% while the quota required for the year of 2020 remains at 12%. The NEV quota as of 2021 will be separately promulgated by MIIT in the future.
2. Tightened exemption threshold
Small-micro OEMs can be exempted from the NEV credit requirement. The threshold though is tightened, i.e. the maximum annual production/import volume of passenger vehicles of an OEM qualified for exemption was decreased from 50,000 in the last draft to 30,000 in the official version. Owing to this modification, a number of medium and small scale passenger vehicle OEMs will have to consider adjusting their business plan in China in the next few years.
It seems that the administrative penalty for failing to comply with the Parallel Credit Administration is slightly mitigated, e.g. the provision on suspense of production/import of fuel energy vehicle in case of the OEM’s failing to make up for its NEV credit deficit has been deleted. Nevertheless, the major penalties include black-listing (in case of non-compliant in CAFC and NEV statistics report) and refusal to approve new vehicle model or issue 3C certificate (in case of failing to fill CAFC or NEV credit gap). The accompanied implementing rules may be released by MIIT in near future, in which the administrative fines on non-compliant OEMs may be addressed.
The Parallel Credits Administration is expected to be a long-term policy in China. The major OEMs have already been adjusting their business strategy in the Chinese market, which may have profound influence on the business of upstream suppliers and relevant investment plans worldwide.
In addition, an envisaged NEV carbon quota program, which had been promoted by the National Development and Research Commission and would also apply to commercial vehicle, is suspended at the moment. Yet the option for the Parallel Credit Administration or Additional NEV quota to be applicable to commercial vehicle in the future may not be totally excluded.