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Market realities to force yet another Euro IV delay

China may postpone the implementation of Euro IV (State IV) emissions standards for diesel vehicles for a third time – from July 1, 2013 to July 1, 2014, according to recent media reports.

China has been trying to implement Euro IV for years, and there are plenty of reasons why.

First is the environment. An executive from a truck manufacturer recently pointed out at an industry forum that in 2009, 80 percent of State III vehicles emitted 20 percent of total vehicle emissions, while 20 percent of State I and II vehicles emitted 80 percent of total vehicle emissions.

Second is energy safety. China’s dependence on foreign oil reached 56.6 percent in 2011. Heavy-duty vehicles take up half of the fuel consumed by the auto industry.

Third is technical improvement. Major engine and commercial vehicle makers in China are preparing for Euro IV solutions. Another delay would waste development work of these companies.

Fourth is market consolidation. The enforcement of Euro IV will eliminate marginal players and low-end products, which is crucial for a healthy and consolidated heavy-duty truck industry.

However, while the government has pressed ahead the industry to move up the emissions standards ladder for years, opposition rising from market realities has been equally strong:

The most important factor is substandard fuel quality. Many places in China are still supplying Euro II fuel and only a few central cities can supply Euro III fuel. A big reason for this phenomenon is that the government approval cycle of supplementary equipment required for the upgrading of diesel takes more than 20 months and all oil refineries cannot be rebuilt in the same time frame.

Second, budget and volume generic vehicles take up the bulk of the heavy-duty truck market and their owners and operators are extremely price sensitive. A Euro IV vehicle will cost on average ¥10,000-¥30,000 ($1,587-$4,761) more than a Euro III vehicle.

Third, the infrastructure for AdBlue is not adequate and need to be improved in China, which also affects the implementation of Euro IV standards.

China has a wonderful history of delaying automotive policies and regulations, the Euro IV delay is one of many examples. Although the industry needs to advance through tougher rules and regulations, market realities must be considered for any regulation. A one-size-fits-all regulation without striking a right balance among different stakeholders will almost never work.

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