The European Commission’s forthcoming legislative proposal to revise the existing CO2 standards for light-duty vehicles (LDVs) could accelerate achievement of multiple policy goals at lower cost and significantly enhance the EU’s global competitiveness and quality of life for EU citizens. The latest RAP policy brief—Electric Cars, the Smart Grid, and the Energy Union: Coordinating Vehicle CO2 Reduction Policy with Power Sector Modernisation—highlights the benefits of greater coordination and coherence between the LDV regulation and the changing policy landscape for power markets and electricity networks.

Electric vehicles—likely to play a key role in meeting Europe’s vehicle CO2 standards—also play a critical role in enabling the power sector to meet Europe’s energy and climate goals by providing flexibility through controlled charging. This flexibility can enhance the power system’s ability to cost-effectively integrate variable renewable energy resources. However, distribution system operators and network planners need sufficient time and clear, consistent policy signals to prepare for EVs—something the current policy environment does not provide.

The LDV regulation is an opportunity to coordinate regulation across sectors and ensure that Europe capitalises on the digital revolution now underway in the power sector. “If we design and coordinate these policies effectively, we could integrate variable renewables very cost-effectively and at the same time improve the economics of EV ownership,” said Sarah Keay-Bright, author of the paper. By designing policies to exploit these synergies, Europe has the chance to advance its competitiveness in a number of sectors, including renewable energy, electric powertrains, batteries, the smart grid, and information and communications technologies.

Ms. Keay-Bright recommends that the optimal regulatory mechanism is a consistent set of near- and long-term binding CO2 reduction standards for LDVs, complemented by an ultra-low-emission vehicle (ULEV) quota that could be tradeable. This would provide electricity network investment planners with greater certainty about the minimum pace of change—helping to reduce planners’ margins of error, avoid overinvestment or stranded assets, reduce risk and the cost of finance, and therefore enable timely and efficient investment.

Greater certainty about the rate of EV rollout also makes it easier to develop, coordinate, and implement related policies. For example, national regulatory authorities could be motivated to accelerate implementation of power market design reforms in order to enable demand response, which is crucial for smart charging of EVs.

Contact: Sarah Keay-Bright