Slower Rollout of Euro III Emissions Standards Expected in China

For the past several years, engine and components makers have been preparing for the implementation of stricter vehicle emissions standards in China. (China has adopted standards modeled after those in Europe which set limits for the emission of NOx and particulates. The United States follows a different, but somewhat comparable, set of standards.) While US and Europe are now implementing Euro IV or its US equivalent, many of the engines used in China’s countryside are effectively Euro 0; China’s commercial vehicle industry (trucks and buses) is generally at Euro II; and modern passenger cars used in China are at Euro III.)

In preparation for the 2008 Olympics, the city of Beijing lead the way by adopting Euro III standards for all vehicles at the end of 2005, one year earlier than originally planned. While Euro III standards were expected to be implemented in other cities and regions throughout the country beginning in 2007, it now appears that the timeline has been delayed. In a recent interview, an official of the State Development and Reform Committee told a reporter that Euro III standards will be postponed, and will instead be implemented in the following order: Beijing and Guangzhou; China’s main cities; Eastern China; and finally the middle and Western parts of the country. No specific timetable was given.

The reasons cited for the postponement were: (1) the official Euro III fuel standard has not yet been drafted by the government (cleaner, lower sulfur fuel is required for more environmentally robust engines); (2) the supply of suitable Euro III diesel fuel for the entire nation cannot be met until December 31, 2009 at the earliest; (3) the cost sensitivities of commercial vehicle users (a more expensive engine is required to meet Euro III standards); and (4) the uneven development of China’s economy (in other words, the low income levels in China’s rural economy).

What does this mean? Overall, it means that China has a long way to go in addressing environmental issues, and that the country’s air quality is likely to get worse before it gets better. However, the significance of the announcement is not the fact that the implementation of Euro III will be delayed, but in the reasons given for the postponement. The practical considerations cited— the cost of providing suitable fuel, price sensitivities on the part of commercial vehicle users, and affordability issues in the rural economy— underscore the tremendous challenges which China faces in creating a “green” transportation industry.

The fact is that not even the lesser standards in place today are being applied evenly throughout the country—products with better technology which can meet the standards and which are used in more developed countries are simply too expensive for the China market. As a result, “fake Euro II” products abound, and the 750 million people in China’s countryside rely on cheap diesel engines for transportation which employ the most rudimentary of engine technologies. Many of these vehicles are called “inkfish” by the Chinese because they spew off so much black smoke.

If China is ever going to be “green,” more affordable solutions need to be developed. This is both the challenge and the opportunity in China’s transportation industry.

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