Environmental protection regulations

On July 1, 2002, the Altfahrzeuggesetz (German End-of-Life Vehicles Act) transposed the European End-of-Life Vehicles Directive into German law. The Act guarantees that end-of-life vehicles will be disposed of free of charge through the collection points designated by manufacturers and importers. This initially applied only to vehicles registered after the law came into force, but as of January 2007, it was extended to all end-of-life vehicles. At present, we are unable to conclusively assess the impact of the EU’s eastward enlargement on the collection of end-of-life vehicles. As a result, no clear forecast can be made regarding the likely financial burden on the Volkswagen Group in individual EU member states. We have reviewed our existing provisions. In addition, our systems and cooperation arrangements for disposing of end-of-life vehicles offer us the opportunity to manage this risk.

As regards emissions legislation, the EU decided on a wide range of stricter requirements, primarily affecting diesel technology. However, in the case of light and medium passenger cars, these requirements will be met by upgrading and optimizing current technology. In the case of heavy passenger vehicles, the rules as they currently stand require that an after-treatment system for nitrogen oxide be introduced. The cost difference compared with petrol engines will increase further. In future, petrol and diesel engines will also have to reposition themselves with regard to the obligation to add biofuels to fossil fuels, since diesel particulate filter technology does not permit any significant increase in the amount of biofuels added.

The G8 member states aim to reduce global greenhouse gases by 50% in the period up to 2050 in order to hold global warming to a manageable level. According to analyses by the International Energy Agency and the UN’s Intergovernmental Panel on Climate Change (IPCC), this goal can only be achieved by a reduction in greenhouse gases in all sectors – power generation, industry, households, agriculture and transport. Some countries are already in the process of introducing the necessary policies. We can assume that these will be significantly tightened in future throughout the world. Both Volkswagen’s production facilities and its products are affected: the former in particular through provisions on energy efficiency, a general increase in the price of energy and the system of greenhouse gas emissions trading. This last mechanism involves companies being issued with a limited number of emission certificates; they will then have to demonstrate that they have sufficient certificates if they cause CO2 emissions. Volkswagen has been participating directly in the relevant EU system since 2005 with its heating and power plants. The current trading period is the second one and runs out in 2012. The EU has resolved substantial changes that are due to take effect in the third trading period that follows. In particular, emission certificates will no longer – as has largely been the case to date – be allocated free of charge but will increasingly be auctioned. In addition, the scope of application has been extended significantly, so that more locations than before are covered by the trading system. Along with higher costs for internally generated power, administrative and monitoring expenses will also increase sharply in the near future. Higher prices for energy and emissions rights do not only apply to our own facilities but will also increase materials prices, especially in the case of steel and aluminum. Volkswagen is using an energy management system and energy conservation programs to counteract the possible financial repercussions and risks to its image. In addition, Volkswagen operates its own highly efficient power plants for generating power and heat, and is therefore able to secure part of its energy supplies itself.

The EU Regulation capping CO2 emissions from passenger cars is one of the first product-related CO2 regulations in the EU for the period from 2012 to 2020. As a result, it is extremely significant both in terms of future trends in greenhouse gas emissions in the EU and of the economic and technological repercussions on vehicle manufacturers and their suppliers, and the European economy as a whole, particularly in view of the radically changed economic environment.

The EU Regulation sets targets for carmakers selling passenger cars in the European market (the EU 27). The aim is to reduce average CO2 emissions in European fleets to 130g/km starting in 2012/2015 by means of drivetrain and other vehicle technology. A further reduction of 10 g/km is to be achieved by flanking measures such as gear-change indicators, low-resistance tires and the use of biofuels.

There are risks involved in the amount of the penalties, which may be up to €95 per g/km, to be imposed if the manufacturer fails to meet the target for its vehicles sold by an average of more than 3 g/km.

In addition to the minimum reduction targets being introduced from 2012/2015, the long-term goal of €95 per g/km will have considerable effects on the number of products, the breakdown across specific segments and the results of operations in the European market. The basis for measurement will be energy efficiency, which will help to maintain the diversity of the European product offering.

The political decision-making process has resulted in additional improvements to the Regulation proposed by the European Commission. In particular, the automotive industry’s product and development cycles are taken into account by an appropriate phase-in period between 2012 and 2015. The improvements also include possible credits for innovative technologies in the shape of “eco-innovations”. Innovative measures such as intelligent vehicle communications and navigation systems enable additional reductions to be achieved over and above the vehicle and drive technology measures. This links innovations to climate protection in a particularly effective way.

Volkswagen intends to make intensive use of these opportunities. With its leading technologies and products, the Group is excellently prepared for the challenges of the future.

In 2007, the federal government launched an ambitious bundle of measures for achieving national and international targets on climate protection in the form of its integrated energy and climate program. A major component of the program is improving energy efficiency and expanding the use of renewable forms of energy. The statutory measures that have already been introduced will impact key areas in which the Volkswagen Group is involved in a number of ways:

As of January 1, 2009, the Erneuerbare-Energien-Wärmegesetz (EEWärmeG – Act on the Promotion of Renewable Energies in the Heating Sector) entered into force. The aim of this Act is to enable the sustainable development of energy supplies and to promote the further development of technologies for generating heat from renewable energies. Depending on the type of energy supply system concerned, this Act may have consequences for the way Volkswagen’s industrial buildings are constructed.

One element in the federal government’s integrated energy and climate program is the intention to introduce a legally binding energy management system for medium-sized and large operating plants. The objective is to realize the potential for improving efficiency in industry and to link the agreement on reductions in energy and electricity taxes with the introduction of an energy management system.

Volkswagen is taking a variety of measures to actively prepare for the future challenges presented by the shortage of primary energy sources. For instance, we are expanding our centralized energy management at our production facilities and integrating it with our environmental management, so as to reinforce the effect of the energy savings measures being taken by the various areas of production. In addition, we are driving forward the use of renewable sources of energy on a worldwide basis.

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