Local Chinese governments push policies to fade out "yellow label" vehicles

The central government highlighted targets in September 2013 for provinces and city clusters to significantly reduce and eventually phase out the "yellow label" vehicles, or those vehicles with the equivalent of Euro-I and -II emissions, in a bid to reduce pollution levels. Provinces and cities are struggling to meet those targets. In July 2014, the central government has begun to roll out special initiatives to encourage the removal of yellow label vehicles in a rush to meet targets for the scrappage of 5 million such vehicles by the end of the year.

In a news report from the China Automotive and Research Center (CATARC) the funds now available for projects involving different provinces highlight the overall aim of the provincial governments to speed up the process of phasing out the old, heavy polluting vehicles.

The province of Guangdong has been granted CNY40 million to help with phasing out the yellow label vehicles, with a target to take 493,000 such vehicles off the road. The fund allocated to the province is from the first batch of such funds in 2014 from the Central Government's Special Fund on Air Pollution with the Ministry of Finance granting a total of CNY40 million for Guangdong. The report states that there are a reported 1.29 million yellow label vehicles still in use in Guangdong. With the current fund, each yellow label vehicle that is taken off the roads will be eligible to receive CNY20,000.

The city of Nanjing in Jiangsu province has also failed to meet its anticipated target of removing these yellow label vehicles from deployment. As of the end of May 2014, the city has removed 32,000 yellow label vehicles far less than the target of 66,000. The target dates set for the phase out has now been extended to the end of July 2014, with the local provincial and city government offering greater subsidies to encourage owners to get rid of their yellow label vehicles. Local media reports claim that the allocated CNY20,000 subsidy was not easily available and has therefore led to Nanjing not meeting its targets.

Many other cities and province also offer subsidies with the coastal city of Qingdao, for example, offering CNY6,000–18,000 for yellow label vehicles which are sent for scrapping between 1 November 2014 and 31 October 2015. The city claims to have removed 10,823 yellow label vehicles with subsidies of as much as CNY89.13 million spent by the government on the process.

The local government of the city of Wuhan has announced that together with local automaker Dongfeng Motor, a new fund will encourage the elimination of vehicles that are heavy polluters. The CNY40-million fund was announced on 4 June and will encourage the scrapping of yellow label vehicles. Before the end of 2015, owners of yellow label vehicles who eliminate their cars ahead of the scrappage date will receive subsidies ranging from CNY2,600 to CNY15,700.

Outlook and implications

The government target laid out by the Central government was to remove at least 5 million old vehicles from the roads this year, of this 330,000 cars were to be decommissioned from the city of Beijing alone (see China: 3 June 2014: Beijing city to decommission 330,000 vehicles in 2014). IHS Automotive analysts for powertrain forecasts as well as heavy vehicles highlight that despite a number of initiatives in place, elimination of yellow label vehicles is a slower process than the government anticipated.

Tony Wang, IHS Automotive's Principal Light Vehicle Powertrain Analyst for China states that emission regulations for vehicles differ across different cities in China and therefore nationwide emission levels differ, with different policies governing different provinces. This has led therefore to a lack of synchronised policies to remove older vehicles from the roads in China.

The varying policies across different cities and provinces are also not adequately enforced, giving rise to a lack of cohesive strategies to fade out the yellow label vehicles. Meanwhile there is not adequate incentives for removal of old medium and heavy commercial vehicles in China. IHS Automotive's Commercial Vehicle Forecast Analyst for China, Li Jia, states that the subsidies for eliminating yellow label commercial vehicles are too limited.

Earlier this year the Shanghai Municipal Transportation Commission announced a plan to eliminate 160,000 high-emission vehicles in 2014 as an effort to alleviate the air pollution problem. Vehicles involved in this campaign would include Green Label Vehicles with National I and II Emission Standards, Yellow Label Vehicles, diesel vehicles that do not reach National III Emission Standard, and gasoline (petrol) vehicles that do not reach National I Emission Standard. Officials also indicated that more than 4,000 Yellow Label Buses will stop operation by 1 July and be removed by the end of 2014. Among the replaced and newly added buses, at least 60% will use new-energy systems and will therefore be considered as new energy vehicles (NEVs). According to the report, there were 715,000 vehicles eligible for elimination in Shanghai by the end of 2013 that remain on the road. The push to remove old vehicles is part of the central government's plan to encourage sales of NEVs.

The Chinese central government has issued several mandates to reduce pollution across China. These include restrictions on new vehicle sales in the country with major tier 1 cities now announcing restrictions on new car sales (see China: 25 September 2013: New Chinese regulations to aid new car sales but future restrictions will curb growth). The effect, as predicted, will see a sudden surge in sales of new vehicles prior to the restrictions coming in. However once the restrictions are in place new car sales will slow down. The Chinese government released its Clean Air Action Plan for the 2013 to 2017 period in September 2013. By 2017, the plan seeks to completely scrap all yellow label vehicles, of which there are around 15 million, according to data from China's Ministry of Environmental Protection.