"Dual-credit" policy revision: A new credit pool is added, and the standard model scores for new-energy passenger vehicles are lowered by an average of 40%.

According to a report from Red Star Capital Bureau on July 6, the Ministry of Industry and Information Technology, along with three other departments, has issued the "Decision on Amending the Parallel Management Measures for Average Fuel Consumption of Passenger Vehicle Enterprises and New Energy Vehicle Credit Scores" (hereafter referred to as the "Decision"), which will take effect on August 1, 2023. The new management measures adjust the method for calculating credits for new-energy vehicle models, reducing the standard model scores for new-energy passenger vehicles by approximately 40% on average, while also revising the credit calculation methodology and the upper limit of credit scores accordingly. Additionally, a new chapter titled "Management of the New Energy Vehicle Credit Pool" has been added, establishing a dedicated system for managing the credit pool.

Automotive industry analyst Liu Hao told Red Star Capital, "After the policy adjustment, it will become even more difficult for automakers to obtain new energy vehicle credits, which will help address the current oversupply of new energy vehicle credits. The 'points pool' system means that new energy vehicle credits will no longer expire after one year, helping to stabilize credit prices. This will boost automakers' enthusiasm and initiative in developing and producing new energy vehicles, while also further improving engine thermal efficiency, reducing fuel consumption, and developing other carbon reduction technologies." The "Measures for the Parallel Management of Passenger Vehicle Enterprise Average Fuel Consumption and New Energy Vehicle Credits" (hereinafter referred to as the "Dual Credits" policy) was issued in 2017, continuing the new energy vehicle subsidy policy and intended to promote the rapid development of China's new energy vehicle industry. This revision marks the second major revision of the "Dual Credits" policy, following the initial revision in 2020.

A relevant official from the Ministry of Industry and Information Technology interpreted the "Decision." He stated that the "Decision" primarily changes the following:

Adjustments to the calculation method for new energy vehicle credits. Taking into account technological advancements, cost reductions, and changes in credit compliance costs, and in accordance with the principle of balancing credit supply and demand, adjustments have been made to the "Measures for the Parallel Management of Passenger Vehicle Enterprises' Average Fuel Consumption and New Energy Vehicle Credits" and the "Calculation Method for New Energy Passenger Vehicle Model Credits." The points for standard new energy passenger vehicle models will be reduced by approximately 40% on average, and the calculation method and upper limit of the points will be adjusted accordingly. Furthermore, given that the proportion and value requirements for new energy credits will continue to be revised based on actual circumstances, the "Decision" stipulates that the Ministry of Industry and Information Technology may make timely adjustments to the "Calculation Method for New Energy Passenger Vehicle Model Credits" based on actual circumstances.

A flexible credit trading mechanism will be established. To address the imbalance in credit supply and demand and stabilize credit prices, a new chapter on "New Energy Vehicle Credit Pool Management" has been added, establishing a credit pool management system. When the supply-demand ratio of positive to negative new energy vehicle credits exceeds 2 times in a given year, credit pool storage will be activated. Enterprises are allowed to voluntarily deposit positive new energy vehicle credits into the pool, with a validity period of five years. When the supply-demand ratio of positive and negative NEV credits in a given year falls below 1.5, the credits in the credit pool will be released, allowing companies to withdraw stored positive NEV credits. Unused positive NEV credits from the given year will be returned to the credit pool.

Other credit management systems will be optimized. First, to address future carbon management needs, the disclosure requirements for companies' average carbon emissions levels will be increased, and a timely study will be conducted to establish a linkage mechanism with other carbon emission reduction systems. Second, to facilitate companies' further work on credits, the deadline for submitting negative credit offset reports and the time for completing negative credit offsets will be extended. Third, to increase the flexibility of credit transactions, it will be stipulated that positive credits purchased by companies can be offset and carried forward. Fourth, to ensure more accurate data statistics, the vehicle statistical benchmark for the accounting year will be adjusted. Simply put, the "dual credit" policy requires automakers to reduce fuel consumption to earn positive fuel consumption credits and also to sell a sufficient number of new energy vehicles to earn the corresponding new energy credits. If new energy credits fail to meet the target, they will be required to purchase credits from other automakers. Otherwise, they will be required to pay fines or reduce production of traditional fuel vehicles. In the early stages of the development of the new energy vehicle industry, the "double points" policy played the role of "carrot + stick" to promote the electrification transformation of traditional car companies.

The "Annual Report on the Implementation of Parallel Management of Passenger Car Enterprises' Average Fuel Consumption and New Energy Vehicle Credits (2023)" shows that since the "dual credits" policy was launched in 2017, the total value of credit transactions has reached 25.2 billion yuan (including transfers of average fuel consumption credits and transactions of new energy vehicle credits). Positive results have been achieved in automobile energy conservation and the development of new energy vehicles. In 2022, the average fuel consumption of the passenger car industry was 4.1L/100km, a year-on-year decrease of 19.6%. Production of new energy passenger vehicles (included in credit calculations) reached 6.037 million units, a year-on-year increase of 95.4%. In 2022, my country's new energy vehicle market penetration rate reached 25.6%.

However, with the rapid growth of new energy vehicle sales, the supply and demand relationship of the "dual credits" policy has shifted. In 2022, China's new energy vehicle sales reached 6.887 million units, a year-on-year increase of 93.4%. The number of automakers with negative new energy credits has decreased to 17, accounting for only 16%. New energy credit transactions have shifted from a seller's market to a buyer's market, and credit transaction prices have plummeted. Fang Yunzhou, founder and chairman of Nezha Auto, once publicly stated, "In 2019, the price of a single credit was around 1,000 yuan, rising to around 2,000 yuan in 2021, and returning to around 1,000 yuan in 2022. This puts a certain amount of pressure on business operations." Statistics from the Ministry of Industry and Information Technology show that the average price per transaction for new energy vehicle credits in 2022 was 1,128 yuan per credit, a year-on-year decrease of 45.9%. The transfer volume of fuel consumption credits also decreased by 7% year-on-year.

Data shows that in 2022, most automakers will be able to easily cope with the "double credits" assessment. For some traditional automakers, it is more cost-effective to directly purchase credits rather than expend time and effort on developing new energy vehicles. To this end, the industry has proposed a "credits pool" system. During the 2021 National People's Congress and the Chinese People's Political Consultative Conference, Zhu Huarong, Chairman of Changan Automobile, suggested that industry organizations establish a "credits pool" management mechanism. A third party would collect and store credits based on industry credit supply and demand, ensuring fairness, justice, and relative marketization. Companies would also be allowed to borrow and lend credits from the "credits pool" and repay them at a certain interest rate. BYD Chairman and President Wang Chuanfu has also proposed studying the establishment of a "points pool," modeled on the agricultural grain reserve regulation mechanism, to balance supply and demand, enhance the predictability of credit prices, and ensure the effective implementation of the "dual credits" policy. In July 2022, the Ministry of Industry and Information Technology issued the "Decision on Amending the Measures for the Parallel Management of Passenger Car Enterprises' Average Fuel Consumption and New Energy Vehicle Credits" (Draft for Comment), proposing the establishment of a points pool system whereby companies would voluntarily apply to store or release positive new energy vehicle credits based on market supply and demand, thereby regulating the credits market.

Reprinted from Sina Auto

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