What will become of end-of-life vehicle regulations in the EU? What are Japan's key points for promoting the circular economy?

<Table of Contents>
▼EU ELV Regulation Proposal: When Will It Take Effect? How Are Automakers Responding?

▼Consumer Penetration and "Missing Vehicles"

▼Europe Advances Regulations Despite Opposition; Japan's Future Potential

EU ELV Regulation Proposal: When Will It Take Effect? How Are Automakers Responding?

──Fujiwara-san, could you share the current status of EU policies and regulations concerning automobiles?

Fujiwara: Last year, the European Commission announced the ELV Regulation proposal (※1), and the Japanese automotive industry is paying very close attention. For the industry, this is a crucial regulation that will shape the direction of the sector.

※1＝ELV Regulation Proposal
Proposal for a Regulation on circularity requirements for vehicle design and on management of end-of-life vehicles

The amendment process in the EU Council has concluded for now, and the European Parliament is currently conducting coordination. While the schedule could change significantly, there is talk that it might be adopted as early as March next year. If adopted, this time it will transition from the current "Directive" to a "Regulation." This means it will have direct binding force without requiring transposition into national laws.

──What exactly does the ELV Regulation proposal entail?

Fujiwara: The current ELV Directive will undergo major revisions to promote the circularity of vehicles within the EU. The goal is to circulate virtually everything in the automotive value chain and aim for horizontal recycling. First, usable used parts will be reused. Furthermore, target percentages will be set for the minimum amount of recycled material that must be incorporated into new parts when they are manufactured. For automakers, using recycled materials in new vehicles poses significant challenges regarding cost and ensuring safety.

It also necessitates changes to existing business strategies. For example, manufacturers invested in vehicle weight reduction to meet CO₂ reduction targets, developing innovative lightweight materials like CFRP (carbon fiber reinforced plastic). However, CFRP is difficult to recycle. Efforts to reduce fuel consumption by making vehicles lighter become counterproductive from a circularity perspective, creating confusion.

Ito: Is the ELV regulation proposal something the auto industry is embracing proactively, thinking "We should do this!"?

Fujiwara: The automotive industry's stance is: "We will certainly address environmental issues. But simultaneously, we must also comply with emissions regulations (EURO 7) as part of climate change countermeasures. The target values are too stringent; we cannot possibly meet all of them. If regulations are imposed, please also provide regulatory support so we don't lose out in international competition."

── What do you mean by "if you impose regulations, provide support through regulations"?

Fujiwara: It means either covering the increased costs through subsidies or tax breaks, or ensuring competitors also face taxation and regulations.

Ito: Will the proposed regulations apply to vehicles produced in Europe?

Fujiwara: Fundamentally, all vehicles sold in the EU market. However, the specific types covered are listed in the draft regulation—passenger cars, trucks, etc.—and some may be partially exempted. Going forward, the EU faces pressure to protect its domestic industry and may increasingly impose regulations and taxes on imported vehicles. The recent EU decision to tax inexpensive Chinese EVs is one example. If only the burdensome regulations are adopted first while protective measures lag, that would be problematic. The automotive industry is calling for simultaneous implementation.

Consumer Penetration and the "Missing Cars"

──Mr. Ito, what kind of work are you doing regarding circular economy activities for Japanese automobiles?

Ito: I work for TOYOTA CONIQ Pro, Inc., a company within Toyota Motor Corporation responsible for identifying and executing initiatives in the domestic advertising and marketing domain. We're trialing the upcycling of waste materials generated during vehicle production into miscellaneous goods, and converting some of the waste paper from dealership administrative tasks into seed paper for promotional items. However, processing incurs costs and consumes energy, making it difficult to utilize every resource without discarding any.

What we prioritize determines what we do. In my case, I see the significance of this circular economy initiative in raising awareness locally. One of my missions is to enhance the brand presence at the approximately 4,300 Toyota dealerships nationwide. Since most dealerships are locally owned companies, they have a very strong desire to contribute to their communities. I see the potential for promoting the circular economy to connect community contribution with business operations.

──What is needed for automotive brands engaged in the circular economy to increase their value, and for using waste materials to lead to customer satisfaction?

Ito: Japan is still at the very beginning; it feels like the efforts of just a handful of companies and organizations. I don't think it will progress unless environmental awareness grows. Production activities inherently impose environmental burdens, but I believe we must persistently engage in activities that, at customer touchpoints, spark even a small awareness of circularity. Compared to restaurants or retail, automotive dealerships interact with customers in a way where individual faces are visible, giving the persuasive power conveyed by dealership staff significant weight. We aim for awareness and actions toward the circular economy to gradually spread within local communities, so that looking back in a few years, that awareness and those actions have become the standard.

──Are there any bottlenecks you feel hinder progress?

Ito: When manufacturers try to address environmental issues, costs rise, potentially shifting the burden to consumers. Do consumers in Europe accept this?

Fujiwara: It varies by country, but living in Europe, I feel consumer awareness is rising year by year. For example, Germany and Austria were early adopters within the EU in establishing waste management infrastructure, so awareness around waste is high. France, too, has seen significant change in recent years as its domestic circular economy policies have taken hold. Honestly, I thought the French national character meant they couldn't sort waste as meticulously as the Germans (laughs), but I'm surprised they actually do it quite well.

However, in Western Europe, used cars and parts are actively accepted, mainly because they're cheaper. On the other hand, Germany is an economically prosperous country, so many people prefer new cars, drive them carefully, and sell them after about five years.

Incidentally, the EU has an unresolved issue dating back over 20 years: approximately 30% of deregistered vehicles are "missing." This high number of unaccounted-for vehicles stems from several reasons, including EU standards allowing used cars to be exported even after being deemed end-of-life, and issues within the registration systems of individual EU member states.

The EU has decided to introduce battery passports. If fully implemented, this will allow EVs to be tracked (traceable) as long as their batteries remain installed. The EU is shifting towards viewing end-of-life vehicles as resources for manufacturing new cars, aiming to prevent their outflow.

Furthermore, for automobiles, the introduction of an Environmental Vehicle Passport (EVP: containing information on the vehicle's environmental performance at registration) has been decided under EURO 7. Additionally, the ELV regulation proposal mandates the introduction of a Digital Product Passport for vehicles (CVP: storing and disclosing data to promote vehicle circularity).

──Rather than relying solely on corporate efforts, governments are advancing public understanding of the necessity of the circular economy. Simultaneously, at the EU level, they are engaging the entire industry to create a system that compels progress.

Fujiwara: Yes, Unlike Japan, the EU structure acts as an umbrella over individual nations, which I believe makes negotiations easier for industry.

Europe where regulations advance despite opposition, and Japan's future potential

──Why is Europe so adept at rule-making?

Fujiwara: The EU can't afford to consult every single one of its 27 member states individually. So, they establish broad policies and charge ahead. They decide before considering feasibility, and industry follows. New technologies, groundbreaking innovations, and breakthroughs don't emerge unless driven by necessity. This mindset is evident in politicians' speeches. Even if industry says it's impossible, the stance is, "Look at history. You've adapted before." In Japan, who will lead? Large corporations, as usual?

Ito: I think Japan expects companies with strong financial resources to take the lead. However, in reality, it's difficult unless it's driven by two wheels: the emergence of awareness among the entire population. If it doesn't gain a foothold in the market after several years, the companies will run out of steam and give up. Ultimately, if people's awareness doesn't grow, it won't be sustainable.

Fujiwara: From Europe's perspective, there's also the expectation that Japan, with its technology, could move incredibly fast once it finally gets moving. Furthermore, that distinctly Japanese mindset of "If others are doing it, I should too" could work positively for environmental activities.

Ito: Japan has a cultural sense of "mottainai" (waste not) and "saving," so people are receptive to the idea.

Fujiwara: In Europe, explanations are always systematic. For climate change measures, for example: "This year, we had these extreme weather events, X number of fires, Y fatalities. That's why we must accelerate climate action now." It always comes with a clear rationale. So people can act after digesting the reasons.

From an outside perspective, Japan seems to lack this reasoning or narrative. If people are just swept along by momentum, there's a risk that when another trend comes along, the majority will stop. However, if regulations are in place, they can't stop, so they continue. What's needed is education and systems.

──Reasons for action are needed not just to start the circular economy, but also to keep it going without stopping. Please share a final thought each.

Ito: To get people who want to buy a car to choose with environmental awareness, clearly explaining the reasons is crucial. To make circular economy standards commonplace, we need not just the efforts of manufacturers and dealerships, but also widespread public understanding of why it's necessary and what it means. We want to keep things moving forward. It would be wonderful if this led not just to car sales, but to activities that improve the future of local communities.

Fujiwara: It's said that international cooperation and coordination are essential for the circular economy. If it's only implemented in certain regions or countries, while other areas continue to consume vast amounts of resources and generate increasing waste, it loses its meaning. For example, countries with advanced technology should support those without, and nations must move forward in step with each other. Japan possesses high technological capabilities, so I believe we are in a position to provide such support.