EU Parliament mulls watered-down CO₂ reductions for cars in Auto Package debate
A compromise on the Auto Package is emerging in the European Parliament, under which the de-facto ban on new combustion engines in the EU from 2035 is to be relaxed. According to media reports, the three factions of the so-called Center Platform have agreed on a position. A first committee vote on Thursday will show how stable the majority is.
According to Spiegel, the conservative EPP, the social democratic S&D, and the liberal Renew Europe group have agreed that manufacturers should reduce the CO₂ emissions of their new cars by 87.5 per cent (compared to 2021) by 2035. This means that, under the proposal from the three groups, there would still be scope for further registrations of new internal combustion engine and hybrid vehicles.
According to Spiegel, negotiators from the three aforementioned groups reached this agreement in the early hours of Tuesday. Part of the deal reportedly includes “strong incentives to use steel produced in a climate-friendly manner.” Whether the compromise will hold will become clear as early as Thursday: the European Parliament’s Transport and Industry Committees will vote on the reform then. According to Spiegel, the Environment Committee is expected to follow in early November, with the plenary session likely in December.
For context: At the end of 2025, the European Commission responded to warnings from the automotive industry with its ‘Auto Package’, acknowledging that sticking to the de facto ban on new internal combustion engine cars from 2035 would exacerbate the sector’s crisis. This move also came under pressure from Germany. In the Commission’s proposal, the new fleet CO₂ target was set at a 90 per cent reduction compared to 2021, corresponding to a fleet CO₂ emission of 11 grams per kilometre – instead of zero grams. The Commission’s draft no longer specified a date for the 100 per cent target.
Importantly, Brussels insisted in its draft that the remaining 10 per cent must be fully compensated through the use of green steel and climate-friendly fuels. While the centrist platform’s compromise also mentions green steel as a means of compensation, it does not go nearly as far as the Commission’s proposal.
Recently, as is well known, German Chancellor Friedrich Merz and French President Emmanuel Macron also agreed on a joint position regarding the phase-out of internal combustion engines. This position calls for a 90 per cent CO₂ reduction by 2035 – without compensation. According to Spiegel, this compromise between Germany and France is considered “groundbreaking for the vote in the Council of EU Member States.” The Council must vote after the Parliament, and changes are always possible during this process.
Vote in the European Parliament imminent
Earlier this month, the European Parliament’s Transport Committee postponed its vote on the ‘Auto Package’ by two and a half weeks. The vote was originally scheduled for 5 October. At the time, the reason given was that the centrist platform needed more time to reach an agreement.
To pass the package, the EU Parliament must first approve it (with the EPP being the largest group), followed by the Member States in the EU Council. In the EU Parliament, a simple majority is sufficient, while the EU Council requires a so-called “qualified majority.” This means approval from at least 15 countries representing at least 65 per cent of the EU population.
During the consultation process, various interest groups are likely to attempt to amend the draft in their favour. Against this backdrop, the Commission designed the ‘Auto Package’ from the outset to broadly offer something to as many countries as possible. In addition to Germany, six other EU countries (all with relatively low electric car shares in their new registrations) had advocated for weaker CO₂ targets and in favour of internal combustion engines. However, France – previously an opponent of this policy – has now apparently switched sides. That said, this came with demands for concessions elsewhere: in return, France is reportedly receiving Germany’s support for the so-called “Buy European” requirements.
Let us now revisit the Auto Package in its original form, as presented by the Commission at the end of 2025: The Commission’s approach is to slightly relax the CO₂ targets as described above, thereby allowing not only the sale of plug-in hybrids and range-extender vehicles after 2035 but also mild hybrids and pure internal combustion engine vehicles. However, there is a major caveat: this relaxation is conditional.
Firstly, as mentioned earlier, the Commission requires that the CO₂ emissions still produced by new internal combustion engine vehicles after 2035 must be compensated. A credit system is planned, under which manufacturers must offset the internal combustion engine vehicles, plug-in hybrids, and range-extender vehicles they sell after 2035 – such as by using green steel from the European Union in their cars or climate-neutral fuels like biofuels or the controversial e-fuels. Up to 3 per cent of the 2021 reference target (or, in other words, 30 per cent of the still-permitted emissions) can be accounted for through clean fuels, while green steel accounts for 7 per cent of the reference target or 70 per cent of the still-permitted emissions.
However, it remains unclear how strict these requirements will be in practice. Whether an automaker will actually be able to use green steel in its cars and operate them with e-fuels by 2035 depends heavily on the availability of green steel and these clean fuels in 2035 – and their cost. And, consequently, who will be able to afford such vehicles after 2035.
Small electric cars to receive preferential treatment
Other points are more concrete: Through so-called ‘Super Credits’, the Commission aims to particularly promote small and affordable electric cars. Electric cars shorter than 4.20 metres will therefore be given greater weight in the calculation of a manufacturer’s fleet emissions. In practical terms: a sold ID. Polo would count not as one vehicle but as 1.3 vehicles in Volkswagen’s fleet emissions calculation. “This will create incentives for the market introduction of more small electric vehicle models,” the Commission stated in December. This proposal is reportedly attributed to Spain and France. Both countries had already advocated in autumn for retaining the 2035 CO₂ target with only a little additional flexibility, preferring to promote electric cars through measures like Super Credits.
As with the CO₂ regulation from 2025, the path to the adjusted 2035 target is also being made more flexible. Specifically, this concerns the previously fixed interim target for 2030, which – analogous to the current regulation from 2025 to 2027 – is likely to be extended. Instead of meeting fixed annual targets, manufacturers must achieve the interim targets over the period from 2030 to 2032 – if they exceed the target in 2030, this would not immediately result in fines. There is also the option to offset the shortfall through greater savings in subsequent years. Additionally, “additional flexibility will be granted for the transporter segment, where the acceptance of electric vehicles has been structurally more difficult, with the CO₂ target for 2030 reduced from 50 to 40 per cent,” according to the Commission.
Another new development is that, starting in 2030, the EU Commission intends to impose specific requirements on Member States for the electrification of company cars – with different requirements for each country. Brussels will leave it up to the Member States to implement these requirements. However, Belgium’s successful company car taxation, which has led to a sharp increase in electric car sales there, serves as a model.
New CO₂ regulations for electric trucks in the mix
Additionally, the EU Commission plans to allocate €1.5 billion for a “Battery Booster” to accelerate the creation of a “fully EU-manufactured battery value chain.” A corresponding call for funding proposals went live in July. Plans include interest-free loans for cell manufacturers and supporting political measures. Furthermore, not only in the battery sector but for the entire automotive industry, bureaucratic requirements are to be adjusted. This is intended to reduce the administrative burden on companies, with the Commission estimating potential savings of €706 million annually.
The Commission also proposes a targeted amendment to the CO₂ emission standards for heavy-duty vehicles, making compliance with the 2030 targets more flexible—though no specific figures have been provided yet. “The targeted amendment will allow manufacturers to accumulate more emission credits in the years leading up to 2030 than under the current regulation. While the current regulation only allows manufacturers to receive credits if their CO₂ emissions are below a linear CO₂ emission reduction path, the proposal would allow them to generate credits as soon as their CO₂ emissions are below their annual CO₂ emission target,” the Commission states in its draft.
“The future is electric”
The background to all these adjustments and regulations is clear: the European automotive industry is not only facing a major technological transformation but also intense competition – “of unprecedented speed and scale,” as the EU notes. “Therefore, it is extremely important to ensure the competitiveness of the industry and support it in the transition to clean mobility and the decarbonisation of road transport.” The EU’s strategic dialogue with the automotive industry last year gave companies the opportunity to clearly communicate their positions and needs in Brussels. The Commission has therefore brought forward the agreed review of the regulations by one year and is offering the industry a little more flexibility. However, it is only deviating slightly from its previous course.
The package of measures is also described by the Commission as “the first industrial strategy for the automotive industry.” “It ensures climate, industry, and economic coherence. It includes elements and prerequisites for a future-proof, clean, and competitive automotive industry and encourages manufacturers to continue investing in zero-emission vehicles,” states a Q&A on the “Auto Package.” “It offers more flexibility and technological neutrality in CO₂ standards for passenger cars and light commercial vehicles, and targeted flexibility for heavy-duty vehicles to achieve our climate goals, and supports the introduction of zero-emission and low-emission vehicles in corporate fleets. The future is electric.”