The European Commission is set to water down the EU’s 2035 de facto combustion engine ban by requiring automakers to lower their emissions by 90 percent instead of the original 100 percent, multiple officials with knowledge of the discussions told POLITICO. The change effectively marks the end of the ban, giving the center-right political parties and the automotive sector a massive win after months of heavy lobbying. Under the deal, which is still being negotiated at the time of publication, automakers can sell plug-in hybrids and range extenders after 2035. But those flexibilities will be tied to automakers “offsetting” the 10 percent extra emissions by using green steel and alternative fuels. How the offsets will work and what percentage of fuels or steel will need to be consumed in production is still being negotiated. The industry argues the law banning the new sale of CO2-emitting vehicles cuts them off at the knees and makes them less able to compete against Chinese incumbents that are ahead of them on electric vehicles.  Automakers are facing further headwinds courtesy of a trade war launched by U.S. President Donald Trump and sluggish sales at home. Climate advocates say the Commission needs to stay the course.  “The EU is playing for time when the next game has already started. Every euro diverted into plug-in hybrids is a euro not spent on EVs while China races further ahead,” said William Todts, executive director of green NGO Transport & Environment. The deal mirrors one announced by Manfred Weber, head of the European People’s Party, on Dec. 11. He told German media that the combustion engine ban had been overturned, with the 2035 target of 100 percent CO2 reduction cut to only 90 percent. The Financial Times was the first to report the 10 percent reduction. New details are emerging, however, about what powertrains will be allowed after 2035. In the current plan, range extenders — small combustion engines that give batteries more range — will count for a further emissions reduction than plug-in hybrids, which have both a combustion engine and an electric motor. Essentially, the scheme would give automakers more emission credits for range extenders than plug-in hybrids because they emit less CO2 than the hybrids, two officials said. The 2035 reform is part of a broader automotive package being put forward by the Commission on Tuesday that will include a new regulation on greening corporate fleets — vehicles owned or leased by companies for business purposes — and an automotive omnibus that was obtained by POLITICO. Essentially, the scheme would give automakers more emission credits for range extenders than plug-in hybrids because they emit less CO2 than the hybrids, two officials said. | Lorenzo Di Cola | Getty Images For the 2035 legislation, automakers will be allowed to pool, meaning that a brand that doesn’t meet the 90 percent target can buy credits from an automaker that over delivers. The pooling scheme is a lucrative business for all-electric manufacturers like Tesla. A separate initiative will focus on boosting small electric vehicles — a demand put forward by Commission President Ursula von der Leyen in her State of the Union address in September. Companies that produce the small cars would get a coefficient of 1.3 in the target calculations. So if a carmaker sold 10 of the small EVs, they would get the emissions credit of 13 cars. Manufacturers will have to comply with yet-to-be-defined local content requirements when creating the small EVs in order for the automaker to get the emission credit. France has long demanded that any flexibilities around the ban be tied to local content requirements — a request it put forward in October alongside Spain. The draft marks the first step in a long, politically fraught journey to becoming law. It will now go to Parliament and the EU capitals, where political groups remain divided over how far the Commission should go to rescue the automotive sector. The EPP has pushed hard to overturn the ban and the far right has campaigned on the issue, too, which could prompt yet another alliance between the two in Parliament to push to further weaken the law. EU capitals also have competing ideas. Spain wants the target to remain unchanged, while Germany is balking at France’s push for “Buy European” requirements, over fears it will spark a global trade war with the U.S. and China.

BRUSSELS — Postponing the start of the EU’s new carbon levy for building and road transport emissions by one year to 2028 is going to cost European governments lots of money, according to a top Danish official. Denmark, for instance, is estimated to lose half a billion euros in future revenues from the delay of the new carbon market (known as ETS2), said Christian Stenberg, deputy permanent secretary of state at the Danish climate ministry, at POLITICO’s Sustainable Future Summit. “The delay will mean that we will lack that tool for one year,” he told a panel discussion. “It will cost us quite a bit of revenue that we could have gotten,” he added. “About €0.5 billion.” “For the Danish economy [it] is not little.” To bring more skeptical EU countries on board, like Poland, Italy and Romania, and reach a deal on the EU’s new climate target for 2040, environment ministers pushed the European Commission to agree to postpone the new carbon pricing mechanism by one year. Stenberg explained that, as the talks over the 2040 climate target stretched overnight, he “had to go back to my finance ministry in the middle of the night and say the compromise will cost us this in revenue.” But the ETS2, which has raised concerns in a majority of EU governments that it will increase energy bills, is “the most cost effective way of reaching our targets within transportation and buildings,” Stenberg argued. “And cost effectiveness, at the end of the day, is to the benefit of the economy.” Chiara Martinelli, director of the NGO Climate Action Network Europe, also said on the panel that the delay of the new carbon market is “problematic,” and called on the EU to ensure that social measures to support people in the green transition come with the ETS2.

Brussels wants to kill off the combustion engine. Instead, it’s supercharging Europe’s populists. Right-wing parties are running hard against the EU’s law that bans the sale of new gasoline and diesel cars from 2035. It’s happening in the Czech Republic, Italy, Germany, France, Poland and elsewhere. In response, centrist parties with a more established voice in Brussels are turning against the law to avoid losing traction to their far-right rivals. It’s far from the only issue for populist parties — most of which base a large part of their appeal on battling immigration — but the EU’s green car effort is one that speaks to many voters angry about Brussels threatening to take away their beloved combustion engine cars. In Prague, the far-right Motorist for Themselves party denounced “green fanatics” and made a breakthrough in the national election last month with almost 7 percent of the vote.   The vote-winner populist ANO party on Monday struck a coalition agreement with the Motorists and the far-right Freedom and Direct Democracy. That means the Czech Republic, which has one of the EU’s largest car industries as a percentage of the economy, will continue being one of the leading opponents of the 2035 measure, as the outgoing centrist government was also skeptical of the law. In Poland, Piotr Müller, a member of the European Parliament with the main opposition group, the nationalist Law and Justice party, said: “No one should be forced to change their car just because that’s what Brussels has decided.” “Stop the climate fanatics!” screams a poster from Poland’s fast-rising far-right Confederation party. Meanwhile, a party policy paper states, “We are dealing with an anti-car frenzy that has taken hold of Eurocrats, and the war against the automotive industry and drivers is raging on many fronts.” In Italy, League leader and Deputy Prime Minister Matteo Salvini denounced the 2035 measure as “ideological fundamentalism” and called it economic suicide that will hand over the bloc’s car industry to Chinese rivals. The Italian government is pressing hard for opt-outs from the 2035 biofuels law.  Germany’s far-right Alternative for Germany party campaigns strongly against 2035, but in the country with the continent’s largest car sector, the issue is also splitting the ruling coalition led by the conservative Christian Democrats in alliance with the center-left Social Democrats.  In France, Jordan Bardella, one of the leaders of the National Rally party, wants to repeal 2035. POLITICAL TARGET The populists have hit on a pain point for the EU. Although the bloc wants to slash greenhouse gas emissions from transport by 90 percent by 2050, that means upending one of the continent’s most powerful — and lucrative — industries and imposing a new technology on a reluctant public.  The combustion engine ban was the most unpopular policy among consumers, even as they expressed broader support for climate action, according to a survey of 15,000 people in Germany, France and Poland that focused on climate policy attitudes in the runup to the 2024 European election.  The far-right is capitalizing on this skepticism, “turning it into political gains or framing climate policies altogether as overly burdensome toward businesses, farmers or ordinary citizens,” said Jannik Jansen, a senior policy fellow at the Jacques Delors Centre, who helped conduct the study.   In France, Jordan Bardella, one of the leaders of the National Rally party, wants to repeal 2035. | Thomas Samson/Getty Images The automotive sector is facing a triple whammy of crises: tariffs from Donald Trump, threats from tech-savvy Chinese rivals and a car market that failed to bounce back after the pandemic.  To hear some parts of the industry tell it — especially those carmakers lagging on switching to electric vehicles — the solution is to back off the EU’s climate agenda and severely weaken the 2035 ban, if not overturn it entirely.  PUSHING BRUSSELS TO THE RIGHT They’re gaining political supporters as this Commission shifts its priorities from leading on climate to making Europe strategically autonomous and regaining its competitive edge.   Germany’s Christian Democrats campaigned in February’s federal election on overturning the 2035 ban — and were rewarded at the ballot box, as was their sister party, the European People’s Party, which won the most seats in last year’s European Parliament.  Rising skepticism from voters at home is giving center-right politicians license to push back against green efforts in Brussels. Europe’s mainstream parties “have become significantly more hesitant or reluctant to support ambitious climate policies,” said Jansen. Once one of the staunchest supporters of the 2035 law, France has backed off its earlier full-throated endorsement of the legislation. Now it wants assurances that the shift to battery-powered cars won’t cost jobs. President Emmanuel Macron is hanging on to power by the thinnest of threads, and the National Rally of Bardella and Marine Le Pen is way out in front in opinion polls. Paris “wishes to pursue the electrification of vehicles … as long as they are accompanied by very clear measures encouraging European preference that support industrial jobs in Europe,” the government said on Oct. 23. NATIONAL IMPACTS In Germany, the ruling coalition squabbled over the issue before the Social Democrats gave way and modified their position. They will now accept non-EV ways of meeting the 2035 law by using range extenders — small combustion engines that give electric cars more range — or plug-in hybrids, so long as green steel or e-fuels are used to offset the emissions.   But that’s not enough for the Christian Social Union of Bavaria, with premier Markus Söder refusing to budge on the issue.  “The EU’s 2035 ban endangers hundreds of thousands of jobs,” Söder said, warning of the looming “collapse” of Germany’s car industry. “Söder’s current stance fits neatly into his broader, opportunistic strategy of adopting far-right populist talking points and instrumentalizing ‘culture-war’ narratives, particularly against the Greens and what he frames as regulatory overreach,” said Jansen.   Other countries are getting in line. Poland’s centrist government is content to follow in Germany’s wake. Germany’s Christian Democrats campaigned in February’s federal election on overturning the 2035 ban. | Andreas Arnold/Getty Images “We’re happy that Germany is speaking with a Polish voice,” said Andrzej Halicki, a member of the European Parliament from Prime Minister Donald Tusk’s Civic Platform party. The Commission is responding to the pushback, with President Ursula von der Leyen set to put forward a proposal by the end of the year to reform the 2035 legislation. And the executive is clear about where it lays the blame for a slower-than-anticipated transition to electric vehicles. “The main reason Europe isn’t catching up is because the far-right discredited EVs to the middle class,” an official said. This article has been updated.

Left-wing members of Germany’s ruling coalition were blindsided by a letter sent to the European Commission from their coalition partner and Italy, calling for an immediate change to legislation ending the sale of CO2-emitting cars from 2035. The two countries “are united to ask the Commission for a change of course on the automotive sector, immediately,” the letter stated, according to a Monday press release by Italian Industry Minister Adolfo Urso, who cosigned the letter with German Economy Minister Katherina Reiche. Both the letter and Reiche’s involvement came as a shock to the Social Democrats (SPD), who form the ruling coalition with Chancellor Friedrich Merz’s conservative Christian Democrats. The SPD did not know of the letter’s existence until POLITICO reached out for comment. “We had no prior knowledge of this letter. We expect that industrial and climate policy issues will be coordinated within the federal government and that no unilateral action will be taken,” said Sebastian Roloff, an SPD member of the Bundestag. The SPD is outraged because positions or regulations regarding car emission targets fall under the purview of the environment ministry, which is under the control of the SPD. “The federal government is currently still coordinating its position. Therefore, this letter cannot reflect the position of the entire federal government,” said an environment ministry spokesperson. Environment Minister Carsten Schneider on Monday reiterated his support for the 2035 goals in an interview with German newspaper Die Zeit. | Christian Marquardt/NurPhoto via Getty Images Environment Minister Carsten Schneider on Monday reiterated his support for the 2035 goals in an interview with German newspaper Die Zeit. “To put it bluntly, Germany’s weak growth — including in the automotive industry — was not caused by too much climate protection,” he said. “On the contrary, e-mobility is the future, and the industry is also orienting itself toward this. In order to achieve this change, the legal framework needs to provide planning security and reliability.” POLITICO first reported on the negotiations among the capitals in July. Rome initiated the effort, approaching Paris and Berlin to draft a joint letter. Insiders across all three capitals told POLITICO the discussions took place at the highest levels. Over the summer, Italian Prime Minister Giorgia Meloni mentioned her talks with Merz and French President Emmanuel Macron in an address to the Italian parliament. France did not sign the letter. During a September EU Competitiveness Council, France made clear that any movement on the 2035 legislation would have to include requirements that cars be largely made in Europe — something both Berlin and Rome opposed. Although the text of the letter has not yet been published, Italy has been lobbying hard against the 2035 legislation since its inception. Merz, meanwhile, spoke out against the combustion engine ban on the campaign trail but took a more measured tone upon taking office in May, when he had to join with the more climate-conscious Social Democrats to form a government. Although Germany ultimately supported the 2035 measure under the previous Commission, that backing came with numerous doubts and caveats. Conservatives have since shifted against the measure, with the European People’s Party, which includes the Christian Democrats, now calling for a rethink. That’s created domestic political tensions as conservatives, backed by Germany’s powerful car sector, argue that ending the sale of combustion engine cars will hurt an industry that’s already facing huge problems in shifting to electric vehicles, as well as dealing with Chinese competition and the impact of U.S. President Donald Trump’s tariffs. Last month, Merz broke with the coalition and told attendees at a Berlin event that the Commission needs to “lift this ban on combustion engines.” The chancellery did not immediately comment or release a statement on the letter.

MUNICH, Germany — Europe’s automakers are walking a tightrope at this year’s Munich auto show: introducing cutting-edge EVs while pleading for leniency in transitioning from combustion engines.   Mercedes-Benz unveiled the all-electric version of its best-selling GLC SUV, which is slated to go on sale next year. BMW is touting its new electric iX3 SUV. Both have ranges of more than 720 kilometers and fast recharging times. They’re aimed at cutting off the Chinese EV-makers recording rapid gains in the European market. “I’m convinced we’re on a journey towards zero emission, hence why we’re investing massively into state-of-the-art electric technology in cars,” Mercedes CEO Ola Källenius told reporters at the show.  At the same time, car executives are begging the EU to have mercy on them over its rule banning the sale of new CO2-emitting cars from 2035. Industry wants Brussels to show greater leniency by allowing hybrid vehicles and alternative fuels to ensure at least a limited future for the combustion engine. It’s getting strong backing on that from conservative politicians, including the European People’s Party in the European Parliament. Executives will be making that argument on Friday when Commission President Ursula von der Leyen meets with the auto industry in yet another summit to figure out how to save the troubled sector. The Commission needs to take a “more market-oriented approach” in the 2035 regulation, Källenius said. The argument is not without merit. Car sales in Europe are lower than they were before the pandemic. Chinese automakers have the best tech and batteries, and European brands continue to lose market share in China, which was once a cash cow for them. On top of that, U.S. President Donald Trump has unleashed a global trade war that is costing the sector billions even after Brussels struck a trade deal with Washington.  Sales of electric vehicles are lower than expected, Källenius and his peers complain, and sticking to the emissions targets will make them less competitive. POLITICAL MANEUVERING  But those carmaker grumbles are far from sure to elicit any movement from the Commission, especially after von der Leyen broke her silence on the matter during her State of the European Union speech on Wednesday. “No matter what, we all know the future will be electric, and Europe will be a part of it,” she said while announcing the launch of the EU’s Small Affordable Cars Initiative.   The words were barely past her lips when MEPs erupted in a chorus of boos, particularly those in the EPP.  Although carmakers and their political backers were aghast, climate campaigners saw hope. “Von der Leyen’s clearest message today was that Europe’s future is electric,” Chris Heron, the secretary-general of E-Mobility Europe, said after the speech. “That’s a welcome sign the Commission wants to lock in investment certainty around the 2035 target.” In a media briefing Thursday, the Commission refused to give further details on the EV effort, saying there would be more information after the Friday summit. The industry was given a reprieve from this year’s tougher emissions targets following the last dialogue with von der Leyen, but the fate of the 2035 ban is a political discussion that will largely be determined by EU capitals. “Instead of looking at what [carmakers] say, we have to look at what countries say much more than we did before,” said Jean-Philippe Hermine, a director with the IDDRI French think tank. CHINA IN THE WINGS While EU carmakers lobby Brussels, their Chinese rivals are making headway in Europe despite the levy the bloc imposed on EV-makers as punishment for getting subsidies from Beijing. China’s electric car market is the world’s largest, and BYD has overtaken Tesla as the world’s leading EV producer. Chinese electric car producers were strutting their stuff in Munich, with brands including BYD, Changan, Xpeng and Leapmotor, which has a partnership with Italian-French-American automaker Stellantis, all displaying models. They were also clear that the EU’s duties are not dissuading them from entering Europe, though the taxes are shifting the types of models they’re importing.  Hybrids are not included in the duties, making them an attractive alternative to all-electric versions.   In each of their media pitches, the Chinese brands said they were dedicated to being “in Europe, for Europe.”   But for the most part, that means taking a model sold in China and tweaking the tech and components to abide by European regulations, rather than building models from the ground up with European audiences in mind, said Pedro Pacheco, an auto expert at consulting firm Gartner.  The real test of whether Chinese carmakers see Europe as a viable long-term market is if they create products designed for Europeans. That’s already starting to happen. BYD has announced that the first model to roll off production lines at its Hungarian factory next year will be the Dolphin Surf, an electric station wagon — a nod to European consumer preferences, given that station wagons are not popular in other markets.  “BYD is in Europe to stay,” said Stella Li, BYD’s executive vice president. 

MUNICH — German Chancellor Friedrich Merz opened the IAA auto show in Munich on Tuesday with a critique of the European Commission’s 2035 combustion engine ban. “We need more flexibility in regulation,” he said. “Unilateral political commitments to specific technologies are fundamentally the wrong economic policy approach.” The comments are a thinly veiled reference to the EU’s legislation, which forbids the sale of any new cars that emit CO2 from 2035, essentially banning the combustion engine — an unpopular move in Germany, home to some of the world’s biggest and most well-known car manufacturers. The CEOs of some of these companies — BMW, Mercedes-Benz and Volkswagen — sat in the front row, emphatically nodding and clapping at Merz’s remarks. The issue is a crucial one for Berlin. Cars account for about 5 percent of Germany’s GDP but the industry is facing a triple whammy: a steep decline in sales in China that had been crucial to the bottom lines of German carmakers; a stumbling transition to electric vehicles that is leaving an opening for Chinese companies to make an entry into the European market; and chaos caused by Donald Trump’s car tariffs. With the far-right Alternative for Germany neck-and-neck with the Christian Democrats in opinion polls, Merz is struggling to ensure a future for an industry that Germany has dominated for over a century, thanks to its engineering prowess. It’s a sector that also employs some 800,000 people in the country. The argument is that flexibility on the EU’s targets would allow some of the traditional car industry to survive for just that little bit longer. Days prior, the three German carmakers presented their latest models with a strong focus on electric vehicles as they look to compete with their Chinese peers that have so far had the upper hand with their tech-glitzed EVs. BMW’s new all-electric iX3 SUV has 800 kilometers of range, making range anxiety “a thing of the past,” CEO Oliver Zipse told POLITICO in an interview. Zipse and his fellow European executives are set to meet with Commission President Ursula von der Leyen on Friday for the next strategic dialogue for the sector, where they are expected to lobby for significant changes to the 2035 legislation. They have political allies in making the plea. Italian business minister Adolfo Urso is eager for the 2035 legislation to be overturned. The conservative European People’s Party in the European Parliament included reversing the ban in last year’s election platform. Merz has taken a softer stance as a result of the coalition between his conservative Christian Democrats, which want the ban reversed, and the center-left Social Democrats, which argue the legislation needs to remain in place as part of a broader effort to tackle climate change. But Merz had help in his plea from the other speakers on Tuesday, leaving no room for a different interpretation of his meaning. “This ban is wrong. We need to remove it,” Markus Söder, the conservative premier of Bavaria, said ahead of the chancellor. “The CO2 goals of 2035 need to be adjusted to reality.” Hildegard Müller, the head of Germany’s car lobby VDA, pushed for the group’s 10-point plan, which argues the 2035 legislation should change its target from 100 percent zero-emission vehicles to 90 percent and allow for other powertrains like hybrids and range extenders and make space for alternative fuels, the industry argues, also meet climate goals. Those options would give an additional lease on life to the combustion engine.