EU Extends CO2 Targets As Automakers Struggle With Falling Demand

The European Commission (EC) will extend CO2 emission targets for European automakers as they grapple with falling demand and factory closures.

Automakers have three years, rather than one year, to meet their CO2 emission targets. EC President Ursula von der Leyen announced the decision on March 3 after meeting with auto executives, unions, and campaign groups.

Renault CEO Luca de Meo warned in September that the European auto industry could face fines of €15 billion for 2025 carbon emissions due to the slowing demand for battery electric vehicle (BEV). BEV registrations fell by about 6% to 1.4 million units last year, dragged down by a drop in registrations in Germany.

“The speed of the electric ramp-up is half of what we would need to achieve the objectives that would allow us not to pay fines,” de Meo, president of the European Automobile Manufacturers Association (ACEA), told France Inter radio. “Setting deadlines and fines without being able to make that more flexible is very, very dangerous.”

Exceeding CO2 limits could lead to fines amounting to €95 per excess CO2 g/km multiplied by the number of vehicles sold, Reuters reported.

EU Climate Policies Undermining Industrial Production

The Association of German Chambers of Industry and Commerce (DIHK) reported in August that four in ten German industrial companies considered production cuts at home or relocating abroad due to high energy prices. Power costs could hurt the EU's €800 billion plan to investment in defense by curtailing industrial production.

German Industrial production, for example, fell 2.2% in December and 1.6% in January from the year-ago periods, the Federal Statistical Office (Destatis) said on Monday. Europe's largest economy has some of the highest household electricity prices in the world.

The Czech Prime Minister Petr Fiala called on March 4 for broader revisions to the EU's Green Deal. He warned that steep fines could undermine the competitiveness of European car manufacturers.

"Europe can keep obsessing about ruinous virtue-signaling #NetZero policies while the rest of the world passes it by, alone and undefended," Bjorn Lomborg, Author of ‘Best Things First’, ‘False Alarm’, and ‘Skeptical Environmentalist’, wrote on X. "Or it can get smart about climate and free up billions for defense and other priorities."

EC Releases Action Plan to Drive Innovation

The EC released its Action Plan to drive innovation, sustainability, and competitiveness in the automotive sector on March 5. The plan reaffirmed the commission’s commitment to the EU-wide zero CO2 emissions target for new cars and vans by 2035.

However, in a nod to the industry, the EC proposed an amendment to the CO2 emission standards for vehicles. Manufacturers can meet their targets by averaging performance over three years (2025-2027).

“The targets stay the same," von der Leyen said. "They have to fulfill the targets, but it means more breathing space for industry.

Carmakers can offset shortfalls in one year with excess achievements in others. Member states and the European Parliament must approve the proposed amendment.

Following von der Leyen's comments, shares of Volkswagen VWAGY, Renault RNLSY, BMW BMWKY, and Mercedes-Benz MBGYY rose by between 1.5% and 4%.

EU Automakers Back Decision on Emission Targets

Oliver Blume, CEO of Volkswagen, Europe’s largest car manufacturer, supported the EC's “pragmatic approach.”

The move “presents a great opportunity from the perspective of the Volkswagen Group to align climate protection," Blume said. The decision will allow for "competitiveness and economic progress in this challenging geopolitical situation,” he said.

Europe’s second-largest automaker, Stellantis STLA, backed the EC’s policy shift. “Stellantis welcomes the announcements made yesterday by Commission President von der Leyen,” the company said on March 4.

Italian Industry Minister Adolfo Urso said his country benefitted from decision.

“The European car industry is saved, the Commission agrees with Italy,” Urso said. “The fine trap, which would have led to the collapse of the sector, has been eliminated,"

EC Emission Shift May Threaten Competitiveness

The Transport and Environment (T&E) research and advocacy group called it "an unprecedented gift to Europe's car industry" that would put Europe at a competitive disadvantage compared to China.

"Weakening the EU clean car rules rewards laggards and does little for Europe's car industry except to leave it further behind China on electric vehicles," Executive Director of T&E, William Todts, said. "The EU risks creating very damaging uncertainty about the electric vehicle transition in Europe."

Volvo Car VLVOF wants original targets maintained to ensure regulatory certainty for companies. The company’s CEO Jim Rowan said he considered the Commission's decision to grant a three-year window extension "extremely” disappointing.

The automaker "has made the heavy investments needed to be ready for 2025," Rowan said. "Companies like ours should not be disadvantaged by any last-minute changes to legislation."

Disclaimer: 

Any opinions expressed in this article are not to be considered investment advice and are solely those of the authors. European Capital Insights is not responsible for any financial decisions made based on the contents of this article. Readers may use this article for information and educational purposes only. 

This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.