The European Commission has announced a significant revision to its automotive CO2 emissions targets, requiring EU-based carmakers to achieve a 90% reduction in CO2 emissions from new vehicles by 2035, instead of the 100% target previously mandated. This decision effectively revokes a controversial wholesale ban on internal combustion engine (ICE) vehicles adopted in March 2023, offering new flexibility to manufacturers.

Under the updated regulations, carmakers will be allowed to continue producing and selling vehicles with ICEs, including plug-in hybrids, range extenders, and mild hybrids, beyond 2035. To compensate for the remaining 10% of emissions, manufacturers will need to utilize low-carbon steel produced within the EU or employ sustainable fuels such as e-fuels and biofuels. The Commission also aims to encourage the production of full electric vehicles (EVs) and hydrogen vehicles, offering “super credits” to manufacturers for producing small, affordable electric cars made in the EU27.

Climate Action Commissioner Wopke Hoekstra described the new automotive package as a “win-win,” providing carmakers with greater flexibility while fostering a lead market for clean steel. Transport Commissioner Apostolos Tzitzikostas welcomed the reduction of the 2035 target, emphasizing that it signals the viability of technologies other than battery electric vehicles post-2035 and provides consumers with more choice.

The policy shift comes after extensive lobbying from several EU member states, notably Germany and Italy, along with Bulgaria, the Czech Republic, Hungary, Poland, and Slovakia. These nations argued that the stringent 100% ban threatened the social fabric of their economies, which are heavily reliant on the automotive industry. They cited challenges such as high energy prices, shortages of car components (including batteries), and insufficient consumer demand for electric vehicles. The automotive industry, represented by groups like the European Automobile Manufacturers’ Association (ACEA), also pushed for flexibility, warning of potential “multi-billion euro” penalties if market demand for EVs remained too low.

German automotive giant Volkswagen, which reportedly plans to close its Dresden production site, welcomed the Commission’s draft proposal, calling it “economically sound overall.” Volkswagen praised the special support for small electric vehicles and the pragmatic approach of allowing combustion engines with emission compensation. Similarly, Sigfried de Vries, secretary-general at ACEA, stressed the urgency of flexibility but reaffirmed the sector’s commitment to decarbonization, highlighting the industry’s significant investments in electrified models.

However, the decision has drawn criticism from proponents of rapid electrification. Chris Heron, secretary general of E-mobility Europe, expressed regret, stating that the move would create more uncertainty for investors and potentially undermine the transition to electric transport. T&E, a green transport group, also warned that it risks undermining the shift towards EVs and could leave the EU vulnerable to foreign competition. Carmakers like Volvo, which has committed to a full EV portfolio, argued that weakening long-term commitments for short-term gains risks Europe’s competitiveness.

The political landscape played a significant role in this policy change. The initial 2035 ban was a key component of the European Green Deal under Ursula von der Leyen’s first mandate. However, the 2024 EU elections saw a blow to Green lawmakers, leading to increased influence from the centre-right European People's Party (EPP) and the far-right. EPP leader Manfred Weber had previously opposed the 2035 ICE ban, arguing it was too early for the industry to adapt and that revising the law would secure industrial jobs.

In contrast, countries like France and Spain, while initially favoring the ban, sought support for domestic production. The UK, meanwhile, is being urged by groups like T&E to maintain its stricter Zero Emission Vehicles Mandate, with experts like Colin Walker of the Energy and Climate Intelligence Unit (ECIU) emphasizing that stable policy is crucial for attracting investment in charging infrastructure and innovation.

The Commission’s proposal will now proceed to negotiations between the European Parliament and the European Council, with the incoming Cypriot Presidency mediating political discussions starting in January 2026, to reconcile technological neutrality with climate goals.