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CO2 emissions in Europe: On the one hand, the European Commission seems to be giving in, on the other, it is tightening its grip by forcing compliance with the same limit, but in three years

Car manufacturers competing in the markets of the Old Continent have put strong pressure on the European Commission (EC) to review the legislation already approved, which obliged them to reduce carbon dioxide (CO2) emissions, which implies considerably reducing average consumption or selling a greater percentage of electric vehicles, since these, by not emitting CO2, end up lowering the brand's average emissions. Not only did builders threaten bankruptcy due to the fines that would be imposed on those who did not comply with the limit, they also predicted the closure of factories and the dismissal of thousands of workers. But EC President Ursula von der Leyen was not impressed by the argument and only granted them the option of meeting the 93.6g average over a three-year period, instead of in 2025. However, this apparent concession could turn into a nightmare for brands that do not do their homework.

To understand what is on the table, until last week each automaker that sells its vehicles in Europe would have to sell, in the 12 months of 2025, a mix of models whose average CO2 emissions should not exceed 93.6g of CO2/km. Now, after pressure from some manufacturers who did not prepare properly for the new reality (which was already known 10 years ago), they will have to add the average of the total emissions of 2025, 2026 and 2027 and not exceed the maximum value of 93.6g. Here we can see the granting of a bonus to manufacturers identified as “bad students”, as the non-governmental organization Transport & Environment accuses, but if the brands persist in their error (as they have done so far), they will incur chilling penalties.

Let's do the math to see how the "carrot and stick" system created by the EC works to get builders to respect the rules and not to violate them. Let's imagine that a medium-sized manufacturer, which sells 2,000,000 vehicles/year, missed the target of 93.6g of CO2/km in 2025 by the minimum margin of 1g. Before the changes now announced, you would have had to pay a penalty of €380,000,000 (2,000,000 units x 1g x €95), which would make any brand tremble. Now let's imagine that this same manufacturer, a "bad student", relaxes sales even further in 2025, selling more powerful and expensive models, which maximize profit margins, essentially because he has two more years to recover the damage. If you reach the end of 2027 with the same 1g deviation from the imposed target of 93.6g, then you will face a penalty of 1,140,000,000 (6,000,000 units x 1g x €95). It's only three times as much, but this “only” here involves an extra effort of €760,000,000.

European carmakers are divided over the new rules to limit CO2 emissions agreed with European officials in 2015 and implemented initially in 2020 and now, with tighter limits, in 2025. The battle to reduce CO2 - one of the main causes of the greenhouse effect, which will also apply to energy production and all forms of transport, from trucks to trains, ships and planes - began with cars in 2020, requiring the average emissions of each carmaker's range to not exceed 116g of CO2/km (at the time it was 95g, according to the old NEDC method), with the bar being reduced to 93.6g CO2/km by 2025.

To comply with the new CO2 emissions limit, car manufacturers would have to sell fewer more polluting and traditionally more fuel-efficient models, in addition to selling a larger volume of 100% electric models (BEV). But it's not just about selling more electric vehicles, it's equally important to put them on the market at competitive prices, which means investing heavily in specific platforms for battery vehicles, in factories to produce this new type of chassis and in the batteries themselves, so that what is the most expensive part of a BEV becomes substantially cheaper. Now, these million-dollar investments reduce the profit margins of car manufacturers and, consequently, the distribution of profits among shareholders, which led some, notably the Germans from BMW and Mercedes, to fight for the softening of limits, which they achieved. They thus gained the possibility of spreading out the investments they should have made by 2024 over the next two years.

Meanwhile, the EC announced that it will also provide 1.8 billion euros to secure a supply chain for materials needed to produce batteries for electric cars in Europe, a key part of the European industry becoming more competitive and not dependent on China. And there are (still) funds to reinforce the charging network for battery-powered cars, which we really need in terms of high power direct current (more than 150 kW) as well as hydrogen, to power electric vehicles that produce the energy they need on board from an H2 fuel cell.

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