EU seeks to grant automakers 'breathing space' on CO2 emission targets

By Philip Blenkinsop

BRUSSELS (Reuters) -The European Commission yielded to pressure from European automakers on Monday by giving them three years, rather than only one, to meet new CO2 emission targets for their cars and vans.

The EU significantly lowered its cap on automotive carbon dioxide emissions this year, meaning at least one-fifth of all sales by most car companies must be electric vehicles (EVs) to avoid heavy fines. The ultimate goal is for zero emissions in 2035.

Commission President Ursula von der Leyen said after meeting auto sector executives, unions and campaign groups on Monday that the EU executive would propose later this month allowing compliance over three years, rather than in 2025 alone.

Meeting the targets, and avoiding related fines, depends on selling more electric vehicles, a segment where European carmakers lag Chinese and U.S. rivals.

Shares in European automakers, including Volkswagen, Renault, BMW and Mercedes-Benz rose by between 1.5% and 4% after von der Leyen's comments.

"The targets stay the same. They have to fulfil the targets, but it means more breathing space for industry," von der Leyen told a news conference, adding the proposal will still require approval from EU governments and the European Parliament.

Compliance would now be based on a carmaker's average emissions over the period 2025-2027.

EU carmakers, which have been hit by falling demand and factory closures, and are now bracing for U.S. tariffs, had urged the Commission to grant relief from fines they say could rise to 15 billion euros ($15.7 billion) for 2025.

CAR SECTOR SAVED OR LEFT BEHIND?

Italy and the Czech Republic, which had pushed for an easing of penalties, welcomed the proposal. Italian Industry Minister Adolfo Urso said it meant the European car industry had been saved, though Czech Transport Minister Martin Kupka said his country would push for a five-year extension.

Renault said the Commission's flexible approach would allow EU automakers to reduce emissions and stay competitive as the EV market ramped up.

Sigrid de Vries, director general of European auto manufacturers' association ACEA, said the proposal was positive, but meeting the targets would still be very challenging. Matthias Zink, president of European auto suppliers' association CLEPA, said the proposal offered "limited relief".

ACEA, which had sought a longer extension, has said the industry faced unpalatable alternatives, including deep price cuts, reduced production or buying credits from U.S. electric car maker Tesla and Chinese electric vehicle makers.

Volvo Cars, which is majority owned by Chinese EV maker Geely, said companies that had done their homework to be ready for 2025 should not be disadvantaged by last-minute changes.

Transport research and campaign group T&E described the proposal as an unprecedented gift to the car industry that would leave Europe further behind China.

"The key to competitiveness is to be able to produce electric vehicles at a price mass consumers want them. That's what the Chinese have done," said T&E executive director William Todts. "Postponing this in Europe does not make you more competitive."

The EU executive intends to publish its automotive action plan on Wednesday to ensure EU car producers can electrify their fleets and compete with more advanced rivals.

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(Reporting by Philip Blenkinsop and Bart Meijer, additional reporting by Marie Mannes in Stockholm, Gilles Guillaume in Paris, Alessandro Parodi in Gdansk, Guilio Piocarri in Milan, Alvise Armellini in Rome, Jason Hovet in Prague, Victoria Waldersee in Frankfurt, Editing by Charlotte Van Campenhout, Bernadette Baum and Susan Fenton)