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Summary:
On December 16 2025, the European Commission published the proposal for the revision of the EU’s car CO2 emission regulation. T&E has analysed the impact of the proposed policy changes in terms of battery electric vehicle (BEV) sales and CO2 emissions:
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The weakening of the 2035 CO2 reduction target from 100% to 90% is expected to reduce the share of BEVs by 15%, down to 85% instead of 100%. However, the proposal also introduces high uncertainty as BEV sales would fall between 50% and 95%, depending on the powertrain mix strategy adopted.
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The 2030 target would be weakened by a 3 year averaging (2030-2032) of the target with super-credits given to small BEVs made in Europe. This implies a 10 percentage point reduction in BEV share in 2030: from 57% to 47%.
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Based on the proposal, cars would emit an additional 720 million tons of CO2 (MtCO₂e) between 2025 and 2050 — 10% more than under the current regulatory scenario.
Recommendations: see T&E’s position paper on the revision of the car CO2 regulation.
The fuel crediting system and the 3-year averaging are the most damaging flexibilities and should be cancelled. T&E recommends improving the design of the low-carbon steel credits and super-credits system to reward actual progress towards low-carbon steel and allocate bonus to the most affordable models.
Introduction
On 16 December 2025, the European Commission published the review of car CO₂ regulation. This followed pressure from the car industry to amend the targets and consider options such as biofuels and hybrids after 2035.
This historic decision by the European Commission will have far-reaching consequences. The EU’s CO₂ regulation for cars forms the basis of Europe’s automotive climate and industrial policy, driving the supply of zero-emission vehicles.
Earlier this year, the Commission already granted two concessions to the car industry. Firstly, as part of the Automotive Plan in March 2025, it was announced that carmakers would have an extra two years to comply with the 2025 CO₂ target. This means that compliance will be averaged over 2025–2027 before fines are calculated. Secondly, at the third Automotive Strategic Dialogue in September, the Commission brought forward the legislative proposal from Q2 2026 to December 2025, thereby drastically accelerating the timetable for the revision and shortening the period available for impact assessments and consultation.
In this briefing, we analyse the impact of the European Commission’s review proposal on future electric car sales and CO₂ emissions. We also provide a detailed analysis of each flexibility option.
The Commission’s proposal would slow down the BEV transition and increase CO2 emissions
The proposal would cut BEV sales by 15% in 2035
The Commission proposed weakening the 2035 target by setting a 90% emissions reduction target compared to 2021, rather than a 100% reduction. The remaining 10% emission has to be ‘compensated’ by alternative fuels (up to 3%) and low-carbon steel (up to 7%) which allows carmakers to sell any powertrain after 2035, including combustion and hybrid.
In the analysis, we make the assumption that the full potential of each flexibility is reached in 2035. The 3% weakening is granted to all carmakers provided enough sustainable renewable fuels are placed on the EU market to compensate for the emissions (see Section 3.1) while carmakers can each earn low-carbon steel CO2 credits for using low-carbon steel in their cars (with a maximum of 7%, see Section 3.4).
As a result, T&E estimates that these options would result in battery electric vehicle (BEV) sales of 85% in 2035 instead of 100% under the current regulation.
In 2030, the Commission proposal would leave BEV sales at just 47%, instead of the 57% required under the current regulation. This would cause BEV uptake to decelerate during the most critical phase of market transition. The most significant weakening for 2030 would come from the target averaging over three years, cutting BEV uptake by 8.5 percentage points (%p). Instead of being calculated for a single year, emissions will be averaged over the period from 2030 to 2032, which is equivalent to delaying the implementation of the full target. Small BEV super-credits would reduce by 1.5%p.
The precise BEVs share in 2035 will vary depending on the combustion car mix of each carmaker. The 90% CO₂ reduction target means that, on average, carmakers' fleet emissions would have to stay below 11 gCO₂/km in 2035. After 2035, this would allow carmakers to sell any type of powertrain, including petrol, diesel, hybrids, plug-in hybrids and range extenders. Depending on the sales mix, carmakers could sell anywhere between 5% and 50% non-BEVs after 2035, including plug-in hybrid vehicles (PHEVs), other hybrids and conventional combustion vehicles. The share of these combustion cars will depend on their average CO2 emission. With more efficient extended-range plug-in hybrid vehicles (EREVs), at 22 g/km, the share would reach 50%; however, this figure would decrease to 25% if PHEVs, which emit 45 g/km, were sold instead. In our central scenario, we have assumed that 10% of vehicles sold will be PHEVs and about 5% will be ICE vehicles. Finally, if a carmaker sells only high emission ICE, the share would be 5%.
Car emissions would increase by 10%
If all proposed changes considered by the European Commission were introduced, cars would emit an additional 720 MtCO2e between 2025 and 2050. This is equivalent to an increase of emission by 10% compared to the emissions from the regulatory baseline (annual emission trends are presented in Annex B). This is also equivalent to eight years of emissions from the German car fleet, based on 2023 emissions. The greatest rise would stem from the low-carbon steel credits, adding 390 MtCO2e. The fuel credits would release further 168 MtCO2e. In addition, the averaging of the 2030 target over 2030-2032 would add a further 139 MtCO2e. The emissions from the low-carbon steel credit and the fuels credit are considered additional given their emissions are already covered in other EU sectorial legislation such as the emissions trading system (ETS1 and ETS2), the effort sharing regulation (ESR) and the renewable energy directive (RED). In the heavy duty vehicle regulation impact assessment, the Commission stated that applying a mechanism to reflect the carbon intensity and share of low-carbon fuels would lead to these fuels' contribution being counted twice under the RED and the CO₂ emission standards.
Next steps: risks of further weakening
In the first half of 2026, the European Parliament and the Council will discuss and define their position on the Commission proposal, including potential amendments to further change the regulation.
In this sub-section we explore the impact of further weakening the ambition (in line with the demands from the automotive industry). This scenario of further weakening assumes an 80% CO2 reduction target in 2035, a five year average period for the 2030 target and a broadening of the scope of super-credits.
This weakened scenario would further slow down BEV sales, resulting in BEV sales of only 32% in 2030 instead of 57% under the current regulation, and 70% in 2035 instead of 100%. This would result in an additional 1.4 billion tons of CO2 (GtCO2e) being emitted by cars compared to current regulation.
The good, the bad and the ugly, deep dive into flexibilities
Fuel credits jeopardize the EV transition
The 2035 target is reduced by up to 3% when alternative fuels are placed on the EU market. Total CO₂ savings from alternative fuels are attributed to cars and divided by the lifetime mileage of new cars registered in the same year. This produces a fleet-average credit, which is capped at 3.3 gCO₂ per km and applies equally to all car manufacturers, regardless of whether the cars actually use these fuels. Advanced biofuels (made from waste and residues) and e-fuels are included, but first-generation crop-based biofuels are excluded. Biofuel categories included in Part B of the RED Annex IX, such as animal fats and used cooking oil, are capped at 1%.
Road transport diverts scarce advanced biofuels away from other sectors. The 3% cap equates to 7 million tons of oil equivalent (Mtoe) of alternative fuel being made available on the market in 2050. However, our forecast indicates that the aviation and other transport sectors alone will require around 55 Mtoe in 2050 to meet European fuel targets. The EU can only produce less than 10 Mtoe based on the availability of biofuel feedstocks that meet strict sustainability criteria, so potential demand for advanced biofuels from aviation and other sectors could exceed feedstock availability. This suggests that the demand driven by the fuel credit for cars will divert advanced biofuel volumes from other sectors.
Allowing advanced biofuels in new cars would increase the EU’s reliance on unsustainable and imported biomass which is prone to fraudulent practices. Demand would exceed the availability of sustainable feedstock, creating incentives for fraud. Combined with weak sustainability safeguards this would lead to deforestation, biodiversity loss, soil degradation, and indirect emissions, including from unsustainable forestry inputs such as stemwood. Growing evidence of waste oil and palm oil mill effluent (POME) fraud, combined with weak paper-based certification and limited supply-chain checks, undermines the credibility of claimed emissions savings. At the same time, meeting higher demand would require complex and uncertain technologies, while advanced biofuels are expected to remain costly even at full maturity.
Recommendation: remove the fuel credits mechanism
Allowing credits from advanced biofuels would encourage fake solutions like biofuels at a time when Europe needs to accelerate on electrification. Carmakers should not be rewarded for emissions reduction achieved under EU fuel regulations and regulators should not divert the limited volume of sustainable fuels away from other sectors that depend on them to decarbonise. Therefore, this loophole cannot be considered as 'compensation' for the additional sales of combustion vehicles and should be removed from the regulatory proposal.
The 2030 averaging over 3 years has the most significant impact in 2030
As was done for the 2025 target, the Commission has proposed averaging the 2030 target over the period 2030–2032. This means that car makers can miss the target in 2030 as long as they compensate in 2031-2032. T&E analysis estimates this results in a BEV share of 47% in 2030, allowing carmakers to compensate for a 8 gCO2/km undercompliance in 2030 through over-compliance in 2032 (60% BEV share). The automotive industry's demand for a five-year average from 2028 would have a greater impact. This would limit the BEV share to 39% instead of 57% under the current regulation and lead to an additional 170 MtCO₂e over the period 2025–2050, on top of the additional emissions from the Commission proposal.
Recommendation: remove the averaging in 2030
The 3 year average slows down the BEV transition at the most critical phase of acceleration and therefore sends a harmful signal to the industry.
Cancelling the three-year averaging would increase BEV sales to 53% in 2030 (from 47%), provided that other flexibilities remain unchanged.
In case of a two-year averaging (2030–2031), BEV sales would increase to 50% in 2030 (from 47%). Another option to limit the impact of the averaging is to set a 5% threshold on the borrowing, which would result in BEV sales of 51% in 2030.
Steel credits should be strictly defined and limited
The 2035 target can be weakened by 7% if car manufacturers 'compensate' for additional emissions by using low-carbon steel in their vehicles. The total CO₂ savings from low-carbon steel are calculated against a baseline (in tCO₂). These savings are then spread over all cars sold by the manufacturer and divided by the lifetime mileage of new cars registered in that year to produce a fleet-average credit.
There will be sufficient green steel produced in the EU. The total potential for primary green steel in Europe in 2030 is 34 Mt which is higher than the total European steel demand in the automotive sector of 26 Mt in 2025. More than 12 Mt have already reached the final investment decision stage, while a further 22 Mt are expected from announced projects by 2030. This is sufficient to meet the quantity of credits needed to weaken the 2035 target by 7%, for which around 13 Mt of green steel is required. Using green steel in cars can be done at limited additional cost since the additional cost of green steel in cars in 2035 will be less than €100, representing a price increase of less than 1%, which is much lower than the monetary value of the green steel credit, estimated at €700.
However, emissions credits for low-carbon steel do not represent additional emission savings because they double-count emissions savings from the industrial sector (covered under the ETS).
Recommendation: Low-carbon steel credits should be strictly defined and limited
If designed correctly, the steel credits could establish a lead market for green steel. This flexibility should reward progress and improvement towards green steel by focusing on technologies requiring heavy investment but currently lacking demand, i.e. primary green steel production in the EU.
Super-credits for small BEVs made in Europe: risk of windfall credits
Carmakers count each small made-in-EU BEV (up to 4.2m long) as 1.3 cars when calculating their CO2 compliance for the years 2030-2034. This 'supercredit' flexibility is designed to support the production of smaller, more affordable BEVs in Europe but effectively allows carmakers to sell fewer EVs overall while still meeting the overall target. Past experience has shown that supercredits often reward carmakers for what they already plan, meaning it does not guarantee that the number of small electric car sales increases. Instead it allows them to sell less electric cars overall to achieve the same CO2 emissions performance on paper since the ones that earn supercredits are counted more than one.
We calculate that BEV sales would be reduced by 1.5%p in 2030 as a result of this flexibility. A quarter of BEVs sold in the EU in 2030 are expected to be below 4.2m (all A-segment BEVs, 75% of B-segment sales and 2% of C-segment). Assuming that a two third of small BEVs meet the made-in-EU criteria, this would lead to 17% of the BEV sold in 2030 to earn supercredits. BEV shorter than 4.2m includes top selling models such as Renault 5, Peugeot’s 208e, Fiat 500e and Opel Corsa-e, as well as the upcoming VW ID.Polo and Renault Twingo. The full list of models is available in Annex C.
Increasing the threshold to 4.3m with a larger multiplier of 1.5 could make this flexibility even more damaging, weakening BEV sales by 2.4%p in 2030. In that case, about 25% of the medium car segment would be eligible for super-credits, which would contradict the purpose of boosting sales of the most affordable models. Some best-selling medium models, such as the ID.3, are only a few cm longer than 4.2m.
Recommendation: the supercredit limits and caps should be strengthened to limit windfall credits
To protect the regulation from further weakening, the length limit of 4.2m should not be increased as that would cover medium sized cars. T&E suggested a limit of 4.1 m to reward the most affordable models, limiting the expected small BEV share to 20% in 2030. The multiplier should also not be increased further than the current 1.3, and should be reduced to 1.2. Reducing both the length limit and the multiplier would minimise the weakening of the 2030 target to just 0.9%p.
As in 2020, the multiplier could also decrease annually and be capped at 3 years with a limited CO₂ bonus. We suggest a total cumulative CO₂ bonus of 3 g/km over three years (2030–2032).
The definition of a locally produced BEV should be strictly limited to BEVs fully produced in Europe with batteries produced in Europe, combined with an increasing number of made-in-EU components (see T&E position paper).
Conclusion: the Commission Impact Assessment confirms the case for maintaining strong 2035 CO₂ standards
Weakening the 2035 EV target to allow combustion cars sends a harmful signal that will divert investment away from electrification at a time when Europe needs to catch up with Chinese EV manufacturers. Furthermore, although the Impact Assessment (IA) does not directly model the final proposal, it clearly demonstrates that weakening CO₂ standards would have negative consequences for macroeconomic trends and social costs.
Even with 100% zero-emission vehicle (ZEV) sales by 2035, the IA baseline shows that only 83% of the car fleet would be zero-emission by 2050, which falls short of full decarbonisation. T&E previous analysis suggests that this figure could be even lower, at 73%. The IA indicates that permitting 10% ICE sales post-2035 would result in approximately 23 million additional ICEs on EU roads by 2050, confirming that any weakening of CO₂ targets would jeopardise the EU's climate objectives.
The IA also shows that more ICEs would increase system costs and energy demand. ICEs lead to higher fuel spending due to lower efficiency, resulting in a higher total cost of ownership, particularly for second-hand buyers. As operating costs rise, this has a greater impact on lower-income households, for whom the same absolute cost changes represent a larger proportion of income. While electricity demand would be slightly reduced, this would be offset by higher demand for liquid fuels, since ICE vehicles are around three times less efficient than BEVs. The Commission assumes rising oil prices and sharply falling battery costs, confirming that BEVs are the lowest-cost option across segments, even under scenarios with higher electricity and battery prices.
The IA’s assumption of limited CO₂ impacts relies on optimistic expectations about the availability of alternative fuels. In reality, alternative fuel availability for cars is likely to be much lower due to strong competition from harder-to-electrify sectors, i.e aviation and maritime. This would lead to higher emissions, as the remaining combustion car fleet would be powered by fossil fuels unless alternative fuels were diverted from the aviation and shipping sectors.
The IA's findings suggest that strong CO₂ standards are critical to driving economies of scale and innovation in the long term. In contrast, the IA indicates that regulatory flexibility weakens ZEV investment signals, erodes EU competitiveness — particularly in relation to China — and results in slight GDP losses. The battery sector is particularly affected, as weaker EU demand undermines economies of scale and learning effects.
Therefore, by slowing electrification, regulatory flexibilities risk worsening affordability, increasing energy demand and fuel import exposure, and undermining Europe’s industrial competitiveness at a time when global competition in clean technologies is intensifying.
For further information in the annex, download the pdf
