Emissions standards CO2 for new passenger cars and light commercial vehicles (vans) in the European Union is a key tool in the fight against climate change. Passenger cars and vans are responsible for a significant share of total territorial CO2 emissions in the EU – around 16 % for cars and 3 % for vans. Moreover, the transport sector is one of the few sectors in Europe where emissions have increased significantly above 1990 levels.

Purpose and Objectives of the Regulation

The EU regulation setting CO2 emission standards for new passenger cars and vans was updated in April 2023. The aim is to align the sector with legally binding EU targets – reduce emissions by 55 % by 2030 compared to 1990 levels and achieve climate neutrality (net zero emissions) by 2050.

Regulation tightens annual emissions targets for new cars and vans from 2025. From 2035 sets a target of 100 % emission reduction, which means zero exhaust emissionsFor manufacturers, the following applies: financial sanctions for non-compliance with standards. If the average CO2 emissions of a manufacturer's fleet exceed its specific emissions target in a given year, it must pay an excess emissions premium. This premium is €95 for each g/km of excess over the target, applied to each new vehicle registered in a given year. Manufacturers can also pool their emissions targets together.

Specific Emissions Targets

The annual targets for the entire EU fleet are reduced in five-year intervals:

• From 1 January 2025: New cars and vans registered in the EU must emit on average 15 % less CO2 compared to the targets in force in 2021. This corresponds to the target 93.6 g CO2/km for cars a 153.9 g CO2/km for vans.
• From 1 January 2030: Emissions from new cars must be 55 % lower on average (compared to the 2021 targets) and from new vans 50 % lower. This is in line with the targets 49.5 g CO2/km for cars a 90.6 g CO2/km for vans.
• From 1 January 2035: Emissions from new cars and vans must be 100 % lower, i.e. 0g CO2/km.

Regulation Development and Lobbying

Although the regulation is already in force, some car companies are lobbying for its relaxation. An agreement on changes to the regulation was reached in principle in late 2022. However, formal approval was delayed in the first and second quarters of 2023 due to Germany trying to reopen negotiations to allow the registration of new vehicles capable of running exclusively on CO2-neutral fuels of non-biological origin, so-called “e-fuels”, even after 2035. Germany’s position reflected extensive lobbying by car manufacturers.

A formal agreement on changes to the regulation was finally reached in the second quarter of 2023. To satisfy Germany, the Commission separately committed to developing a solution to allow the registration of e-fuel vehicles after 2035. The Commission said it would examine the matter with “full technological neutrality as a fundamental principle”.

The Commission must review the effectiveness of the Regulation by 2026 and plans to start preparations as early as 2025. As part of this review, the Commission will propose a further targeted amendment to the Regulation to ensure a “technology-neutral approach in which e-fuels play a role”.

Proposed Flexibility for 2025-2027

In response to negative climate lobbying by the industry and following intensive lobbying by EU car companies, as well as lower than expected demand for electric vehicles in Europe in 2023 and 2024, the Commission proposed a targeted amendment to the Regulation that would provide additional flexibility for manufacturers. This proposal was presented on 1 April 2025.

If adopted by the European Parliament and the Member States, the proposal would change the requirement annual compliance with compliance targets based on a three-year average for the period 2025-2027. This would allow manufacturers to compensate for exceeding the target in one or two years by exceeding the target in other years during that three-year period. After 2027, the annual compliance requirement would return. The Commission says this additional flexibility will help protect the industry’s ability to invest in the clean transition while maintaining the 2025 target and keeping the sector on track for the next round of emissions reductions.

Attitudes of Key Actors

• European Commission: It now wants to maintain the objectives of the regulation, but through a targeted change this year to provide short-term compliance flexibility for 2025-2027. It also agreed to ensure that the regulation allows e-fuels to play a role after 2035.
• EU Member States: It is unclear how member states' positions have evolved since April 2023 due to elections and the changing political climate. Countries that previously expressed reservations about the agreed regulation included Germany, Italy, Bulgaria, Romania and the Czech Republic.
• European Parliament: The largest political group, the centre-right European People's Party (EPP), is divided on the regulation. Some of its members support the Commission's approach of targeted changes while maintaining the overall ambition, while others want a more fundamental rethink of the agreed objectives - a position shared by most MEPs from the far and radical right groups. This is contrasted by support for the regulation's current objectives from the second largest, centre-left group of Socialists and Democrats (S&D), as well as the Greens and centrist liberals. These differences of opinion make it unclear what Parliament's stance on the proposed changes will be.

IIGCC position

The Institutional Investors Group on Climate Change (IIGCC) has not yet issued any public position on EU emissions standards for cars and vans. However supports the ambitions of the regulation as it stands and considers Maintaining the 2035 deadline for 100 % emission reductions for new cars and vans as a critical political signal, which provides certainty for investors.

It is important to note that CO2 standards for heavy duty vehicles such as trucks, buses, coaches and trailers are governed by by another regulationThese vehicles are currently required to achieve an average reduction in CO2 emissions for the entire EU fleet of 90 % by 2040.

Despite the proposed adjustments, the Commission continues to reiterate that the climate neutrality target for cars by 2035 creates predictability for investors and manufacturers and that it has no intention of changing it. Spring