EU Revises 2035 Car Emission Rules, Introduces Battery Incentives

Introduction

The European Union has updated its regulations on vehicle emissions, replacing the proposed 2035 gas car ban with a 90% tailpipe emission reduction requirement for new passenger cars. The European Commission also announced financial support for EU-made battery production to accelerate the transition to low-emission vehicles.

Revised Emission Standards

Under the new framework, automakers must reduce tailpipe emissions by 90% compared to 2021 levels. The remaining 10% of emissions can be offset through low-carbon steel in vehicle construction or sustainable fuels such as biofuels and e-fuels.

This change replaces the previous plan for a full 100% reduction, which would have effectively banned all combustion-powered vehicles. Despite the adjustment, automakers will still need to prioritize hybrids, plug-in hybrids, extended-range EVs, and battery electric vehicles to meet future standards.

Impact on Automakers

For reference, a company with an average fleet emission of 118.5 grams CO2/km in 2021 will need to reduce that figure to 11.85 grams CO2/km by 2035. This level of reduction cannot be achieved with conventional gasoline or diesel vehicles alone, making electrification and low-emission alternatives essential.

The emissions figures are based on the WLTP testing standard, which has been criticized for overestimating plug-in hybrid performance. Discussions about updating the methodology for more accurate results are ongoing.

International Market Considerations

Concerns have been raised about increased imports of Chinese-made hybrids and plug-in hybrids. Chinese automakers such as Xpeng and GAC already operate in the EU market, with some assembling vehicles locally. The revised rules maintain incentives for EVs and low-emission vehicles manufactured within the European Union.

Battery Production Support

To support the EV transition, the European Commission introduced a €1.8 billion (approximately $1.8 billion) interest-free loan program for battery manufacturing facilities. This initiative is part of the larger €2.1 billion Battery Booster strategy, aimed at establishing an EU-based battery value chain and reducing reliance on imports.

The program is designed to simplify access to EU-wide incentives for automakers and promote investment in domestic battery production.

Small EVs and Vans

A new category for Small Affordable Cars under 4.2 meters (165 inches) has been established. Member states can develop targeted incentives for these vehicles to encourage the adoption of locally produced electric models.

For vans, the 2030 CO2 reduction target has been adjusted from 50% to 40%. National authorities must implement mandatory targets for zero- or low-emission corporate vehicles while maintaining flexibility in enforcement. To qualify for EU funding, vehicles must be manufactured within the EU.

Summary

The EU’s updated vehicle emission rules set a 90% reduction target for 2035, replacing the previous full ban on combustion cars. Complementary policies, including battery manufacturing incentives and support for small EVs, aim to strengthen domestic production and encourage a shift to low-emission transportation across Europe.

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