Germany, France agree on reform of European automotive policy

German Chancellor Friedrich Merz and French President Emmanuel Macron have agreed on a far-reaching reform of European automotive policy, media reports said Thursday, At Merz’s urging, the so-called phase-out of internal combustion engines starting in 2035 will be softened even further than the European Commission had previously planned. In addition, the chancellor ensured that member states will no longer be required to promote the electrification of large corporate vehicle fleets through mandatory quotas, according to the Handelsblatt business newspaper. In return, Macron pushed through his demand for stricter “Made in EU” requirements. The government will award purchase incentives and public contracts only to cars manufactured in Europe. A growing proportion of batteries and key vehicle components must also be produced in Europe. And government subsidies should primarily go toward European automobile production. Accordingly, both countries aim to push through the new rules in the Council of the European Union. In exchange for the industrial policy requirements, Germany secured comprehensive concessions regarding climate targets.​​​​​​​ -Phase-out of internal combustion engines further eased Under the plans, the phase-out of internal combustion engines is to be significantly eased starting in 2035. While the 90% carbon dioxide reduction target remains in place, the requirement to offset the remaining 10% with climate-neutral fuels or low-carbon steel has been dropped. Manufacturers can continue selling vehicles with gasoline or diesel engines after 2035, as long as their emissions remain within the limit. Furthermore, operation using only renewable fuels will be considered emission-free if technical restrictions prevent the use of fossil fuels. To avoid potential fines, automakers are granted additional flexibility in meeting their targets. Exceedances in 2030 may be offset by reductions in 2031, while carbon dioxide credits can be accumulated as early as 2029. For plug-in hybrids, the calculation of greenhouse gas emissions will also be more favorable than planned by the European Commission. British vehicles will be considered European if London aligns its trade protection measures with EU standards, according to Handelsblatt.