In this short note, T&E has analysed the impact of the flexibilities proposed by ACEA for “compliance relief” for the EU’s 2025 car CO2 target: the 90% phase-in (i.e. 10% of the most polluting vehicles are excluded) and the 5-year average compliance period (carmakers’ performance is assessed over 2025-2029 instead of annually).
The analysis shows that each flexibility alone significantly reduces the ambition level of the 2025 target and allows carmakers to keep EV sales at the a similar level to 2024 (and for some, like Mercedes-Benz and BMW, even below in the phase-in scenario), resulting in further stagnation and depriving drivers of more affordable EV options.
Phase-in (90% in 2025 and 95% in 2026): could result in a total loss of up to 1.8 million BEV sales in 2025-2027 (including 260,000 affordable sub-€25k BEVs) which would be replaced by ICEs. These additional ICEs sold with the phase-in would emit 60 MtCO2 over their lifetime. The impact after 2027 is more uncertain but carmakers have the option of keeping BEV sales to a minimum until 2029.
5 year average compliance period: could result in a total loss of up to 2.6 million BEV sales in 2025-2027 (including 520,000 affordable BEVs). The additional ICEs sold with the phase-in would emit 85 MtCO2 over their lifetime. After 2027, carmakers would have to overcomply to compensate for their lower emissions in 2025-26. However the additionality of this overcompliance in terms of BEV sales is uncertain as carmakers may gradually increase the EV sales in the late 2020s anyway in the ramp up to the 2030 target.
The European Commission should reject any attempt to weaken the car CO₂ regulation and firmly uphold the 2025 target. Carmakers are fully capable of meeting these targets, making the likelihood of fines minimal or non-existent. Rather than weakening the 2025 ambition, the EU should focus on measures to support EV demand, ensuring a smoother transition while maintaining the integrity of the climate goals.
1. Phase-in (90% in 2025 and 95% in 2026)
The 90% phase-in of the target in 2025 allows carmakers to exclude 10% of the most polluting vehicles from the emissions average. Because these vehicles are simply not counted towards reaching the target, this flexibility reduces the ambition of the 2025 target and can result in a significant increase in CO2 emissions.
T&E analysis shows that with a 90% phase-in, carmakers would be able to comply with the 2025 target by selling only 2 percentage point more EVs compared to 2024. As a result, sales of EVs would stagnate.
A 90% phase-in would save around 8 gCO2/km per carmaker, equivalent to a 9% bonus on the 2025 target. Introducing this flexibility would effectively reduce the emissions reduction target from 15% to just 7%. Looking at the major European carmakers, the phase-in could reduce their BEV sales by a third compared to a scenario where all carmakers meet their 2025 targets (maximum BEV potential scenario). With the phase-in, EU carmakers could therefore meet their 2025 targets by increasing their BEV sales by only 2 percentage points (%p) compared to 2024 while focusing on selling 19%p more hybrids. Carmakers could therefore limit BEV sales to 15% instead of increasing sales to reach the maximum potential of 21% if all European carmakers meet their 2025 CO2 target without pooling. In 2026, a 95% phase-in would allow European carmakers to cap BEV sales at 20% instead of 22% if they do the minimum to meet the regulation without phase-in, or 25% in the maximum potential scenario, based on a market forecast purchased by T&E.
Overall, we estimate that the introduction of the phase-in could result in a cumulative loss of up to 1.8 million BEV sales in 2025-2027 compared to the maximum BEV potential scenario. The additional ICEs sold in 2025-2027 would emit 60 MtCO2 over their lifetime, close to the annual emissions of Ireland. Sales of affordable and mass-market models would also be delayed as a result of the phase-in, with 260,000 affordable models and 850,000 mass-market models (from the six main European carmakers) missing from the market in 2025-2027.
Allowing highly polluting models to be sold within the excluded 10% of sales in 2025 and 5% in 2026 could also lead to further additional CO2 emissions as carmakers are likely to increase sales of the most polluting and profitable SUVs. This would benefit sales of ICE variants that can reach more than 300 gCO2/km, such as the Audi SQ8, BMW X5 and Mercedes G500 and may lead to additional production of these models.
In the period after 2027, there is a lot of uncertainty about carmakers' strategies. In theory, they could follow a minimum BEV scenario by limiting BEV sales to the minimum required to meet the 2027 target by 2029. This scenario would lead to a significant gap between the CO2 emissions achieved in 2029 and the 2030 target.
2. Average compliance for 2025-2029 (5 years)
The multi-year compliance allows carmakers to average the CO2 emissions over the whole period 2025-2029 and compare it with the target over the same period. This flexibility allows carmakers to keep their BEV sales stagnant at 2024 levels until 2026, and only start to increase their sales from 2027.
This would lead to slower EV adoption during 2025-2029: the 2-year delay in the BEV ramp-up could result in the loss of up to 2.6 million European BEV sales over the 2025-2027 period compared to the maximum BEV potential scenario (based on market forecast). The additional ICEs sold over 2025-2027 would emit 85 MtCO2 over their lifetime, equivalent to the annual combined emissions of Hungary and Lithuania. As a result of the stagnation in 2025-2026, carmakers could keep the same sales mix as 2024, so 520,000 affordable models and 1.1 million mass-market models (from the six main European carmakers) would be missing in 2025-2027.
Why overcompliance in 2028-9 may have little to no effect
Contrarily to the phase-in flexibility, the mutli-year compliance pushes carmakers to overcomply with the -15% target during the period 2025-2029 if they aim to compensate for higher emissions during the years 2025-2027. As the 2030 target requires more than 50% BEV sales, carmakers are expected to ramp up BEV production in the years before. They would therefore voluntarily overachieve the targets in 2028-9, even in a scenario without multi-year average compliance. Indeed, carmakers would continue to bring more affordable models towards the end of the decade, e.g. Renault Twingo at €20k in 2026 and VW ID.1 at 20k€ in 2027. As a result, the additionality of the overcompliance in 2028-9 is very uncertain. For this reason we choose to focus our analysis on the short-medium term impact as these flexibilities would have little to no impact on the years 2028-29.
To see full the methodology, download the briefing.
