European car emission reduction targets are set, and the discussion has now shifted to how to measure compliance. A Renault Group simulation estimates that the timetable proposed by the European Commission could take 8.3 billion euros from the EU industry and redirect them to Tesla, BYD, and other non-EU manufacturers.
Currently, European manufacturers do not always pay for their CO₂ breaches to Brussels. Regulation allows them to group with other brands so that their emissions are evaluated jointly. Thus, if one company exceeds the limit and another has margin, they can offset their results through a private agreement.
“The Commission’s timetable would generate a median industrial cost of 21.1 billion: 10.9 billion in fines and another 9.8 billion in payments between manufacturers”
It is a legal and well-known workaround that can change the fate of billions of euros. The Banking & Borrowing report, prepared by Renault Group, calculates that the Commission’s timetable would generate between 2025 and 2034 a median industrial cost of 21.1 billion: 10.9 billion in fines and another 9.8 billion in payments between manufacturers.
The money that does not fund the European transition
The bulk of those payments would go to Tesla, Polestar, and Zeekr —controlled by the Geely group— and to BYD. The brands would receive compensation for providing margin within the emissions groups. This money covers the regulatory shortfall of other manufacturers, but it does not necessarily translate into new improvements for the European industry, such as greater access to batteries or more jobs.
“Transferring 8.3 billion to American and Chinese manufacturers would mean losing money that could be spent on developing electric models, adapting plants, or building a European battery supply chain”
Consequently, there is an incongruence between this figure and the European Union’s stated goal of reducing its industrial dependencies (while speeding up electrification). Transferring 8.3 billion to US and Chinese manufacturers would mean losing money that could be spent on developing electric models, adapting plants, or building a European battery supply chain. The amount, according to the report, equals 3% of the annual value added of motor vehicle manufacturing in the EU.
In a conversation with Agenda Pública, Ignacio Rodríguez-Solano, Director of Institutional Relations at Renault Group, recalled that China has spent almost two decades building an entire chain around the electric vehicle, including raw materials, logistics, refining, and technological development. Against that strategy, he warned, “we do not compete on equal terms”.
This great capital flight arises from how the compliance periods are separated. The regulation requires that the emissions of new passenger cars be 15% below 2021 levels during 2025-2029. In 2030, the reduction makes a leap to 55%. For an average manufacturer, the limit would drop from about 93.6 grams of CO₂ per kilometer in 2029 to 49.5 g/km a year later.
The 2030 leap
The Commission has already allowed that the results of 2025, 2026 and 2027 be calculated jointly. A manufacturer that does not reach the target in the first year can compensate in the next two. After that, however, 2028 and 2029 would be evaluated separately. The period 2030-2032 would form a new three-year window and 2033 and 2034 would return to annual calculation.
This distribution prevents using the margin accumulated before 2030 to absorb part of the subsequent leap. In contrast to the Commission’s approach, Renault Group and the European Automobile Manufacturers’ Association propose grouping 2028-2032 into a single period. The last two years subject to the 15% reduction would be joined to the first three of the 55% period, with an average target near 67 grams per kilometer. With this alternative, the approved percentages remain, only the timing of “settling accounts” would change.
“Before reaching 2035, the industry must get through 2030 and needs ‘clear flexibility measures’ to stay on the electrification path”
This difference in application has considerable advantages reflected in the 10,000 simulations included in the report. With the Commission timetable, passenger cars meet the full regime in a range of 4% to 25% of the scenarios. The five-year window raises that probability to 90%-95%. The exercise combines different forecasts for electric vehicle sales, battery costs, production capacity, and pending policy decisions. Rodríguez-Solano places there the first major hurdle. Before reaching 2035, he argues, the industry must get through 2030 and needs “clear flexibility measures” to stay on the electrification path.
Similarly, the timetable influences commercial decision-making. When a fine is near, manufacturers may opt to lower prices or, for example, concentrate the offer on electric vehicles. Under that pressure, part of the sales is brought forward, although the consumer must want and be able to buy the car.
That commercial pressure soon hits a limit. Rodríguez-Solano summarized it this way: “We are not going to electrify Europe with cars priced at €100,000”. The rollout of the electric vehicle depends on small and mid-sized models, lower prices, and a charging infrastructure that allows them to be used normally. The Forecasting Machine, the prediction tool used by Agenda Pública, placed in early September a 40% probability that by 2027 more than 20% of the electric vehicles sold in the EU would be Chinese-made.
What happens to emissions
Let us consider a manufacturer that comfortably meets emissions limits in 2028 and 2029 but falls short of the much tougher target coming into force in 2030. With the Commission timetable, the margin secured in the first two years cannot be used later: the accounts are closed separately and the deficit for 2030-2032 ends up turned into fines or payments to other brands.
Renault proposes to calculate the results for 2028–2032 together. In this way, emissions below the 2028–2029 limit would offset part of the shortfall in the following three years. It would be like having a five-year budget: spend less at the start to absorb a larger effort later. The 2030 and 2035 EU targets would remain the same, and what would change is the period used to verify compliance.
“The alternative would be similar to having a five-year budget: spending less at the beginning would allow absorbing a larger effort later”
The Commission’s option would reduce emissions somewhat more during the decade. According to Renault Group’s model, the difference would be 9.4 million tonnes of CO₂. That amount represents 1.6% of the emissions generated by new passenger cars subject to the standard and 0.13% of all road transport in Europe: a little more than one tonne per thousand. In exchange for that difference, the Commission’s timetable would generate an estimated bill of 21.1 billion euros, including 8.3 billion that could end up with manufacturers outside the European Union.
The industry does not weigh the same everywhere in Europe
We must not forget that vehicle manufacturing occupies different places in European economies. Germany clearly concentrates the greatest added value in the sector and around 863,000 direct jobs. Poland and Romania stand out for the number of workers; Spain hosts about 149,000 and generates around €15 billion in added value, according to Eurostat data.
The Director of Institutional Relations at Renault Group adds that, in Spain, 79,000 of the 85,000 million euros of added value in the sector remain tied to combustion and hybridization. The shift toward the new electric value chain therefore requires time and investment.
The regulatory cost does not end with the company that pays a fine or buys margin from another brand. European plants compete for the allocation of new models, investments, and future production. A reduction in funds can reach suppliers, technological centers, and territories that depend on those factories. The report compares the 21.1 billion accumulated with 7.7% of the annual value added by the European vehicle manufacturing industry.
“This pending decision will determine who retains the resources to reach the CO₂ limits”
For all these reasons, Brussels must decide how the years around the 2030 leap will be counted. Keeping separate periods forces a faster response and achieves an additional emissions reduction. Merging 2028-2032 would allow compensating for the early years of the new target, increases the likelihood of compliance, and keeps within Europe a significant portion of the money needed to finance the sector’s transformation. The CO₂ limits are not being altered, and therefore this pending decision will determine who retains the resources to meet them.
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