Position paper on the revision of the EU car CO2 standards

EU car CO2 rules shift direction under pressure from manufacturers

The European Union’s approach to cutting emissions from cars and vans is at a turning point. Rules agreed only recently are now being reopened, with the European Commission proposing changes that would soften the long term target for new vehicles.

For UK businesses, this is not just a Brussels policy debate. Vehicle standards shape what manufacturers build, what fleets buy, and how supply chains invest. They also influence costs, availability, and compliance risk for companies that operate vehicles or sell into EU markets.

The proposed revision affects the centrepiece of EU transport decarbonisation, the requirement that new cars and vans sold from 2035 produce zero emissions at the tailpipe. While the UK is no longer bound by EU law, these standards still matter for British manufacturers, importers, fleet operators, and suppliers that depend on European rules.

This article explains what the Commission has proposed, why it is contested, and what it means in practical terms for UK small and medium sized businesses.

How the Commission’s proposal changes the existing car and van targets

Under EU law adopted in 2023, car makers must meet progressively tighter average CO2 limits across their new vehicle fleets. By 2030, emissions from new cars must be 55 percent lower than in 2021. For vans, the cut is 50 percent. From 2035, all new cars and vans sold in the EU are expected to be zero emission at the tailpipe.

The rules are enforced through fleet averages. Manufacturers that exceed the limit face financial penalties. This system is designed to give flexibility on individual models while keeping pressure on the overall transition.

The legislation already included a formal review in 2026. That review was intended to check progress, costs, and the availability of zero emission technologies. Since early 2024, however, car makers and industry groups have argued that parts of the timetable should be softened sooner.

In April 2025, the Commission responded with limited flexibilities. Manufacturers were allowed to average their emissions over three years, from 2025 to 2027, rather than meeting the target every single year. This allows overperformance in one year to balance underperformance in another.

In December 2025, the Commission went further. As part of a wider automotive policy package, it proposed revising the 2035 target itself. Instead of requiring 100 percent zero emission vehicles, the proposal would set a 90 percent reduction requirement.

Other elements of the proposal include a second three year averaging window covering 2030 to 2032, a relaxation of the 2030 van target from a 50 percent to a 40 percent reduction, and additional compliance credits for small battery electric vehicles manufactured in the EU during the early 2030s.

These changes are now subject to negotiation between the European Parliament and member states. Environmental organisations, including Transport & Environment, have published detailed critiques arguing against the revisions and warning of higher cumulative emissions.

Why campaign groups say the changes would increase emissions

Transport & Environment and other analysts focus less on the headline percentages and more on cumulative impact. Their concern is that even small changes in annual targets can add up to very large volumes of extra carbon dioxide over time.

Based on their modelling, relaxing the 2035 requirement from full zero emission to a 90 percent reduction would allow additional sales of combustion and hybrid vehicles well into the 2030s. Over the period from 2025 to 2050, this is estimated to add around 720 million tonnes of CO2 from cars alone.

That figure is often expressed as equivalent to roughly eight years of current EU car emissions. While the exact number depends on assumptions, the underlying point is widely accepted. Delaying full zero emission sales locks in higher emissions for the lifetime of each vehicle.

Critics also object to the growing use of offsets and credits within the system. The proposal allows manufacturers to count certain actions, such as using low carbon steel or alternative fuels, towards compliance. Campaigners argue that many of these actions are already encouraged through other EU laws, including the Emissions Trading System and the Renewable Energy Directive.

The concern here is double counting. If a reduction is already required elsewhere, allowing it to offset vehicle emissions does not deliver new savings at the system level. From this perspective, flexibility reduces pressure on manufacturers without delivering equivalent climate benefits.

Industry bodies take a different view. The European Automobile Manufacturers Association, known as ACEA, argues that the market is not moving fast enough towards electric vehicles to meet the existing targets at acceptable cost. They point to slower than expected consumer uptake, high interest rates, and intense competition from Chinese manufacturers.

They also highlight the scale of investment already made, with hundreds of billions of euros committed globally to electrified models, battery plants, and retooling of factories. From this standpoint, the proposed changes are framed as pragmatic adjustments rather than a retreat from decarbonisation.

What this means for costs, fleets, and supply chains in the UK

Even though the UK has its own Zero Emission Vehicle mandate, EU standards still shape the vehicles available on the market. Many models sold in the UK are designed primarily to meet EU rules. When those rules change, product plans and pricing often follow.

For SMEs operating fleets, a slower EU transition could have mixed effects. In the short term, it may mean a wider choice of combustion and hybrid vehicles remains available for longer. That could appeal to businesses uncertain about charging access or upfront costs.

Over the medium term, however, delayed scale up of electric vehicle production risks keeping prices higher for longer. The cost reductions expected from mass production depend on clear, firm targets. Any weakening of those signals tends to slow investment decisions across the supply chain.

There are also implications for cross border trade and tendering. Many large customers, particularly in logistics, construction, and public services, set vehicle emission requirements that track EU policy. Suppliers that rely on contracts in the EU may find that standards remain higher than those strictly required in the UK, despite rule changes.

Compliance risk is another consideration. Flexibility through multi year averaging sounds helpful, but it also increases uncertainty. Manufacturers may push compliance challenges into later years, creating sharper adjustments if targets are eventually tightened again.

For suppliers, including UK based component and materials businesses, the discussion around offsets is significant. If low carbon steel, batteries, or fuels are treated as compliance tools rather than core requirements, demand signals may weaken or become more volatile.

This matters for investment planning. Firms considering capital expenditure on cleaner processes need confidence that demand will be stable and long term. Regulatory back and forth makes it harder to justify those decisions, particularly for smaller businesses with limited margins.

Green steel and vehicle production emissions in the policy debate

One area where there is broad agreement on technical potential is the use of low carbon steel in vehicle manufacturing. Steel production is highly emissions intensive, and a typical internal combustion car contains over a tonne of it.

Conventional steelmaking emits roughly 1.4 to 1.9 tonnes of CO2 per vehicle. Newer processes using electric arc furnaces, scrap recycling, renewable electricity, or hydrogen based direct reduction can cut this by more than 95 percent.

On a full life cycle basis, switching to fossil free steel can reduce total vehicle manufacturing emissions by around a quarter. Studies suggest the additional cost per vehicle could be in the range of one to two hundred dollars, well under one percent of the final sale price.

European capacity for low carbon steel is growing. Estimates indicate that by 2030, potential production could exceed total demand from the automotive sector. Several major car makers have already announced supply agreements and targets for increasing the share of fossil free steel in their vehicles.

The dispute is not about whether green steel works, but how it should be counted. Environmental groups argue that because steel decarbonisation is already driven by other policies, using it as an offset within vehicle standards does not deliver additional reductions.

They propose instead that vehicle rules account for full life cycle emissions more transparently. Under this approach, vehicles would be classified based on their total carbon footprint, with the highest categories reserved for zero emission vehicles that also use low carbon materials.

For UK suppliers, this debate is relevant. If life cycle metrics become more prominent, firms that have already reduced process emissions could gain a competitive advantage. If offsets remain optional and flexible, that advantage may be less certain.

Key points UK businesses should be aware of

• The European Commission has proposed softening the 2035 car and van target from full zero emissions to a 90 percent reduction.
• Additional flexibilities include relaxed van targets for 2030 and further use of three year averaging for compliance.
• Campaign groups estimate the change could add hundreds of millions of tonnes of CO2 from cars over coming decades.
• EU vehicle standards still influence the UK market, affecting availability, pricing, and fleet planning.
• Uncertainty over targets can slow investment across supply chains, including in low carbon materials.
• Green steel and other inputs reduce vehicle life cycle emissions, but their role as offsets is contested.

SBS Insights

From our work with SMEs, we see a consistent pattern. Businesses value clarity over flexibility. Clear rules allow planning, investment, and cost control. Repeated revisions increase risk, even when they appear to offer short term relief.

The Commission’s proposal reflects genuine industry pressures. Electric vehicle adoption has been uneven, and infrastructure gaps remain. At the same time, total cost of ownership for many electric models is approaching parity with combustion vehicles, particularly for high mileage users.

Relaxing long term targets may ease immediate concerns, but it also postpones the point at which electric vehicles become the default. That delay has consequences for fuel costs, maintenance economics, and resale values across fleets.

For UK businesses with EU exposure, it would be unwise to assume a wholesale retreat from zero emission policy. The political and legal process is still ongoing, and there remains strong support in parts of the Parliament and member states for the original ambition.

In practical terms, we advise clients to focus less on the precise wording of future targets and more on underlying trends. Electrification of road transport is continuing, and supply chains are steadily adapting. Investments in energy efficiency, charging readiness, and low carbon procurement remain relevant.

Where possible, building flexibility into fleet strategy makes sense. That includes considering vehicle lifetimes, lease structures, and the ability to respond if standards tighten again after the formal 2026 review.

Sources and official information worth following

Businesses that need to track developments should refer to primary sources and independent analysis rather than industry headlines alone.

The European Commission publishes all legislative proposals and impact assessments on its website at https://commission.europa.eu.

Transport & Environment provides detailed briefings and modelling on vehicle standards and life cycle emissions at https://www.transportenvironment.org.

For an industry perspective, ACEA’s policy papers and data on the automotive sector are available at https://www.acea.auto.

UK businesses may also want to cross check implications against domestic policy, including the UK Zero Emission Vehicle mandate, via the Department for Transport at https://www.gov.uk.

We also publish practical guidance on fleet emissions and supply chain reporting in our net zero support resources and our overview of sustainable procurement for SMEs.