EU lawmakers' decision on 2035 car emissions targets and its impact
European lawmakers have agreed in principle to relax the bloc's 2035 car emissions rules. The move would reduce the direct tailpipe reduction required from manufacturers and introduce credits for using low-carbon steel made in the EU. For UK businesses that operate across European markets, export to the continent, or source vehicles from European manufacturers, the change could reshape product availability, fleet costs and supply chain planning over the next decade.
The compromise emerged from talks between three major political groups in the European Parliament. It marks a further step back from the EU's original plan to ban new combustion-engine cars entirely from 2035. While the deal is not yet law, it signals a clear shift in how Brussels intends to balance climate targets with industrial and political pressures. UK companies with European operations or procurement links need to understand what might change and when.
What the parliamentary groups have agreed
Representatives from the European People's Party, the Socialists and Democrats, and the Renew group reached a provisional text. Under their proposal, carmakers would need to cut average emissions from new cars by 87.5% compared with 2021 levels. The remaining 7.5% could be met through the use of low-carbon steel produced within the EU, according to reporting by Reuters.
This differs from the European Commission's December 2025 proposal, which called for a 90% direct reduction in tailpipe emissions. The Commission's version would have allowed the final 10% to be offset using low-carbon steel, e-fuels or biofuels. The parliamentary compromise narrows that flexibility but also reduces the direct emissions cut required.
The agreement would also set an 80% reduction target for new vans in 2035. These figures are provisional. The three groups must formally endorse the text before it moves through committee scrutiny and a plenary vote. After that, negotiations begin with EU member states and the Commission. Final adoption could take months.
The original framework, set out in Regulation (EU) 2023/851, required a 100% reduction in fleet-wide CO₂ emissions from 2035. That effectively meant zero tailpipe emissions for all newly registered cars and vans. It did not ban older combustion vehicles from the road, but it would have stopped new petrol and diesel models entering the market after that date.
How the EU reached this point
The 100% target was part of the Fit for 55 package, the EU's legislative programme to cut net greenhouse gas emissions by at least 55% by 2030. Transport accounts for a significant share of European emissions. Cars and vans represent the largest segment within that total. Consequently, the Commission designed the 2035 rule to accelerate electrification and provide manufacturers with a clear deadline.
Intermediate targets remain in force. Between 2025 and 2029, the fleet-wide average must not exceed 93.6 grams of CO₂ per kilometre for new cars. From 2030 to 2034, that figure drops to 49.5 grams per kilometre, according to the European Commission's published standards. These thresholds push manufacturers toward electric and plug-in hybrid models well before 2035.
However, pressure grew from industry and several member states. Germany and France, both home to major car producers, argued that strict rules threatened competitiveness, jobs and consumer choice. Weak demand for battery-electric vehicles in some markets, high production costs and competition from Chinese manufacturers added to the concerns. In response, the Commission proposed its first softening of the framework in December 2025.
That proposal replaced the 100% requirement with a 90% tailpipe reduction. The remaining 10% could be compensated through low-carbon steel, e-fuels or biofuels. Brussels described this as preserving the overall direction while introducing technological flexibility. It would have allowed plug-in hybrids, range extenders and possibly some mild hybrids to remain in showrooms after 2035 alongside fully electric models.
The Commission had already introduced compliance flexibility for the 2025 to 2027 period. In June 2025, the EU adopted rules permitting manufacturers to average their performance over three years rather than meeting the target in each individual year. This gave companies breathing room during the early phase of the transition.
Practical consequences for fleet operators and exporters
If the compromise becomes law, manufacturers would gain additional room to sell vehicles with some level of tailpipe emissions after 2035. The 87.5% direct reduction still requires a substantial proportion of zero-emission sales. Nevertheless, the 7.5% credit for low-carbon steel could allow a modest number of hybrids or efficient combustion models to qualify, depending on how the final rules define compliance.
For UK businesses that run European fleets, this could mean continued access to a wider range of powertrains. Fleet managers would retain more choice when replacing vehicles, particularly for roles where charging infrastructure remains limited or operational patterns do not suit battery-electric models. However, the availability of qualifying vehicles will depend on manufacturers' decisions about which models to certify and sell.
Exporters and businesses with cross-border supply chains should note that the UK is not bound by EU vehicle emissions rules. Britain sets its own standards. The UK government has announced a phase-out date of 2035 for new petrol and diesel cars, aligning with the EU's original timeline. If Brussels softens its approach while Westminster holds firm, UK and EU vehicle markets could diverge. That might affect model availability, pricing and the second-hand market for vehicles moving between the two regions.
Procurement teams that source commercial vehicles from European manufacturers may see changes in product lineups. If carmakers prioritize the EU market and design vehicles to meet the 87.5% threshold with steel credits, those same models might not automatically comply with UK rules unless they also meet our domestic requirements. Clarity on both frameworks will matter for long-term fleet planning.
Steel credits and industrial policy
The proposal links vehicle emissions compliance to European steelmaking. Low-carbon steel refers to material produced with substantially lower lifecycle emissions than conventional blast-furnace methods. Technologies include electric arc furnaces using recycled scrap, direct reduced iron using hydrogen, and carbon capture at traditional plants. Production remains limited and costs are higher than standard steel.
By crediting the use of such steel, the EU aims to create demand and support investment in cleaner manufacturing. This ties automotive regulation to broader industrial decarbonization. For manufacturers, the benefit depends on supply availability, cost premiums and how credits are calculated. Details such as certification, lifecycle assessment boundaries and the amount of steel required per vehicle will determine whether the mechanism delivers meaningful emissions reductions or simply provides compliance headroom.
UK businesses that supply components or materials into European automotive supply chains should watch how the steel-credit system develops. If demand for low-carbon steel rises in Europe, it could affect material costs and sourcing strategies. Conversely, if the credit mechanism proves administratively complex or expensive, manufacturers might prefer to meet the target through vehicle electrification instead.
What this means for electric vehicle adoption
The compromise does not reverse the EU's electrification push. An 87.5% fleet-wide reduction still requires high volumes of zero-emission vehicles. Battery-electric cars typically generate no tailpipe CO₂, so they will remain the most straightforward route to compliance. Plug-in hybrids and mild hybrids produce lower emissions than conventional models, but most still emit enough CO₂ to make a 100% electric fleet the simpler option for carmakers aiming to meet the target.
Therefore, manufacturers will continue to invest heavily in electric models, battery supply and charging partnerships. The difference lies in the margin for flexibility. Allowing some combustion or hybrid vehicles after 2035 could slow the pace at which manufacturers phase out non-electric powertrains. It might also reduce the urgency for infrastructure investment if the transition timeline becomes less absolute.
For UK businesses considering fleet electrification, the EU's direction remains clear. Electric vehicles will dominate new sales. Nevertheless, the possibility of continued hybrid availability in Europe could influence residual values, leasing costs and the second-hand market. If hybrids remain common on the continent but are restricted in the UK, cross-border fleet management becomes more complicated.
Open questions on implementation
The agreement's impact depends on details not yet finalized. Key questions include how low-carbon steel will be certified, what lifecycle emissions threshold qualifies as "low-carbon," and how much steel must be used per vehicle to earn credits. The methodology for calculating the 7.5% offset will determine whether the mechanism is generous or tight.
Similarly, the definition of compliance at manufacturer level matters. Will the 87.5% reduction apply to each carmaker's entire fleet, or will pooling arrangements allow companies to share credits? Will there be banking or borrowing provisions that let manufacturers carry performance forward or backward across years? These technical details shape how much flexibility the rule provides in practice.
Another issue is enforcement. The EU's existing framework includes financial penalties for non-compliance, calculated per gram of CO₂ over the target multiplied by the number of vehicles sold. If the threshold changes, penalty structures might also change. Businesses that lease or purchase vehicles from European manufacturers need to understand whether compliance risk could affect pricing or availability.
Timeline and next steps
The parliamentary groups must first formally approve the compromise text. After that, the Environment Committee and other relevant committees will review the proposal. A plenary vote in the full Parliament follows. If the Parliament adopts the text, it enters trilogue negotiations with the Council of the EU and the Commission. Member states must also agree their own position.
Germany and France reportedly agreed shortly before the parliamentary deal to support a 90% reduction for cars without a compensatory mechanism, according to Reuters. That differs from the parliamentary compromise, so further negotiation is likely. The final regulation could land anywhere between the original 100% target, the Commission's 90% proposal, and the Parliament's 87.5% position.
Adoption could take several months. Even after agreement, manufacturers need time to adjust product plans, and the Commission must publish implementing regulations covering certification and credit calculation. Businesses should not assume the compromise represents the final outcome. Monitoring the trilogue process will be important for anyone planning fleet replacements or supply chain investments beyond 2030.
Core points to remember
- European parliamentary groups have agreed a provisional compromise requiring an 87.5% direct emissions reduction for new cars from 2035, with 7.5% credited through low-carbon EU steel.
- The proposal softens the existing 100% reduction target, which effectively banned new combustion-engine cars from 2035, and goes further than the Commission's 90% proposal from December 2025.
- New vans would face an 80% reduction target under the reported agreement, providing additional flexibility compared with the current framework.
- The deal is not yet law and must pass through formal parliamentary approval, committee scrutiny and negotiations with EU member states and the Commission before adoption.
- UK businesses are not bound by EU rules, but the changes could affect vehicle availability, fleet costs and cross-border procurement for companies operating in European markets.
- Low-carbon steel credits link automotive compliance to industrial decarbonization, though the mechanism's effectiveness depends on certification rules, supply availability and lifecycle emissions thresholds not yet defined.
- Electric vehicles will still dominate new sales under any version of the revised rules, but the compromise could preserve limited market access for hybrids and efficient combustion models after 2035.
Planning for regulatory uncertainty
Businesses should treat the parliamentary compromise as an indication of direction rather than settled policy. Fleet replacement cycles often span five to ten years. Decisions made today about vehicle procurement, charging infrastructure or supply chain partnerships need to account for multiple possible regulatory outcomes in both the EU and the UK.
Companies with European operations might consider scenario planning. What happens if the UK maintains a 2035 combustion ban while the EU adopts the 87.5% threshold? How would that affect cross-border fleet management, residual values and compliance costs? Conversely, what if the UK follows the EU and introduces flexibility? Preparing for either outcome reduces risk.
For businesses tendering for public sector contracts, carbon reporting and net-zero commitments increasingly influence award decisions. Fleet emissions form part of Scope 1 and Scope 3 calculations depending on ownership and operational control. Changes to vehicle emissions rules in the EU could affect the carbon intensity of goods transported across Europe, which in turn flows through to supply chain emissions. Understanding how regulatory shifts might alter your reported emissions helps with tender preparation and client commitments.
Manufacturers and component suppliers with customers in Europe should engage with the consultation process if they have the opportunity. The Commission, Parliament and Council often seek industry input during negotiations. Providing evidence-based views on compliance costs, technical feasibility and supply chain impacts can inform final decisions. Trade associations and industry bodies typically coordinate responses, making collective engagement more effective than individual submissions.
Where to find authoritative updates
The European Commission's climate action pages publish current and proposed standards for cars and vans, including compliance data and policy updates. This is the primary source for tracking changes to the regulation as negotiations progress.
The European Parliament press office releases statements following committee votes and plenary sessions. These provide official confirmation of parliamentary positions and timelines. For legislative text and procedural status, the Parliament's legislative observatory tracks each file through the co-decision process.
UK businesses should also monitor the Department for Transport for any policy response or alignment decisions. While the UK sets its own vehicle standards, government statements on the phase-out timeline and compliance frameworks will clarify how British rules might evolve in light of EU changes. The Society of Motor Manufacturers and Traders also publishes regular briefings on regulatory developments affecting the UK automotive sector.
Staying informed requires checking multiple sources as the legislative process unfolds. The provisional agreement is a political milestone, not a legal endpoint. How the final rules emerge from negotiation will determine the practical impact on fleet costs, vehicle choice and supply chain planning for businesses on both sides of the Channel.