EU to Abandon Combustion Engine Ban in Win For Carmakers

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(Bloomberg) — The European Union is set to propose softening emissions rules for new cars, scrapping an effective ban on combustion engines following months of pressure from the automotive industry.

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The European Commission will lower the requirements that would have halted sales of new gasoline and diesel-fueled cars starting in 2035, instead allowing a number of plug-in hybrids and electric vehicles with fuel-powered range extenders, according to people with knowledge of the matter. 

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Under the new proposal, tailpipe emissions will have to be reduced by 90% by the middle of the next decade compared with the current goal of a 100% reduction, said the people, who asked not to be identified because talks on the proposal are private. The commission will set a condition that carmakers need to compensate for the additional pollution by using low-carbon or renewable fuels or locally produced green steel.

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The stepback — to be unveiled Tuesday — follows intense lobbying from Stellantis NV, Mercedes-Benz Group AG and others. Germany, home to Mercedes, Volkswagen AG and BMW AG, also pushed for changes to ease political tensions and protect jobs. At the same time, the China-US trade war is sending more automakers into Europe as they face overcapacity and price pressures at home.

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The proposal is set to be adopted by EU commissioners on Tuesday and will then be discussed by the European Parliament and by member states in the EU Council. Each institution has the right to propose their own amendments and the final shape of the measure will be negotiated in the so-called trilogue talks, which will involve the parliament, the council and the commission.

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The European Commission declined to comment on the proposals.

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Sales of new battery-electric cars slowed last year after countries including Germany — the EU’s biggest market — withdrew purchase incentives. Although growth is recovering, helped in part by the return of some subsidies, the pace remains well short of what’s required to meet EU targets.

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Uptake across the region remains highly uneven. Registrations of pure EVs accounted for 35% of sales in the Netherlands this year, compared with just 8% in Spain, where patchy charging options and comparatively high prices continue to put off some consumers.

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With automakers now gaining more time to go fully electric, environmental groups are concerned the changes create new loopholes that undermine Europe’s climate ambition and leave key car manufacturers further behind China in the race to battery-powered road transport.

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Italy, Germany

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Earlier this month, six prime ministers including Italy’s Giorgia Meloni and Poland’s Donald Tusk lobbied the commission to allow plug-in hybrids, range extenders and fuel-cell technology after 2035. Germany has also fought to dilute the looming ban in a bid to protect its carmakers as they struggle with US trade tariffs, stiff international competition and waning demand in Europe. 

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Meanwhile, the continent’s high energy and labor costs are forcing auto companies to cut jobs and shift investments elsewhere.

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The package will also include steps to increase the uptake of small electric vehicles made in Europe, according to documents seen by Bloomberg News on Saturday. Among them is a 10-year exemption for such cars from certain safety and emissions requirements, as well as incentives in the form of parking spaces and subsidies.

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