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Brussels has introduced new flexibilities to allow carmakers to hit 2030 carbon emission targets, as it scrapped its landmark 2035 ban on combustion engines.
The changes mark a significant retreat for Europe's green ambitions and follow a reversal of climate policy in the US that will lead to more hybrid and petrol vehicles being on roads for longer.
Tuesday's announcements followed heavy lobbying from EU car manufacturers and countries, including Germany and Italy, which warned of further massive lay-offs and plant closures without an easing of climate targets.
The European Commission said on Tuesday that it would soften the path for car manufacturers to meet targets in 2030, which require them to cut emissions by 55 per cent compared with 2021 levels, by allowing them to average out their reductions between 2030 and 2032.
It also watered down rules that required carmakers to hit zero tailpipe emissions by 2035, a flagship part of the bloc's ambitious Green Deal climate law. Instead, manufacturers will be allowed 10 per cent of their 2021 emission levels as long as they make cars using green steel or vehicles that run on renewable fuels.
A further element of the rules are national electrification targets for corporate fleets by 2035. Corporate cars will have to contain a certain level of EU-made components to count towards the targets.
EU executive vice-president Stéphane Séjourné insisted the bloc had "not abandoned any of our decarbonisation goals" but had shown "pragmatism in the light of the economic and geopolitical circumstances".
Carmakers had argued that addressing the 2030 targets was "urgent" as they try to fight off competition from cheap Chinese vehicles, US tariffs and high energy prices.
"What we, and Europe, need is solutions that work for society and the economy. That means: actual technology openness, but as importantly, and actually very urgent, breathing space towards 2030: flexibilities to ease compliance pressure given the lack of demand and infrastructure," said Sigrid de Vries, director-general of Acea, the European car industry body.
Some car executives said changes to 2030 targets were as critical as the 2035 ban because it would require a sharp uptake of EVs to hit them.
Massimiliano Messina, head of Nissan's European operations, said in an interview with the Financial Times that he did not expect a slowdown in EV sales as a result of the policy changes.
"If the purpose [of this revision] is to make sure that the transition happens in a balanced way without creating any impact on the final customer, I think this would be welcome," he added.
Volkswagen described the changes as "economically sound" but called for even further flexibility in the 2030 targets.
Environmental groups condemned the changes.
William Todts, executive director at the campaign group Transport & Environment, said: "The EU is playing for time when the next game has already started. Every euro diverted into plug-in hybrids is a euro not spent on EVs while China races further ahead."
Discussions between commission officials continued overnight on Monday to decide how much flexibility carmakers should be allowed in the final 10 per cent of emissions in 2035.
Conservative politicians successfully pushed for full combustion engines to still be allowed, alongside so-called "mild hybrids", which have a small electric motor and battery alongside a traditional engine. Liberal and socialist governments argued for only plug-in hybrids and range extenders, which combine a small fuel cell with an electric battery, to be allowed.
"There is blood all over the floor of the Berlaymont," said one senior EU official, referring to the commission's building.
Countries such as Sweden and Spain had argued that weakening the combustion engine ban would send the wrong signal to manufacturers and create uncertainty in the market. But eastern European countries along with Germany and Italy lobbied hard for the ban to be weakened.
EU climate commissioner Wopke Hoekstra insisted the "big bet . . . will continue to be electric".
The commission has also decided to lower the emissions reduction target for vans to 40 per cent in 2030, down from 50 per cent, "because the demand is simply not there", one official said.
Additional reporting by Barbara Moens in Brussels and Sebastien Ash in Frankfurt