Car Sales Suggest CO₂ Emissions Penalty Suspension Hinder Auto Innovation in Europe 

The European Parliament has recently voted to amend the system of penalties for excess CO2 emissions from cars in Europe set for 2025.   

The emission target level set for this year is an important intermediate step toward the 100% emission reduction goal for both cars and vans from 2035 onward.  

Before the vote, the law established that, from 2025, carmakers exceeding CO2 limits would face a fine of €95 for each gram per kilometer (g/km) over the limit, multiplied by the number of cars sold that year. For example, if a car manufacturer missed the target by 5 g/km and sold 100,000 cars in 2025, it would have had to pay a fine of €47.5 million.  

Carmakers viewed these penalties as added pressure during a period of economic uncertainty, amidst the increase in the cost of raw materials and energy, and the economic shifts that could follow measures taken by the US administration. They openly asked EU regulators to ease the fines, projecting a worrying scenario of non-compliance based on past electric vehicle sales figures (particularly 2024). 

The amendment was ultimately approved by most EU political groups as necessary to support the European automotive industry. The amendment “dilutes” the CO2 limits foreseen for 2025 over the three-year period 2025-2027 – postponing any fines until after 2027. This means that the emission reduction targets for 2025 and 2026 have de facto been annulled. 

But was the risk of unsustainable fines truly critical for automakers? Is this amendment genuinely supporting the European auto sector, or will it instead hinder its long-term innovation and competitiveness? 

Historically, the automotive industry has demonstrated a notable capacity for adapting to emission obligations as their implementation dates draw nearer.  

Carmakers often prioritized maximizing returns on investment by focusing on selling cars with higher profit margins until regulatory changes became mandatory.  

As carmakers generate higher profits from selling vehicles with internal combustion engines compared to electric models, in 2024, they had limited interest in introducing electric models, as the emission reduction targets for 2025 were to be calculated based on 2025 annual sales.  

As a matter of fact, in the first months of 2025, battery electric cars sales in Europe increased by 45% compared to the same period in 2024. Notably, the Volkswagen Group experienced 128% growth, and the Renault Group 60%.  

This highlights the diverse compliance landscape among European automakers, which is less uniform than often portrayed.  

Some, like Volvo, already meet the 2025 targets, while others, such as Stellantis and Renault, launched new small and affordable electric vehicles to achieve compliance by year-end. Up until March 2025, battery-electric vehicles accounted for 15.2% of total EU market share, signifying an increase from the low baseline of 12% in Q1 2024.  

This surge in sales directly refutes the argument that the market was unprepared for the 2025 targets. Instead, this scenario suggests that the impact of fines in 2025 would have been varied among automakers and less significant than projected based on 2024 sales figures. 

The postponement of the 2025 CO2 target is therefore problematic as it overlooks the well-established incentive effect that new regulations and penalties typically have on driving automotive innovation and competition.  

By changing the rules before the actual impact of the 2025 penalties could be assessed, the European Parliament has undermined the very mechanism the EU had in place to foster innovation and competitiveness within the EU auto industry. 

Studies and experience show that postponing CO2 sanctions risks now trigger extremely serious consequences without any real benefit for manufacturers, citizens, or European workers.  

A primary effect is the distortion of the sector’s current competitive dynamics. The amendment encourages a general slowdown in the sales of innovative vehicles, penalizing the most advanced European manufacturers and thereby weakening the EU's competitiveness both within Europe and in the global market. 

 Surprisingly, this provision, intended to favor European carmakers, lacks conditions regarding commitments to maintaining employment levels and making investments in innovation to bridge the gap in green technologies and competitiveness with Asian competitors.  

Another effect is the erosion of consumer confidence in the transition to zero-emission mobility, potentially influencing purchasing decisions and creating uncertainty for potential buyers, further hindering the electric vehicle market and the reduction of climate-altering emissions. 

More fundamentally, this mid-game change of rules carries a significant risk of damaging the credibility of the EU’s green policy agenda.  

Citizens and businesses that have embraced the Green Deal and made corresponding purchasing and investment decisions have valid reasons to feel betrayed by the top-down "stop-and-go" behavior of car manufacturers in conjunction with the EU.  

This reinforces the perception of a fragile European democracy, vulnerable to partisan and narrow economic interests. 

A first version of this article was published in the Italian Lavoce.info.