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The European People's Party (EPP) is intensifying its efforts to challenge the EU's impending ban on new internal combustion engine (ICE) vehicle sales, set to take effect in 2035, as well as 2025 emissions targets.

This initiative reflects growing concerns within the automotive industry about the feasibility of a rapid transition to electric vehicles and the associated regulatory burdens that could jeopardize European original equipment manufacturers' (OEMs') competitiveness.

What is the European People's Party?

The EPP, the largest political group in the European Parliament, is a coalition of various center-right political parties originally formed in 1976 as a platform for Christian democratic groups. Over the years, it has evolved into a broader coalition that includes business-friendly liberal conservatives and other center-right factions. This diverse composition has enabled the EPP to become a formidable force within the European Parliament, advocating for policies that balance economic growth with environmental sustainability.

EPP proposes flexible ICE-ban alternatives

Last week, Reuters published details of a draft EPP position paper outlining its stance on the future of the European automotive sector. The paper argues for the reversal of the legislation that bans the sale of ICE light vehicles starting in 2035, proposing instead that the law should allow sales of ICE vehicles powered by biofuels and alternative fuels.

Additionally, the EPP advocates for including plug-in hybrid vehicles in the regulatory framework, suggesting that these vehicles can ease the transition to electrification for both consumers and OEMs.

Such a policy shift would recognize the complexities of transitioning to a zero-emission vehicle market. EPP's position acknowledges the need for a balanced and pragmatic approach that takes into account OEMs' technological capabilities, consumer preferences and existing infrastructure.

EPP takes on 2025 EU emissions targets

However, the more pressing issue highlighted in EPP's position paper is the new fleet-average emissions target of 94g/km, set to take effect in 2025. OEMs exceeding this limit could face fines that, according to Luca de Meo, CEO of Renault and current president of the European Automobile Manufacturers' Association (ACEA), could total up to €15 billion.

De Meo has emphasized that these fines could add to the already high research and development (R&D) costs that manufacturers incur when developing zero-emission technologies.

De Meo's concerns point to a broader issue: the lack of adequate market conditions to support such a rapid transition. He argues that without the necessary infrastructure, stable incentive schemes and competitive energy pricing, the automotive industry may struggle to meet the EU's ambitious targets.

Political goals vs. industry realities

The EPP's efforts to challenge the ICE ban signal growing political momentum to reconsider the EU's automotive policies, even though the European Parliament only approved the ban in February 2023.

The EPP's proposal to postpone the 2025 emissions target until 2027 may offer OEMs some immediate relief. But enacting this delay poses significant legislative challenges, especially with the new regulations just three weeks away from taking effect.

EU Commissioner for Climate Action Wopke Hoekstra has expressed confidence in the current climate rules, asserting that they provide a predictable investment environment. And many companies say they are on track to meet the established targets. However, the EPP's pushback against the ICE ban and its call for regulatory changes indicate a significant divide between political goals and industry realities.

Automotive industry views on CO2 reduction targets differ

Industry views about the 2025 CO2 standard differ widely. For example, the CEO of BMW Group, Oliver Zipse, told Automotive News Europe this week that he sees no reason for a delay: "We have known the targets for 2025 since 2019. We have aligned our model policy accordingly and further increased the efficiency of the powertrains. CO2 reduction is not just about electromobility."

Separately, one reason for Carlos Tavares' recent ousting as Stellantis CEO appears to be disagreements over electrification strategy and the new CO2 standard, especially with the company's dealers. Tavares had opposed ACEA's call for short-term relief from the targets—even going as far as removing Stellantis from the industry body in 2023 to pursue an independent lobbying strategy.

Almost as soon as Stellantis announced Tavares' departure, it opted to rejoin the body, and the company's dealer group supports the ACEA proposal to back a delay. In addition, the ACEA's incoming president, Mercedes-Benz Group CEO Ola Källenius, has pledged to continue the group's lobbying efforts to relieve OEM's legislative burden.

Gradual transition key to balancing objectives

The EPP's challenge to the ICE ban reflects broader tensions within the EU about environmental policy and economic viability. As the automotive industry grapples with the dual pressures of stringent emissions regulations and the demand for technological innovation, the EPP's stance highlights the need for a more nuanced approach to climate legislation.

Although the goal of achieving a zero-emission fleet is commendable, the existing infrastructure and market conditions may not yet support such an abrupt shift. The EPP's proposals could serve as a bridge, allowing for a more gradual transition that aligns with technological advancements and consumer readiness.

Moreover, the financial implications of the 2025 emissions targets cannot be overstated. The potential fines for noncompliance could stifle innovation and investment in green technologies as OEMs divert resources to meet regulatory demands rather than develop new solutions. The EPP's push to protect manufacturers from these penalties could foster a more conducive environment for R&D, benefiting the industry and the environment in the long run.

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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.