France, Germany strike deal on car emissions and UK special status

On Friday, France and Germany reached an agreement to ease upcoming EU car emissions regulations and pave the way for Britain to be considered a trusted partner under the bloc's Made in EU rules. The European Commission had previously proposed that automakers reduce CO2 emissions by 90% from 2021 levels by 2035, with the remaining 10% to be offset through measures like low-carbon steel and alternative fuels.

Under the new Franco-German plan, the 2035 target would remain at 90%, but without the need for additional compensatory measures.

The deal, broadly in line with German automakers' wishes, includes the 90% target but eliminates the requirement for extra measures to compensate for the remaining 10% of emissions. This approach aligns with the desires of German car manufacturers. European automotive stocks increased after the announcement, with the STOXX 600 Automobile and Parts Index rising nearly 2%.

The joint plan also addresses an EU proposal that would require products procured through public auction, procurement, or subsidy schemes to meet local-content and low-carbon criteria. France has advocated for these products to consist solely of those manufactured within the EU. However, other EU members, including Germany, argue that countries with strong ties to the EU's automotive supply chain and free-trade agreements should also be included.

According to the Franco-German plan, this would encompass Britain, which left the EU's single market at the end of 2020.

British Prime Minister Andrea Burnham's official at Downing Street stated that inclusion in the Made in EU scheme would be beneficial for Britain's automotive sector. However, they emphasized that the Franco-German proposal would require broader European support and that details remained to be determined. The plan also proposes that inclusion should be contingent upon full reciprocity, along with dynamic alignment with EU conditions for investment from third countries and EU trade protection measures.

This could require Britain to adopt measures similar to those the EU has implemented to restrict the import of Chinese-built hybrid and battery-electric vehicles.

The Franco-German paper also suggested that CO2 emission targets would have overlapping compliance periods, the utility factor for hybrid vehicles would not be revised before 2030, and cars powered by renewable and low-carbon fuels would be recognized as zero-emission vehicles. German Chancellor Friedrich Merz called the agreement "a good day for motorists and for jobs in Germany, France, and Europe."

However, not all automakers welcomed the deal. Toyota's European division expressed support for incorporating trusted partners like Britain, Canada, Japan, South Korea, and Turkey, arguing that it would help the EU compete with China. Turkey's trade minister also mentioned that trusted partners like Turkey should not be excluded.

Green and environmental groups criticized the proposed emissions regulations. German Greens lawmaker Swantje Michaelsen accused the German government of holding back the automotive industry, noting that high fuel prices were already boosting demand for electric vehicles (EVs). Anna Krajinska of transport and environment campaign group T&E called the deal a "historic mistake" that would diminish the incentive for industry investment in EVs.

Both France and Germany must secure the approval of other EU members and the European Parliament before their plans can take effect, and a finalized common text is unlikely to be reached before early next year, following an EU-UK summit scheduled for November 20.