France and Germany reach agreement on the future of the automotive industry

France and Germany reached an agreement on Thursday regarding the future of the automotive industry, including easing European Union regulations on harmful gas emissions for automobiles. Diplomatic sources confirmed that both countries supported relaxing EU rules on emissions as part of the negotiated deal. The agreement also includes provisions to incorporate Britain into the definition of vehicles classified as "produced in Europe," as outlined in a draft document detailing the pact. The two major European economic powers had long been at odds over the direction Europe should take in reviving its struggling automotive sector. This agreement is expected to influence the continent’s policies moving forward. Germany sought less stringent carbon dioxide reduction targets for car manufacturers and a broader interpretation of "produced in Europe" that would include key non-EU trade partners. In contrast, France advocated for preserving the bloc's environmental goals and keeping the "produced in Europe" public procurement system exclusively within EU member states. According to the draft, Berlin prevailed in the first dispute, while Paris secured victory in the second. The agreement is provisional until Berlin formally approves it, according to diplomats. Previously, the European Commission had proposed lifting the ban on selling new gasoline and diesel vehicles in the EU by 2035 in favor of requiring manufacturers to reduce emissions from new vehicle exhaust systems by 90 percent. The remaining 10 percent would have needed compensation through various credits, such as using low-carbon steel. The Franco-German agreement eliminates this requirement, stating that manufacturers would not need to compensate for the remaining emissions. It also opens the door for vehicles powered by renewable fuels to be classified as zero-emission vehicles, significantly easing manufacturers' efforts to meet CO2 reduction targets. So-called "super-credits," which the Commission proposed for small, "affordable" electric vehicles, have been extended to all vehicles, "regardless of their size or length." The agreement on the "produced in Europe" label limits its application to vehicles in the 27 EU member states, with the possibility of selectively including a few other countries, primarily Britain and Norway, under certain conditions. The agreement between France and Germany outlines a pathway for reducing carbon emissions with regulatory flexibility and incentives for investment, research, production, and resilient supply chains. Both countries stated their shared ambition is to successfully transform the automotive industry while maintaining climate goals and ensuring that future cars are produced in Europe. The European Commission had previously proposed scrapping the EU-wide ban on new internal combustion engine vehicles by 2035 in favor of requiring manufacturers to reduce emissions from new vehicle exhausts by 90 percent. The remaining 10 percent would have required compensation via various credits, including the use of low-carbon steel. The Franco-German agreement cancels this requirement, stating that manufacturers would not need to compensate for the remaining emissions. It also allows vehicles powered by renewable fuels to be considered zero-emission vehicles, making it much easier for manufacturers to achieve their CO2 reduction goals. The so-called "super-credits," which the Commission proposed for small, "affordable" electric vehicles, have been expanded to apply to all vehicles, "regardless of their size or length." The agreement on the "produced in Europe" label restricts its use to vehicles in the 27 EU member states, with the potential selective inclusion of several other countries, mainly Britain and Norway, under specific conditions. France and Germany have agreed to combine two major projects in European automotive policy. The provisions of the Industrial Acceleration Act (IAA), intended for the industry, will be included in the automotive package. The IAA aims to regulate the "Made in Europe" standards for the industry. Elements of this combined package must be adopted "as soon as possible and simultaneously," according to the document. Currently, the European Parliament and the Council of the EU are discussing both the regulation on CO2 for the vehicle fleet, known as the automotive package, and the international automotive show (IAA). The European Commission has already submitted drafts of legislation for both. Now, with the agreement between the two largest EU countries, there is a clear direction, although it still needs approval from the Parliament and the Council. The French and German governments have been negotiating since summer. The compromise essentially works like this: France will support the expansion of the "Made in Europe" label to include Britain and other countries under certain conditions, while Germany will push for less strict carbon emission targets for car manufacturers.