New CO₂ Emission Standards for Cars and Vans in the EU

On January 1, 2025, the new emission targets set out by Regulation (EU) 2023/851 of April 19, 2023 and Regulation (EU) 2019/631 of April 17, 2019 for passenger cars and light commercial vehicles will enter into force in the EU. These Corporate Average Fuel Economy ("CAFE") regulations provide for CO₂ emissions performance standards for new vehicles. The purpose is to have the transportation sector participating in Europe's target of reducing its greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and achieve climate neutrality by 2050. 

The CO₂ emissions standards apply to new passenger cars (category M1) and new vans (category N1) that are registered in the EU for the first time and have not previously been registered outside the EU. The regulation sets an EU fleet-wide target of 95 g CO₂/km for the average emissions of new passenger cars and EU fleet-wide target of 147 g CO₂/km for new vans, starting in 2025, pursuant to Commission Implementing Decision (EU) 2023/1623 of August 3, 2023. Starting in 2035, the target will be 0 g CO₂/km, which represents a 100% reduction in CO₂emissions for the EU fleet as a whole, as new thermic cars will no longer be allowed on the EU market.

Specific annual emission targets for each vehicle manufacturer are set by the European Commission on a yearly basis. If a manufacturer's fleet exceeds its specific CO₂ emissions target in a given year, the manufacturer must pay an excess emissions penalty of EUR 95 per g/km for each new vehicle registered during that year, which can quickly add up to very significant fines for noncompliant manufacturers. In order to meet these targets, a manufacturer should sell 25% of electric vehicles, a percentage well above the current trends on the European market. 

The CAFE regulation provides for incentives and contractual mechanisms to help manufacturers meet their specific emissions targets: 

• "Super-credits." The mechanism for zero and low-emission vehicles ("ZLEV") enables manufacturers to earn credits when the proportion of new ZLEV they register in a given year exceeds benchmarks equal to 25% for new passenger cars and 17% for new vans.
• "Eco-innovations." To encourage the development of new and advanced CO₂emissions-reducing technologies, manufacturers can obtain emission credits for cars and vans equipped with innovative technologies. 
• "Pooling." Manufacturers may form a pool with other manufacturers on an open, transparent, and nondiscriminatory basis in order to combine their emissions targets. A pooling agreement may only be between manufacturers of the same vehicle category (N1 or M1).

Pooling agreements must navigate a thin line between sharing information to comply with the CAFE regulations and avoiding antitrust pitfalls to comply with competition laws. Another issue relates to CAFE credits, created de facto by the pooling and sharing arrangements. Such credits are not defined by the regulation and cannot be shared outside a pooling agreement between vehicle manufacturers. However, the question of the legal nature of car emission credits may arise in the future, as it did in the past regarding CO₂allowances under the Emission Trading Scheme. Experienced counsel can assist manufacturers in navigating these CAFE regulations and associated pooling agreements.

Emma Rakotobe, a legal researcher in the Paris Office, contributed to this article.

Read the full Climate Report.