The future of new cars in Europe may leave more room for different powertrain options than previously expected. A proposed revision to vehicle emissions targets would reduce the required CO₂ cut for new cars by 2035 and allow manufacturers to receive additional credit for using climate-friendly steel produced in Europe.

The changes could leave room for some new combustion-engine and hybrid vehicles to continue entering the market beyond 2035. The proposal forms part of a wider effort to adjust the automotive industry's transition to lower-emission transport.

How the Proposed 2035 Target Would Work

The proposed approach would require manufacturers to reduce the CO₂ emissions of their new cars by 95% by 2035, using 2021 as the reference year. This is less demanding than a 100% reduction target. Manufacturers could receive an additional reduction credit of up to 7.5 percentage points by using climate-friendly steel produced in Europe in their vehicles. When this credit is included, the required emissions reduction could fall to 87.5% compared with the 2021 baseline.

This difference is important because the target is based on the average emissions of a manufacturer's new-vehicle fleet. It does not mean that every individual vehicle must meet the same emissions figure. The proposed flexibility could therefore allow manufacturers to continue offering a wider mix of powertrains, including combustion-engine and hybrid models, after 2035.

Why Climate-Friendly Steel Matters

One notable feature of the proposal is the role of steel production in meeting vehicle emissions targets. Instead of focusing only on the emissions produced when vehicles are driven, the approach also recognises the materials used to manufacture them. Climate-friendly steel produced in Europe could provide manufacturers with credits that count towards their required CO₂ reductions. The maximum allowance discussed in the proposal is 7.5 percentage points.

This creates another way for vehicle manufacturers to contribute to emissions reduction. It also connects automotive production with efforts to lower the environmental impact of industrial materials. However, the proposed credit does not mean that manufacturers can ignore their vehicle emissions targets. It is a specific allowance within the wider calculation, and its value depends on the conditions set out in the final rules.

How the Proposal Differs From the Earlier Plan

An earlier version of the automotive package proposed a 90% reduction in new-car fleet CO₂ emissions by 2035 compared with 2021. This would correspond to average fleet emissions of approximately 11 grams of CO₂ per kilometre, rather than zero. That approach also included compensation for the remaining 10% through measures involving green steel and climate-friendly fuels. The intention was to account for emissions that would still remain under the revised target.

The newer compromise takes a different approach to compensation. Although it includes climate-friendly steel as a possible credit, it does not require manufacturers to compensate fully for the remaining emissions up to the original 100% reduction level. The distinction is significant. It changes not only the percentage reduction expected from manufacturers but also how much flexibility they may have when deciding which vehicle technologies to offer.

What It Could Mean for Car Manufacturers

For manufacturers, the proposed changes could provide additional flexibility when planning future vehicle ranges. Companies would have more room to consider different powertrain options while working towards the required fleet emissions reductions. Combustion-engine and hybrid vehicles could remain part of the new-car market beyond 2035 under the proposed approach. At the same time, manufacturers would still need to reduce average emissions substantially compared with the 2021 reference level.

The option to use climate-friendly steel could also influence material sourcing and production planning. Manufacturers would need to consider how the credit system works alongside their existing vehicle development and manufacturing strategies. The proposal does not establish that every manufacturer will continue producing the same types of vehicles. Individual decisions will depend on their product ranges, technology choices, and ability to meet the applicable requirements.

Why the Final Rules Still Matter

The figures described in the proposal should not be treated as settled requirements. The wider package still needs to complete the relevant approval process, and its details may change before becoming final. This means manufacturers cannot rely on the proposed targets as guaranteed long-term rules. The final version will determine how the emissions calculations, material credits, and conditions for different vehicle technologies are applied.

The proposed changes would give Europe's automotive industry more flexibility in meeting its 2035 CO₂ targets. A 95% reduction requirement, potentially lowered to 87.5% through credits for climate-friendly European steel, could leave room for combustion-engine and hybrid vehicle registrations beyond that date.

The broader direction remains focused on reducing vehicle emissions, but the proposed approach offers manufacturers more than one way to work towards the target. Its eventual impact will depend on the final requirements and how companies adapt their vehicle ranges and production methods.