The European Union is set to propose softening emissions rules for new cars, scrapping an effective ban on combustion engines following months of pressure from the automotive industry.

The proposal will allow carmakers to slow the rollout of electric vehicles in Europe, and aligns the region more closely with the U.S., where President Donald Trump is tearing up efficiency standards for cars put in place by the previous administration. Globally, automakers are struggling to make the shift profitable, with Ford Motor announcing it will take $19.5 billion in charges tied to a sweeping overhaul of its EV business.

The European stepback unveiled on December 16 follows a global pullback from green policies as economic realities of major transformations set in. Mounting trade tensions with the U.S. and China are pushing Europe to further prioritize shoring up its own industry. Although the bloc is legally bound to reach climate neutrality by 2050, governments and companies are intensifying calls for more flexibility, warning that rigid targets could jeopardize economic stability.

Under the new proposal, the European Commission will lower the requirements that would have halted sales of new gasoline and diesel-fueled cars starting in 2035, instead allowing a number of plug-in hybrids and electric vehicles with fuel-powered range extenders, according to people with knowledge of the matter. 

Tailpipe emissions will have to be reduced by 90% by the middle of the next decade compared with the current goal of a 100% reduction, said the people, who asked not to be identified because talks on the proposal are private. The commission will set a condition that carmakers need to compensate for the additional pollution by using low-carbon or renewable fuels or locally produced green steel.

The European Commission declined to comment.

The proposal was set to be adopted by EU commissioners on December 16, and will then be discussed by the European Parliament and by member states in the EU Council. Each institution has the right to propose their own amendments and the final shape of the measure will be negotiated in the so-called trilogue talks, which will involve the parliament, the council and the commission.

With automakers now gaining more time to go fully electric, environmental groups are concerned the changes create new loopholes that undermine Europe’s climate ambition and leave key car manufacturers further behind China in the race to battery-powered road transport.

China’s car market has continued its rapid electrification and foreign brands are being muscled aside in the world’s biggest car market which was once a major source of profits for Western automakers. Even in their home countries, European carmakers are facing a growing competitive threat from Chinese brands. New import tariffs thrown up by the EU offer them only limited protection. 

It has prompted intense lobbying from Stellantis NV, Mercedes-Benz Group AG and others. Germany, home to Mercedes, Volkswagen AG and BMW AG, also pushed for changes to ease political tensions and protect jobs. 

Earlier in December, six prime ministers including Italy’s Giorgia Meloni and Poland’s Donald Tusk lobbied the commission to allow plug-in hybrids, range extenders and fuel-cell technology after 2035. Germany has also fought to dilute the looming ban in a bid to protect its carmakers as they struggle with U.S. trade tariffs, stiff international competition and waning demand in Europe. 

Purchase Incentives

Sales of new battery-electric cars slowed last year after countries including Germany — the EU’s biggest market — withdrew purchase incentives. Although growth is recovering, helped in part by the return of some subsidies, the pace remains well short of what’s required to meet EU targets.

Uptake across the region remains highly uneven. Registrations of pure EVs accounted for 35% of sales in the Netherlands this year, compared with just 8% in Spain, where patchy charging options and comparatively high prices continue to put off some consumers. 

The package will also include steps to increase the uptake of small electric vehicles made in Europe, according to documents seen by Bloomberg News on December 13. Among them is a 10-year exemption for such cars from certain safety and emissions requirements, as well as incentives in the form of parking spaces and subsidies.