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Climate Change

EU Green Deal seeks to force shift to electric vehicles in 2035

Ambitious emissions plan also targets steel and cement with carbon border tax

A charging station in Ruesselsheim, Germany: A European Union proposal would in effect ban the sale of new gasoline and diesel cars in 2035.   © Reuters

BRUSSELS/FRANKFURT -- Automakers from East Asia to Southeast Asia to North America are watching as the European Union seeks a de facto ban on sales of all new vehicles with internal combustion engines, including hybrids, by 2035, under a sweeping plan to slash greenhouse gas emissions.

The European Commission's European Green Deal also calls for a carbon border adjustment mechanism -- a tariff on products such as steel and cement from countries with looser environmental regulations -- that would affect Asian and other suppliers that export to the EU.

The ambitious policy package, called "Fit for 55," seeks to cut emissions 55% from 1990 levels by 2030, on the way to the eventual goal of net-zero emissions by 2050. If approved, it would affect not only broad swaths of the bloc's economy, but also many companies that sell in the European market.

Without a specific cutoff date, "there will be a lack of certainty and we won't achieve our goal of climate neutrality by 2050," European Commission President Ursula von der Leyen said Tuesday in an interview with European media.

The plan bears down hardest on the transportation sector, whose carbon footprint has grown while that of power plants and industrial facilities have shrunk following the bloc's implementation of emissions trading. The package proposes a 100% reduction in carbon dioxide emissions from new vehicles from 2035 on, which would all but ban the sale of new vehicles fueled by gasoline or diesel.

The plan would also mandate a 55% reduction in emissions from new passenger vehicles from 2021 levels by 2030 -- a major step forward from the 37.5% target decided on in 2019. The commission had weighed going as high as 65%, but opted for the lower goal out of consideration for automakers and some member countries.

Toyota Motor just announced in May that it aimed to have electric vehicles make up 40% of its new-vehicle sales in the EU in 2030. If the underlying assumptions change, "we'd have no choice but to rethink our strategy," an executive said.

A ban on hybrids would be painful for the Japanese automaker, whose hybrid models have finally made inroads into Europe. The change would also hit its engine and transmission plants in the U.K. and Poland, which would no longer be necessary under a shift to electrics.

A wind farm off the coast of Denmark: Energy-related emissions have fallen under the EU's carbon trading system.   © Reuters

Voices in the auto industry are fighting the idea of tougher restrictions. With a de facto ban on internal combustion engines, "the potential for innovation will be cut off, consumer choice will be restricted and many jobs will be affected," Hildegard Mueller, president of the German Association of the Automotive Industry, told reporters last week.

Volkswagen CEO Herbert Diess said Tuesday that meeting tougher emissions targets will be "challenging," though "we are probably a bit better prepared" than others in the industry, adding that "to scale up battery production would be a huge challenge for the industry." The company currently aims to have electrics account for 60% of new vehicles sold in Europe in 2030, and intends to build six new battery plants by that year.

Electric-vehicle adoption levels vary widely across the EU. Electrics accounted for 5% of overall new-auto sales last year, according to the European Automobile Manufacturers' Association. The Netherlands led the pack at 21%, followed by Sweden at 10% and Germany and France both at 7%.

But many countries in Eastern and Southern Europe came in below 2%, with Greece and Poland each reaching less than 1%. Around 70% of the EU's charging infrastructure is concentrated in just three member states: Germany, France and the Netherlands.

In addition, the European Commission plan would tackle transport-related emissions from the fuel side, attaching a carbon price through an emissions trading mechanism to cut down on consumption while pushing the sector toward zero-emission vehicles.

This will be separate from the existing trading framework for big industrial facilities, in light of concerns about a spike in fuel prices squeezing low-income households.

Beyond the transport sector, the proposal includes a carbon border tax on steel, aluminum, cement, electricity and fertilizer, with emissions reporting to begin in 2023 and payments starting in 2026. The tax would be phased in starting in 2023. Once fully implemented, the mechanism would raise an estimated 9.1 billion euros ($10.6 billion) per year.

The mechanism would mandate a tax on products made outside the EU under less stringent emissions regulations, with the price based on emissions generated by the manufacturing process.

The goal is to ensure a level playing field and even out the burden on European and non-European businesses. Allowing cheaper products made under less eco-friendly conditions to flow freely into the market would hurt EU-based companies, creating a risk of "carbon leakage" -- businesses moving production elsewhere to escape Europe's climate restrictions.

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