Agreement of France and Germany to keep combustion cars in Europe beyond 2035

Brussels/BarcelonaNew setback for the European Union's climate goals. The continent's economic engines, France and Germany, reached an agreement this Friday to soften the climate requirements for the automotive sector and maintain the manufacturing of combustion vehicles beyond 2035. This was announced by the French government in a statement, in which it details that the pact also includes tools to strengthen production conditions within Europe. This proposal has been a major demand from European manufacturers, who are currently working hastily to electrify in the face of strong Chinese competition.

The agreement, if it ends up going ahead, will have significant effects on the main manufacturer in Catalonia, Seat, one of the most important ones, giving it more time to secure the second platform. To understand it: as of now, the group's plant in Martorell works on three production lines, of which only one is prepared to manufacture 100% electric cars.

However, to electrify each line, a strong investment is needed. In fact, to secure the first platform, 3 billion euros had to be allocated to the factory. Electrifying a second production line is the main demand of the unions for years, since they consider it the way to guarantee employment in the face of fuel regulations.

The decision on the allocation, however, is not up to Seat's management –which also advocates for it to arrive–, but rather depends on its German parent company, the Volkswagen group, which is currently in a broad restructuring process. As explained by sources from the group's leadership this weekend in Paris, there is no plan to make any decision on the matter in the next twelve months. And in case the platform ends up being assigned, it would take between three and five years to start producing.

Maintaining combustion cars will also give air to the future of the Seat brand. As explained this Monday by the CEO of Seat and Cupra, Markus Haupt, the company does not plan to electrify any of the brand's models and, therefore, linked the production of Seat to the evolution of fuel regulations. Therefore, making the end of combustion vehicles more flexible can extend the brand's life. “Customer behavior and regulation will dictate what happens and when,” the CEO of Seat and Cupra assured during a meeting with journalists.

Strengthening the electric vehicle

The goal of the pact between Berlin and Paris is to strengthen "Europe's capacity to develop and produce the next generation of electric vehicles", according to the Elysée statement. "Our shared ambition is clear: to successfully transform our automotive industry while maintaining our climate ambition and ensuring that the cars of the future are produced in Europe", the text says.

According to the draft agreement, to which ARA has had access, it is expected to reduce the target for carbon dioxide (CO₂) emissions reduction by a further 10% by 2035. The European Commission's latest proposal suggested that manufacturers should reduce carbon dioxide emissions from new vehicles by up to 90%, but forced companies to compensate for this 10% with climate-neutral fuels. Now the Franco-German axis plans to eliminate this compensation obligation.

The text also provides for more flexibility so that manufacturers can "respond to external crises and avoid disproportionate penalty payments", that is, soften the payment of fines for infractions. Thus, they propose changes to the way emissions are calculated. If, for example, more than the allowed amount is emitted in one year, it can be offset by emitting less the following year, and vice versa.

The agreement, which still requires final approval from Berlin, comes after months of disagreements between the two capitals over the climate requirements that vehicles must meet for companies to access public aid. While Germany pushed to give manufacturers more leeway and more flexibility to include commercial partners from outside the EU, France wanted to maintain climate ambition and keep public procurement subsidies within EU borders. With the new agreement, Berlin gains France's support on the first point and Paris on the second.

Although the text is not binding in any respect, it does set the course for the decisions that both EU member states and the European Commission will take, due to the economic weight that the industries of both countries have on the continent.