European Carmakers to Pay Millions of Euros to Chinese Competitors to Avoid CO2 Fines

Major European carmakers such as Volkswagen may have to shell out hundreds of millions of euros to buy carbon credits from Chinese electric vehicle (EV) makers to avoid fines for failing to meet EU emissions rules due by 2025.

The European Commission’s new rules, designed to incentivize the reduction of CO2 emissions, provide for fines of 95 euros per gram of CO₂ per kilometer once the limit of 93.6 grams is exceeded. Therefore, car companies operating in Europe have three options: increase sales of electric vehicles by lowering prices, pay the fines, or buy carbon credits from less polluting producers.

Many European car groups are opting for “pooling”, that is, they offset the emissions of their fleet by collaborating with other companies that sell electric vehicles. This is the case of Tesla, which has already sold carbon credits to Stellantis, Ford and Toyota, or Mercedes-Benz, which has decided to join Polestar and Volvo (both controlled by the Chinese Geely).

According to the Financial Times, Volkswagen and Renault, which may not be able to achieve the goals alone, could instead collaborate with Chinese companies such as MG-SAIC and BYD. The latter in particular has one of the largest pools of credit to offer thanks to the high sales of electric vehicles in the EU.

Political and market implications for European carmakers

This is a controversial situation as it strengthens Chinese competitors at a time when the EU has raised tariffs on Chinese cars to protect European carmakers. Alliances with Chinese manufacturers are a politically sensitive issue, as some governments, such as Germany and France, have stakes in local manufacturers (such as VW and Renault). In addition, reductions in government incentives for purchasing electric vehicles in Germany and France have slowed sales, making it harder for European carmakers to meet their targets.

So while European carmakers like VW and Renault aim to avoid fines by switching production entirely to electric models, they may be forced to collaborate with Chinese competitors to comply with the rules, which could further weaken the competitiveness of the European car industry, increasing pressure on Brussels for more flexible rules.

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(Featured image by Erik mclean via Unsplash)

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