The European Union intends to postpone legal proposals regarding the expansion of the carbon tax at borders and the potential easing of the gradual phase-out of internal combustion engines until December 16, according to a draft program of the European Commission, which Reuters has seen.
In the same package, the Commission is preparing amendments to the Carbon Border Adjustment Mechanism (CBAM), including its expansion to products closer to the end consumer and additional protective mechanisms for European exporters. However, the political focus is now primarily on cars, where the question arises whether the EU will stick to the near-total phase-out of new gasoline and diesel models by 2035, or whether it will open the door to plug-in hybrids and engines running on so-called climate-neutral fuels after that deadline through ‘flexibility’.
Car manufacturers and governments, including Germany and Italy, are closely monitoring the plans, having requested that the EU revise its policy on automotive greenhouse gas emissions, which in its current form would effectively ban the sale of new cars with internal combustion engines. In contrast to the leaders of the automotive industry, various environmental organizations and climate experts argue that any dilution of the 2035 target would destroy the credibility of European climate policy and leave fossil fuel vehicles on European roads for decades to come. On the other hand, critics from industrial circles point out that environmental organizations often overlook economic consequences, such as vehicle prices and the purchasing power of the population, as well as the actual capacities of the electrical grid.
What Changes After 2035
The currently applicable rules are established by Regulation (EU) 2023/851, which tightens CO2 standards for new cars and light commercial vehicles in line with the goal of reducing transport emissions by 90 percent by 2050 compared to 1990.
Three key points apply to new cars. By 2030, manufacturers must reduce the average CO2 emissions of new passenger vehicles by 55 percent compared to 2021, by 50 percent for light commercial vehicles, and from 2035, the default target is practically a 100 percent reduction in emissions from new vehicles. In practice, this means that from that date, new cars that emit CO2 from the exhaust during driving should no longer be registered in the EU – de facto ending classic gasoline and diesel models, including most of today’s hybrids.
The regulation itself, however, has left the door open for revision, so by 2026, the Commission is obliged to conduct a detailed assessment of the impact of the 2035 target on the industry, consumers, and the environment and, if deemed necessary, propose amendments. This ‘window’ is now turning into a field for a major political showdown.
Of course, it is also about definitions. The industry understands ‘climate-neutral fuels’ to mean synthetic e-fuels produced using renewable energy, advanced biofuels, and other alternatives that would, at least theoretically, have low emissions throughout their entire life cycle. Critics warn that such fuels are scarce, expensive, and may compete for the same renewable kilowatt-hours needed by the electrical grid.
The Rebel Six
At the beginning of December, six member states, Bulgaria, the Czech Republic, Hungary, Italy, Poland, and Slovakia, jointly requested in a letter to the Commission that the 2035 policy be ‘adjusted to reality’. Specifically, they are asking for the continued sale of hybrids and vehicles running on low-carbon or renewable fuels to be allowed after 2035 as part of the emissions reduction strategy.
Their argument is simple: the sale of electric vehicles in several countries is lagging, customers continue to choose gasoline and diesel vehicles, and manufacturers are facing pressure from Chinese competition entering the European market with aggressive pricing and new models. A too rapid and abrupt shift away from internal combustion engines, they argue, could lead to job losses and the closure of manufacturing plants in Europe before a sufficiently strong ecosystem for electric mobility can be built.
Germany and Italy, while formally supporting climate goals, are very close to these demands. Berlin has been pushing the concept of ‘openness to all technologies’ for months, through which the possibility for e-fuel engines would remain even after 2035. Rome, faced with a large domestic industry and a society where the car still has a strong symbolic status, openly lobbies for plug-in hybrids as a transitional solution even after 2035.
For the Commission, this is politically mined territory. On one hand, there is the promise of achieving climate neutrality by 2050, and transport is the biggest single problem as emissions from road traffic have hardly decreased for decades. On the other hand, the new Commission and the new European Parliament in 2026 will have to survive a wave of voter dissatisfaction that is already affecting the direction of the Green Deal.
Electric Reality Check
On paper, the transition to electric vehicles looks impressive. In the first ten months of 2025, according to ACEA (European Automobile Manufacturers Association) data, 1.47 million new battery electric vehicles were registered in the EU, holding 16.4 percent of the new vehicle market, compared to 13.2 percent the previous year.
But behind that average lies a much more colorful picture. Electric vehicles in some countries, such as Norway or Iceland, have practically become the standard, while in others their market presence barely exceeds a few percent. After strong growth during the period 2019–2023, 2024 saw the first small decline in the share of BEVs in the European market, while plug-in hybrids (PHEVs) still hold nearly eight percent of new registrations.
At the same time, the hierarchy among manufacturers is changing. Chinese BYD surpassed Tesla in electric vehicle sales in Europe for the first time in April 2025, while Tesla’s market share on the continent is declining under the pressure of competition, occasional political boycotts, and increasingly vocal criticism regarding the quality and age of its models.
ACEA data and market analyses show that, although BEVs are growing, the most sought-after models are actually hybrids that combine gasoline or diesel engines with electric drives. For a buyer who does not have a secure parking space with a charger, such a compromise remains the best solution.
The industry uses this gap between political goals and market reality as a main argument. If electrification is already stumbling in wealthier countries with developed infrastructure, manufacturers ask, what does the perspective look like in countries with lower incomes, older vehicle fleets, and weaker charging networks?
Old Vehicles, Little Electricity
Croatia is a good example of this dissonance. The average age of vehicles on the roads is 14.6 years, and passenger cars are about 13.3 years old. Two-thirds of registered cars are over ten years old. At the same time, the share of electric vehicles in new registrations remains among the lowest in the EU. According to available data, in 2025, electric vehicles account for only about 4.4 percent of new registrations, making Croatia one of the three slowest countries in adopting EVs, along with Bulgaria and Slovakia. Even more problematic is that registrations of battery electric vehicles in the first half of 2025 are estimated to have fallen by about 50 percent compared to the previous year, while hybrids and plug-in models are experiencing growth.
At the household budget level, this is not surprising. A new electric car is still significantly more expensive than the average gasoline vehicle, and state subsidies come rarely, which is problematic when the entire sale depends on state support. Additionally, the network of fast chargers is progressing, but it is far from giving the average driver a sense of security for longer trips without nervous planning.
China as a Real Competitor
Behind the European fluctuations lies a fear of geopolitical shifts. Chinese manufacturers, from BYD to Chery to Changan, have literally flooded the European market with electric models in the mid and lower segments over the past two years, often at prices that established European brands find hard to compete with. BYD became the best-selling EV brand in Europe this summer, with sales growth of several hundred percent compared to last year, while Tesla’s sales are declining. At the same time, Chinese companies are announcing the construction of factories in the EU to mitigate the impact of tariffs and additional trade barriers.
CBAM: Borders as a Second Line of Defense
While the debate about engines continues, Brussels is preparing another ‘climate attack’ on the other end. The Carbon Border Adjustment Mechanism (CBAM), which the EU will start charging for hidden CO2 contained in imports of steel, cement, fertilizers, and other emissions-intensive products from 2026, is expanding to a range of processed goods. The latest proposals include body parts, white goods such as washing machines and stoves, garden tools, and similar products that contain steel, aluminum, and other CBAM materials.
The Commission states that without this expansion, foreign manufacturers can circumvent CBAM by exporting finished products directly instead of sheets or steel, in which that material has already been ‘packaged’. The Commission conducted a public consultation this year on expanding CBAM to ‘downstream’ products and announced a proposal precisely in the package with automotive measures.
At the same time, the European Union is preparing compensation mechanisms for domestic exporters to offset part of the CO2 costs they pay in the EU, which competitors in third countries do not have. This makes CBAM not only an instrument of climate policy but also an industrial strategy and a weapon in trade negotiations.
If the Commission concedes and opens the door to hybrids and e-fuel engines after 2035, the EU will formally retain its targets, but their credibility will be seriously undermined. Every subsequent regulation will be under suspicion that it can be softened or postponed with sufficient industrial and political pressure. On the other hand, ignoring the fact that BEVs on average account for only about 16 percent of new registrations in the EU, while in countries like Croatia they barely exceed four percent, would be equally irresponsible.
