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European carmakers led by Volkswagen could be forced to pay hundreds of millions of euros to Chinese electric-vehicle rivals to buy carbon credits, as the auto sector tries to avoid potential fines for failing to meet 2025 pollution rules set by Brussels.
Under EU rules requiring carmakers to cut emissions, manufacturers lagging behind in the electric transition face the choice of paying billions of euros in fines, boosting EV sales by slashing prices or buying credits from less polluting competitors.
Europe is the fastest warming continent on earth, estimated at twice the global average since the 1980s, in large part because of its proximity to the melting Arctic where exposed dark ground amplifies the effect.
The European Commission plans to fine carmakers €95 per car for every gramme of CO₂ per km above a 93.6g limit, based on average emissions across a company’s vehicle sales in 2025.
Many carmakers in the EU are looking to use the “pooling” option, where manufacturers average out the greenhouse gas emissions of their fleets with other companies that sell in the bloc.
Analysts estimate that some European groups may be forced to buy hundreds of millions of euros worth of carbon credits from Chinese rivals such as BYD, which has one of the largest pools of credits to sell thanks to high EV sales in the EU.
According to recent EU filings, Tesla expects to pool credits with companies including Stellantis, Ford and Toyota. The US EV maker has already made more than $2bn in the first nine months of last year from selling credits into emission pooling systems globally. In another pool, Mercedes-Benz has teamed up with Polestar and Volvo — both owned by China’s Geely.
Geely’s founder Li Shufu holds about 10 per cent of Mercedes, while Beijing owned BAIC holds another 10 per cent.
Mercedes said it continued to “invest billions into electric vehicles”. “However, the pace of the transformation of our industry is determined by market conditions and our customers,” it added.
VW and Renault, which analysts say look likely to struggle to meet targets through their own sales, have few pooling alternatives other than Chinese manufacturers MG-SAIC and BYD. Renault could potentially also pool with strategic partners Nissan and Mitsubishi.
Pooling is controversial. Some executives warn that the arrangement will make the European industry less competitive by empowering rivals in China at a time when Brussels has imposed higher tariffs on Chinese EVs to protect the continent’s carmakers.
Jens Gieseke, a centre-right lawmaker in the European parliament, said the EU had made a “mistake” in allowing pooling with US and Chinese carmakers as this could benefit European carmakers’ rivals.
Industry players are reluctant to put numbers on expected payments publicly, as carmakers trade credits behind closed doors in groupings based on a web of alliances linked to their equity stakes and brand tie-ups.
The German state of Lower Saxony holds a 20 per cent stake in VW while Renault is 15 per cent government owned, making the groups’ pooling with Chinese carmakers a politically sensitive topic, according to UBS analyst Patrick Hummel.
He added that if VW chose to pool, it would probably need to do so with a number of Chinese companies, as BYD might not have enough EV sales in Europe to fill the German group’s gap alone.
The German group would need to almost double its EV sales in just one year if it were to meet EU targets itself, according to UBS. The company does not have a new mass-model EV launch planned in 2025. Renault is hoping to boost its EV sales with the launch of a €25,000 model.
VW said it would aim to avoid the penalties through “its own efforts”, pointing to a series of fully-electric models that were launched last year.
“Only in a second step would other measures such as pooling come into play, naturally weighing up costs and benefits,” the company said. “Every euro invested in possible penalties would be a poorly invested euro.”
Renault has said that it was too early to decide on pooling, but added the arrangements with Chinese manufacturers risked weakening the European car industry further.
Brussels is under pressure from the sector to make emissions rules more flexible as sales of electric vehicles in Germany and France fell last year after governments pulled back purchase subsidies for EVs.
The bloc’s climate commissioner Wopke Hoekstra met car industry representatives on Wednesday and a “strategic dialogue” between officials and the sector is due to start this month.
Additional reporting by Ian Johnston and Patricia Nilsson
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