BRUSSELS — France and Germany on Thursday failed to agree a common position on the scope of the bloc’s future “Made in Europe” rules, as well as on greater flexibility for CO2 emissions cuts and the 2035 combustion engine ban. The draft quid-pro-quo deal, which was first reported by POLITICO in July, marks a major convergence between the two countries and had been expected to be signed imminently. On Thursday evening, however, the agreement stalled amid opposition from Germany’s Social Democratic Party, the center-left junior partner in the ruling coalition, over concerns it dropped key environmental targets.
Earlier this week, French President Emmanuel Macron had suggested the ball was in the German court. Under the terms of the proposed deal, Germany would accept stricter Made in Europe criteria for the automotive sector in the Industrial Accelerator Act, which France has pushed for, in exchange for weakening the combustion engine ban, one of Berlin’s long-term demands. "In light of the significant technological, economic and geopolitical changes since the existing regulatory framework was established, the Automotive Package should strike a better balance between climate objectives, industrial competitiveness, technological development and the strengthening of European value creation," the two countries wrote in a draft agreement obtained by POLITICO.
"Based on the Franco-German Ministerial Councils in 2025 and 2026, Germany and France therefore propose a balanced negotiating package combining ambitious CO₂ reduction targets with additional flexibility and targeted incentives for European value creation," the agreement adds. Currently, the EU's target is for companies to reduce combustion engine emissions by 100% from 2021 levels by 2035, with the possibility to 'earn' 10% of emissions leeway through initiatives like offsets and investments. Under the proposed deal, France and Germany want to soften the 2035 target to 90%, and to offer a further 10% leeway in exchange for investments in alternative fuels (for a combined 80%).
Crucially for steel manufacturers and Germany’s leftist SPD, the French-German agreement would axe the green steel investment requirement, removing a key incentive. In failing to put pressure on automakers to source green steel, the draft deal makes it a “nice-to-have” extra, they explained. In a concession to Berlin, the draft agreement stresses that the so-called utility factor — which calculates plug-in hybrid emissions based on how often a vehicle’s electric motor is used vs. its combustion engine — should be calculated on lab-based results rather than real-world data, as required by the Commission.
The change will help automakers sell more plug-in hybrids while still reaching the broader emissions targets. In exchange for these emissions concessions, Germany endorsed France’s demand that the scope of the Made in Europe rules under the bloc’s Industrial Accelerator Act be restricted when it comes to the automotive sector. The text only covers the EU’s 27 member countries and will be extended to the U.K. under certain conditions.
EU industry chief Stéphane Séjourné told POLITICO on Tuesday that he supported the deal as a way of breaking the impasse, and said the U.K. currently qualifies for Made in Europe. The agreement could resolve a stalemate over both the CO2 regulation and the IAA, in which France and Germany have been on opposite sides. The British government welcomed the potential inclusion of the U.K. in the Made in Europe rules for cars.
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