France and Germany struck a deal on Thursday to water down the EU's car emissions rules — scrapping the requirement to compensate for residual emissions, extending super credits to every vehicle, and narrowing ‘made in Europe’ to the EU's 27 plus opt-ins such as Britain.
Published 16 October 2026 · 04:03 GMT
Europe's two economic heavyweights have cut a deal on the future of the car. France and Germany agreed on Thursday to push for a further easing of the European Union's emissions rules for carmakers — scrapping a requirement that manufacturers compensate for their residual exhaust emissions — and to narrow the definition of what counts as “made in Europe” to the bloc's 27 members, with an opt-in for a handful of outsiders including Britain.
The agreement, confirmed to AFP by diplomatic sources and laid out in a draft document, ends months of Franco-German deadlock that had paralysed the bloc's automotive policy. Until now the two governments had blocked each other: Berlin wanted looser rules for carmakers but rejected French demands for strict “Buy European” conditions on public money; Paris wanted to preserve the EU's climate ambitions while keeping European industry first.
Each side won one argument and lost the other. Germany got the weaker emissions regime it wanted; France got the tighter “made in Europe” perimeter. The pact now moves into the EU's legislative machinery, and it will shape the continent's car policy for the decade.
We know the mechanics of the deal because the draft document spells them out. The European Commission had proposed scrapping the effective ban on new petrol and diesel car sales from 2035 in favour of a requirement that manufacturers cut exhaust emissions of new vehicles by 90 percent compared with 2021. The remaining 10 percent would have had to be offset through credits — earned, among other things, by using low-carbon steel made in the EU, or e-fuels and biofuels.
The Franco-German deal kills that second half. Residual emissions, the draft says, “should not have to be compensated by manufacturers” — a clean deletion of the offset obligation. It also extends the so-called “super credits” — bonus allowances the Commission had proposed for small, affordable electric cars — to every vehicle a carmaker sells, “irrespective of their size or length”. In practice, a manufacturer can earn generous credits from its cheapest EVs and spend them against its thirstiest models, making the fleet targets far easier to hit.
On “made in Europe”, the deal draws a tighter circle than Brussels did. The Commission's March proposal would have tied companies' access to public money to minimum thresholds of EU-made parts — but left the door open to dozens of partner countries with EU trade deals. The Franco-German text restricts the car perimeter to the EU's 27, with an opt-in “under certain conditions” for a handful of others, notably Britain and Norway. For Paris, that is the point: public money for European factories, not for assembly plants elsewhere wearing a European label.
We do not know the exact legal shape of the final regulation — the draft document is a political text, and the translation into directives and fleet-average formulas is where loopholes are born. We do not know whether the pre-deal demand reported by Handelsblatt — a further weakening to an 80 percent target — survived into the final text or was traded away; the AFP dispatch confirms the 90 percent base with scrapped compensation, but the endgame numbers will only be clear when the Commission tables its proposal.
And we do not know whether the bet at the heart of the deal pays off: that protecting Europe's factories today produces a faster transition tomorrow. The last decade suggests the opposite can happen — that protection without pressure breeds complacency. The Paris motor show's twenty Chinese brands are the pressure. Whether the wall keeps them out or invites them in will decide the industry's fate.
The car industry is Europe's industrial core — roughly 13 million jobs across the value chain, and the sector where the continent's climate promises collide hardest with its economic anxieties. Brussels has spent a decade tightening the screws on exhaust emissions; the industry has spent the same decade warning that the screws are being tightened while Chinese competitors, as the Bureau saw at the Paris motor show, walk through the open door.
Thursday's deal is the political system absorbing that warning. By easing the emissions path while hardening the industrial perimeter, Paris and Berlin are attempting the same manoeuvre: protect the factories first, decarbonise at a pace the factories can survive — against a global economy whose resilience the IMF says is reaching its limits. Whether that is realism or retreat depends on where you stand — and the rest of the world is watching, because the EU's car rules have always been a regulatory export: what Brussels decides, carmakers build everywhere.
Because Paris got paid. France, together with Sweden, Spain, Denmark, Luxembourg, the Netherlands and Portugal, had formed a blocking minority against diluting the rules beyond the Commission's proposal. Berlin broke it the old-fashioned way: a quid pro quo. In exchange for French support on cars, Germany agreed to back France's demand for strict “Buy European” rules favouring EU-made products in public subsidies and tenders, according to Handelsblatt's reporting on the outline deal. France traded climate ambition for an industrial moat. For a president whose industrial policy has been built around domestic manufacturing since 2017, that is not a concession — it is the strategy.
In the short term, the carmakers, unambiguously. The scrapped compensation requirement and the universal super credits give every manufacturer a materially easier path to compliance — particularly the German premium brands whose large, heavy models were the hardest to square with the old maths. The losers are the climate targets, which slip from 90 percent to something softer in practice, and the Commission, whose carefully balanced proposal has been rewritten by its two largest shareholders. But there is a second-order winner worth naming: the European battery and steel industries, which the “made in Europe” perimeter is designed to incubate. Brussels is betting that a protected industrial base decarbonises faster later than an exposed one does now. That bet is the whole deal.
The second-order effects run through investment decisions. Carmakers now have regulatory certainty — of a sort — through the 2030s, and capital expenditure will follow it: expect the German premium brands to slow their EV-only pivots and stretch their combustion-engine platforms further, while Chinese manufacturers accelerate their European factory plans to get inside the “made in Europe” wall.
Then there is the precedent. If the EU's two largest economies can renegotiate the bloc's flagship climate instrument by bilateral deal, every other climate file — buildings, aviation, agriculture — becomes renegotiable the same way. The Commission's authority as the honest broker of the Green Deal has taken a visible hit, and the next Commission proposal will be read in every capital as an opening bid, not a settlement.
A great deal. The Franco-German pact is a political agreement, not legislation: it must still survive the EU's co-decision machinery — a qualified majority in the Council and a deal with the European Parliament, where greens and much of the left will fight the super-credits expansion line by line. The World Barometer will track how this pressure point moves in the months ahead. Watch three things. First, whether the blocking minority's former members — Sweden, Spain, Denmark and the others — accept the new consensus or demand their own price. Second, the Commission's formal proposal, which must translate “no compensation for residuals” into legal text without opening new loopholes. Third, Britain's decision on the opt-in: London's car industry would gain “made in Europe” status, but the conditions attached will determine whether it is a genuine opening or a velvet rope.
In Western capitals the deal reads as industrial realism. The frame is competitiveness: Europe's carmakers are being squeezed between Chinese EVs and American subsidies, and a climate policy that bankrupts the industry it is meant to transform is not a climate policy at all. The criticism, where it exists, comes from greens and climate NGOs who see a decade of targets dissolving into loopholes — super credits for every vehicle, no compensation for residuals — and warn that “pragmatism” is doing a lot of work in this sentence.
From Beijing and Moscow, the deal reads as confirmation. Chinese commentary will note the contradiction at the heart of the European position: Brussels spent years lecturing the world on climate leadership, then rewrote the rules the moment its own industry hurt. For China's carmakers — already storming Europe, as the Bureau reported from the Paris show — the “made in Europe” perimeter is the real story: a wall going up, and a signal to build inside it. Moscow, with no car industry left to protect, reads it as another data point in the EU's slow retreat from its own norms.
Across the Global South, the deal lands as a familiar asymmetry. Rich countries set the climate rules, then bend them when the bill arrives — while developing economies are still told that green conditionality is non-negotiable in trade and finance. The “made in Europe” wall reads, in this framing, as industrial policy for the rich dressed as climate policy for everyone. The counter-argument — that a Europe with no car industry cannot lead any transition — gets less of a hearing in Delhi, Jakarta or Nairobi than it does in Berlin.
On 15 October 2026, Paris and Berlin agreed to ease EU car emissions rules: manufacturers will no longer have to compensate for residual exhaust emissions, ‘super credits’ for clean cars are extended to all vehicles regardless of size, and ‘made in Europe’ is defined for cars as the EU's 27 countries, with an opt-in for Britain, Norway and a handful of others under certain conditions.
Super credits are bonus allowances carmakers earn for selling clean vehicles, which count multiple times toward their fleet emissions targets. The Commission had proposed them only for small, affordable electric cars; the Franco-German deal extends them to every vehicle ‘irrespective of their size or length’, letting manufacturers offset thirsty models far more easily and making the targets materially softer.
Under the Franco-German pact, ‘made in Europe’ for cars means the EU's 27 member states, with an opt-in for a handful of other countries — notably Britain and Norway — under certain conditions. That is narrower than the Commission's March proposal, which could have admitted dozens of partner countries with EU trade deals. Access to public money and subsidies will be tied to this perimeter.
The pact is political, not yet law. It must go through the EU's co-decision process: a qualified majority in the Council of member states and agreement with the European Parliament, where greens are expected to fight the super-credits expansion. The Commission must then table a formal legislative proposal translating the deal's terms into binding fleet-emission rules.
