The European Union Wednesday proposed to cap polluting car emissions, fashioned so that producers of heavier, larger cars such as Mercedes and BMW will have to do more to cut their emissions or face stiff fines.
The E.U. proposed a sliding scale based on a car's weight to reduce carbon dioxide emissions to 120 grams a kilometer by 2012, and will introduce penalties for every gram in excess emitted.
The sliding scale, which means producers of heavy cars must cut more CO2 emissions both in terms of percentages and grams per kilometer, had been the subject of heated debate between E.U. member states that have sizable car industries, such as Germany, France and Italy. However, the plan applies to any car maker that sells vehicles registered in the E.U., such as Toyota Motor Corp. (TM).
Carmakers in Germany reacted to the proposal, which is aimed at helping Europe meet its commitments to the Kyoto Protocol, with withering criticism, saying they are being forced to bear more than their share of the burden.
"Requiring excessive reductions from large vehicles is mere industry politics with little regard for the bigger CO2 issue," Germany's trade body of carmakers said in a statement.
The fines proposed for not meeting the caps translate into stiff penalties, which the E.U. says it is using as a deterrent to carmakers.
Penalties begin at EUR20 per excess gram/kilometer a car in 2012, when the plan is introduced, rising to EUR35 in 2013, EUR60 in 2014, and EUR95 in 2015.
Germany's Daimler AG (DAI) will be one of the hardest hit if the plan is ratified, Landesbank Baden-Wuerttemberg analyst Wolfgang Albrecht said. He calculates that by 2015, the plan would cost the company EUR5,500 per car, much of which is likely to be passed on to customers. Albrecht rates Daimler stock at buy with a EUR90 target.
Marc Bocquet, a spokesman for PSA Peugeot-Citroen (12150.FR), Europe's second-biggest car maker by volume, said the E.U. proposal is a "big disappointment," and commented that the penalties for exceeding the targets are "enormous," especially for volume car makers.
Peugeot-Citroen produced 2.25 million cars last year, he noted. If it had overshot the CO2 emissions ceiling by five grams and the E.U. proposal was in place, he noted, the company would have had to pay penalties totaling EUR890 million.
Peugeot-Citroen is the "cleanest" European car maker, according to a survey by the European Federation for Transport & Environment, a non-governmental organization. Other volume car makers such as Germany's Volkswagen AG (VOW.XE), Italy's Fiat SpA (FIA.MI) and General Motors Co's (GM) Opel and Vauxhall units are likely to suffer more than the French company if they can't manage to reduce their CO2 emissions.
A spokesman for Renault SA (13190.FR) declined to comment.
E.U. environmental head Stavros Dimas argued that the CO2 plan will also serve to make Europe's carmakers more competitive and resourceful.
"I'm sure the German auto industry - of which Europe is very, very proud - have the technical capability and the will to come with more efficient cars and they will continue to be protagonists in the world market," Dimas said.
The plan measures the average emissions per car maker's fleet, meaning some vehicles can emit more CO2 than the cap as long as other vehicles made by the same company offset the excess.
Car makers may also form pools to calculate average CO2 emissions, a move which is likely to prompt producers of lighter, less polluting cars to sell their excess grams to makers of heavier vehicles looking to meet the CO2 cap and avoid fines.
The E.U. expects the CO2 plan to make cars EUR1,300 more expensive on average, although the higher price should be offset by lower fuel prices during the car's life span, Dimas said.
The CO2 plan provides a loophole for niche producers which make less than 10,000 vehicles a year such as Jaguar and Land Rover, who will be able to apply for a separate emissions cap under the plan.
The U.K. had lobbied the E.U. to craft the CO2 plan to not disproportionally affect small carmakers such as Jaguar and Land Rover, which Ford Motor Co. (F) has put up for sale.
A Europe-wide trade body also roundly criticized the plan, which will now be sent to the European parliament and to the European Council.
"The proposal is very disappointing and both its content and the way it was adopted are in stark contrast with the 'better regulation' principles of the European Commission," Sergio Marchionne, head of the European Automobile Manufacturers Association and Chief Executive of Fiat, said in a statement.
However, the plan doesn't go far enough for environmentalists, who argued the E.U. is providing little impetus to lower car weight, a key factor in CO2 emissions.
"This is a weakening of the E.U.'s original target of 120g CO2/km and the proposal fails to put forward any further reductions beyond that date," Greenpeace official Franziska Achterberg said in a statement.