EU car loan call puts spotlight on CO2 costs

By Helen Massy-Beresford - Analysis

PARIS (Reuters) - European car makers are probably using their call for 40 billion euros ($55 billion) of loans from the European Union to develop green vehicles as a lever to enter talks with the regulator regarding CO2 legislation, analysts say.

The loan, which has been widely dismissed as unlikely to be granted, also brought to the fore the high costs involved in cutting vehicle emissions.

One industry source said the ACEA -- the automotive industry trade association -- was probably trying to open communication lines on the yet to be written legislation.

"But the idea was to start a debate, and maybe it will give them some bargaining power on the legislation itself," the source said.

The ACEA could also seek to strike a deal with EU policymakers giving them more time to implement CO2 limits or to introduce better scrapping incentives, the source said.

Nomura analyst Michael Tyndall described the move as "the art of negotiation," noting the 40 billion euros request was unlikely to be granted.

The loan request and the CO2 limit were two separate issues, said Global Insight senior market analyst Sarah Kingsbury, noting "there is a certain amount of jockeying for position, and looking for mitigating circumstances to reduce the burden -- ie the cost of CO2 reducing technologies -- on manufacturers."

The issue of cutting carbon emissions in vehicles remained both topical and potentially fractious.

French president Nicolas Sarkozy wants to have the debate sewn up within that nation's EU presidency.

On Thursday he announced 400 million euros of public financing would be made available for research into clean vehicles over the next four years.

He also called for a revision of rules governing how EU member states could help car manufacturers adapt to environmental challenges.

DILEMMA OF CHANGE

Car makers face the dilemma of needing to invest more than ever in improving their green technology to combat rising CO2 emissions, while sales numbers were sliding.

As it stands, passenger cars accounted for 12 percent of man-made CO2 in Europe, European Commission figures from 2004, the latest available, showed.

European new vehicle registrations declined 3.9 percent in the first eight months of the year on the back of falling consumer confidence, high fuel prices and the world economic crisis.