FCA Faces Penalties of €1.8 Billion for Excess CO2 Emissions

Fiat Chrysler Automobiles NV expects to spend at least €1.8 billion ($2 billion) on regulatory credits and fines in Europe and the U.S. through 2021 because its new-car fleets won’t meet government limits for carbon dioxide emissions.

FCA spent €600 million last year on credits and regulatory penalties to cover its CO₂ shortfall, Automotive News Europe reports, citing comments by Chief Financial Officer Richard Palmer to analysts earlier this month.

The credit system, called open pooling in Europe, enables carmakers that fall short of CO₂ limits to buy emission credits from companies that surpass the standards. ANE estimates that FCA spent more than €1 billion over several years through 2017 to buy regulatory credits to ease shortfalls in the U.S. market, mainly from electric carmaker Tesla Inc.

Last month, the Financial Times reported that FCA’s credit-buying plan with Tesla would help the larger carmaker dodge as much as €2 billion in fines.

Even so, FCA faces regulatory fines of €120 million ($135 million) this year in Europe, the Middle East and Africa, according to Palmer. He says those penalties would have been more than three times as great without the offsetting credits FCA purchased from Tesla. Even with future credits, FCA could face an EU fine of €700 million ($787 million) in 2021, ANE reports.

CEO Mike Manley tells analysts that the economics of buying credits is a more cost-effective alternative for FCA to meet immediate emission goals than to spend billions to develop and market pricey electric cars on its own. The company’s strategy will change as the cost of EVs become “more financially rational,” Manley adds.