EU chief Ursula von der Leyen said today she wanted to give struggling European carmakers "breathing space" by allowing them extra time to meet 2025 emission reduction targets without facing fines.
"There's a clear demand for more flexibility on CO2 targets," the European Commission president told reporters. "Instead of the annual compliance, companies will get three years."
Von der Leyen added companies would still have to "fulfil" the same targets.
"But it means more breathing space for industry. It means also more clarity," she said.
The European Union has prioritised tackling climate change and agreed to phase out new sales of combustion engine vehicles by 2035.
Starting this year the EU is lowering the average emissions that new vehicles sold in the 27-country bloc are permitted to produce, with carmakers facing steep fines if they fail to comply.
EU industry chief Stephane Sejourne had pushed for flexibility to support automakers.
"We will not penalise the industry that we must help. In effect, the good students will be able to capitalise on their efforts, those who are behind will have more time," Sejourne said, welcoming the announcement.
The proposal will still need approval from EU states and the European Parliament. France, Germany and Italy had spoken out against the fines.
The announcement is part of the bloc's push to protect the auto industry, which employs 13 million people and accounts for about 7% of Europe's GDP.
It is also part of von der Leyen's broader effort to revive the EU's competitiveness as it falls further behind the US and China.
She will announce her auto sector "action plan" on Wednesday after several rounds of talks with industry leaders about the steps the EU must take to support the crisis-ridden sector.
Groups calling for cleaner transport rules, however, criticised today's proposal.
The Transport and Environment pressure group described it as an "unprecedented gift to Europe's car industry in the middle of a compliance year".
"Weakening the EU clean car rules rewards laggards and does little for Europe's car industry except to leave it further behind China on electric vehicles," William Todts, executive director of the clean transport advocacy group, said.
"The EU risks creating very damaging uncertainty about the electric vehicle transition in Europe," Todts said in a statement.
