Both the German leader and the country's struggling auto sector had been pushing for the policy to be watered down, arguing that demand for electric vehicles in Europe remains weak and they need more time to catch up with Chinese EV makers.

Under the EU's proposals, which were condemned by green groups, carmakers will now have to cut exhaust emissions from new vehicles by 90 percent from 2021 levels -- down from an envisaged 100 percent -- with the remainder "compensated" in various ways.

"More openness to technology and greater flexibility are the right steps," said Merz, who has made vocal demands for the ban to be eased as the country's flagship auto sector faces mounting problems.

"It's good that...the (European) Commission is now opening up regulation in the automotive sector," he said in a statement, adding that his government would now "examine the European Commission's extensive proposals in detail".

Volkswagen, which makes 10 car brands ranging from Audi to Skoda and Seat, welcomed the EU's "pragmatic" and "economically sound" proposals.

"Opening up the market to vehicles with combustion engines while compensating for emissions is pragmatic and in line with market conditions," said the carmaker, which has been cutting thousands of jobs amid the choppy transition to EVs, sagging demand and fierce competition in key market China.

The manufacturer stressed however that it backed the EU's assessment that "electric mobility is the leading technology of the future".

But environmental groups were dismayed by the decision to water down a policy that had been hailed as a major win in the climate fight when adopted in 2023.

NGO Environmental Action Germany said the proposals, which still need approval from the EU parliament and member states, were "a capitulation to German combustion-engine companies that are ignorant of climate issues".

jsk-sr/rl

Volkswagen