Since regulators began cracking down on cars’ carbon dioxide emissions in earnest during the past two years, industry and environmental lobbyists have traded conflicting claims about whether Brussels and Washington were being tough enough to force real change.

One of the most powerful answers came this week when Daimler, the maker of Mercedes-Benz luxury limousines, agreed to swap equity stakes and share swathes of its prized technology with Renault and Nissan in order to buy into the Franco-Japanese alliance’s small-car business.

The deal will see Daimler share costs, engines and manufacturing of forthcoming two- and four-seat models made for its Smart small-car brand with Renault for its next Twingo subcompact.

The partnership will see the German carmaker and Renault-Nissan take 3.1 per cent mutual stakes, develop engines and vans and extend it to joint purchasing of parts as well as building electric cars.

The pairing of the Stuttgart-based premium carmaker with Renault, the junk-rated, volume carmaker, initially raised eyebrows among those who follow the industry when word of it surfaced last month.

Daimler’s most recent big tie-up with a rival was its merger with Chrysler, dissolved in 2007 after a nine-year relationship marred by mistrust, missed opportunities and financial losses.

Dieter Zetsche, Daimler’s chief executive, acknowledged the emissions legislation was a deciding factor in the Renault-Nissan partnership.

“For Daimler, this played a very significant role,” he said. “We have a great opportunity to become benchmark in the area.”

Carlos Ghosn, Renault and Nissan’s chief executive, said the two groups were forging a partnership that fell short of a full merger or alliance but went well beyond the smaller pairings on single models or engines favoured by their competitors PSA Peugeot Citroën and BMW.

“We benefit from the bigger whole, but each maintains its own autonomy, its own brand,” he said.

Analysts agreed with Mr Ghosn’s assertion that more such partnerships were in the offing as carmakers seek to share multibillion-dollar investments in cleaner cars and engines.

“These technologies are utterly expensive and almost impossible to shoulder alone for carmakers like Daimler and BMW,” said Gregor Matthies, partner with the consultancy Bain & Company.

Max Warburton, analyst with Sanford Bernstein, went so far as to say that the European Union’s CO2 legislation had “undermined the German [premium] auto business model.

“I think the political score on this so far – thanks to Brussels’ rulemaking – is France 1, Germany 0,” Mr Warburton said.

Europe is demanding that carmakers cut their fleets’ average CO2 levels to 130 grams per kilometre by 2015, and 95 g/km by 2020 from about 150 g/km at present.

Last week US President Barack Obama’s administration unveiled new fuel-economy standards requiring the industry reach an average 35.5 miles per gallon by 2016, up nearly 10mpg.

Industry analysts say carmakers will reach the European emission targets only with the help of smaller cars and electric and alternative vehicles.

Most analysts said the three-way tie-up would benefit Renault-Nissan disproportionately by giving the French and Japanese carmakers, including Nissan’s Infiniti luxury brand, access to Mercedes’ prized engine technology at the risk of diluting the German carmaker’s image.

But Daimler arguably needed the deal more. Mercedes-Benz cars had volume-weighted average CO2 emissions of 176 g/km last year – the highest of Europe’s 10 top-selling car brands, according to JATO Dynamics, the automotive data group.

“For Mercedes-Benz, the EU rules mean an almost 50 per cent reduction in CO2 emissions by 2020,” said Bain’s Mr Matthies. “This will only work with radically new concepts.”

Daimler’s Smart car has one of the lowest CO2 averages of any brand. However, it has struggled to turn a profit on either Smart or Mercedes’ small A and B Class cars, because their sales were too small to recoup its investments.

The stricter emission rules have already produced unlikelier-sounding deals than the Daimler-Renault-Nissan one, including sports car maker Aston Martin’s tweaking of Toyota’s tiny iQ city car as its forthcoming Cygnet model.

For Porsche, whose flagship 911 model has CO2 emissions of 230 g/km, the tougher standards were one of the main reasons for its audacious takeover attempt of Volkswagen, a bid which collapsed last year. The sports carmaker is set to be integrated into VW in 2011.

The stricter CO2 limits look to have been behind Ford’s decision to rid itself of its luxury brands. Ford Motor in 2008 sold its higher-emission Jaguar and Land Rover brands to India’s Tata Motors for $2.3bn and last month agreed to sell Volvo to China’s Geely for $1.8bn.

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