Demise of diesel
Hybrid and electric technologies could be big winners thanks to VW
The Volkswagen emissions scandal has broader implications than the potential damage it can do to Europe’s biggest carmaker.
Europe backed the wrong emissions-reducing technology on a regulatory level. There is now an opportunity to reverse that error and force the continent’s carmakers to concentrate on hybrid and electric vehicles.
The scandal is about VW’s bad business decision to cheat testing equipment so it could rush new engine models to market in the U.S. It is also about a failure of regulatory oversight and testing technology. Most of all, however, it’s about diesel engines: They were the ones performing so badly on the tests that VW engineers had to look for a workaround so marketers could trumpet the advent of “clean” diesel.
VW had an advantage in diesel technology, which it wanted to leverage in the U.S. In the mid1990s, the European countries’ governments started a campaign of massive intervention to stimulate the use of diesel engines. At the beginning of that decade, Europe and Japan had about 10 per cent of diesel automobiles on the road. After 1995, the trends diverged widely.
In a 2013 paper, Michel Cames and Eckard Helmers estimated that, without the government intervention, diesel automobiles would have accounted for about 15 per cent of vehicles on the road in 15 core EU countries, but now make up 35 per cent of total cars. This is the result of lower excise taxes on diesel than on gasoline throughout most of Europe (the U.K. is an exception) and relatively lax environmental standards for diesel, allowing higher emissions of nitrogen oxide and harmful particles. Some countries, such as Belgium, France and Spain, have long imposed lower taxes on diesel cars. In France, Peugeot even obtained a government guarantee of such a tax policy before prioritizing the development of diesel engines over gasoline ones.
As a result, most core EU countries have more diesel cars on the road than any other kind. It’s possible the incentives were the result of oil industry lobbying — as the sales of fuel oil fell, refiners needed to sell more diesel fuel. But they probably stemmed from a misunderstanding of the environmental consequences. “Green” regulation in European countries has centered on CO2 emissions, and diesel exhaust contains relatively little of that gas. Smog-creating NOx and soot particles were overlooked until the ultra-strict Euro 6 standard came into effect this month.
The French government now wants to move toward a diesel ban, which will force Renault and Peugeot to make a difficult transition since about two-thirds of the cars they sell in Europe are equipped with diesel engines.
Modern diesel engines are capable of keeping emissions below levels permissible under Euro 6. Implementing the necessary technology, however, makes the cars more expensive, may affect their performance and requires the owner to watch the level of yet another liquid — urea, used to reduce NOx.
Following the VW scandal, testing is likely to become more rigorous and more producers will be caught and fined for noncompliance. There will be only two paths for them: make sure the emissions performance of all new diesel cars is irreproachable — which isn’t easy — or shift production toward hybrid and electric vehicles, as Japanese companies did when they decided diesel was on its way out.
In 2013, Japan had 21 per cent of hybrid and electric vehicles in its fleet. The European leaders in the technology, Norway and the Netherlands, had 12.8 per cent and 11.3 per cent, respectively. Germany had just 1 per cent.
European automakers have the technology to compete in the electric vehicle market. In business terms, however, the move away from diesel — which should accelerate now — will be extremely costly.
There’s light at the end of the tunnel. Once the transition is completed, the Europeans, with their engineering strength, will make the hybrid and electric market much more competitive.