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Volkswagen mulls appeal of EU fine over diesel emissions tech “cartel”

13 July 2021 Cristina Brooks

The EU's executive body has targeted German automakers BMW and Volkswagen with a fine that appears to be starting another round of battles over manufacturers' diesel engine emissions compliance.

It fined the pair a total of €875 million ($884.39 million), of which Volkswagen, alongside its Audi and Porsche units, is due to pay €502 million ($595 million), and BMW pay €373 million ($442 million).

The European Commission (EC) found the automakers had betrayed public trust when they agreed not to compete on slashing diesel emissions using a novel technology, selective catalytic reduction (SCR)-systems, according to an 8 July speech by EC Executive Vice President for A Europe Fit for the Digital Age and Competition Margrethe Vestager.

Between 2006 and 2014 the companies colluded to restrict the size of tanks for a fluid used in SCR-systems, AdBlue, said the EC. This allegedly occurred during technical meetings to develop the systems in the run-up to complying with the EU's 2015 revisions to diesel car engine standards Euro 5 and Euro 6.

The standards were adjusted to require the use of technologies like SCR-systems in 2015 after research revealed NOx from diesel engines caused respiratory diseases.

The EC had never seen an instance of a cartel meant to restrict the use of a new technology before. "Through this conduct, the carmakers eliminated the inherent threat that their competitor would do better. And this threat is a key driver of innovation," said Vestager.

Mercedes-Benz brand vehicle manufacturer Daimler, which informed the EC of the agreement, was not fined for its role in the collusion.

While the EU said that agreeing not to compete to improve the technology was "simply illegal," Volkswagen contradicted this view by noting the fine would be a "stumbling block to innovation." Volkswagen plans to review the decision and decide on an appeal before the Court of Justice of the European Union in Luxembourg by mid-September.

The EC has tightened the maximum NOx emissions limits per diesel passenger since 2000, after first legislating to reduce vehicle emissions in 1970. It introduced the Euro emission standards, for which compliance efforts led to the collusion, in the early 1990s.

Targeting diesel emissions in the following years, the EC introduced the Euro 5 standard in 2009 and Euro 6 standard in 2014.

In 2017, it introduced a more accurate system for measuring CO2 emissions from cars and vans to comply with Euro 6 in the wake of the 2015 'dieselgate' scandal. In that scandal, it was revealed that the Volkswagen group manipulated vehicle technology to produce lower emissions during official tests than during typical driving.

Volkswagen may appeal, BMW agrees to settlement

Volkswagen does not agree with the decision, faulting the outdated nature of the EC's 2011 guidelines on horizontal cooperation agreements. In addition, it said the EC acknowledged its definition of the cartel was not the "classic" kind.

Volkswagen's litigation spokesperson, Christopher Hauss, said in a statement: "Instead of a fine, it would have been more expedient for the automotive industry if the European Commission had issued clear guidelines describing how cooperation in research and development can be structured in a way that complies with antitrust law."

He noted that the contents of the talks were never implemented, and ultimately all the tank sizes and ranges of the applicable SCR-systems were two to three times higher than discussed in the talks. Because of this, customers were not harmed.

BMW appeared to echo this stance. The "talks had no influence on company's product decisions and therefore did not disadvantage customers at all," it said in a statement, and said the EU agreed BMW had "consistently designed the tank sizes and ranges of its vehicles to be well above the dimensions agreed in the working groups."

BMW accepted the fine for "possible infringements of competition" after the EC dropped other charges which the company considered "exaggerated." The automaker noted its proceedings would end.

Activists seek to expand the claims

Diesel vehicle emissions contribute to 417,000 premature deaths from air pollution per year in 41 European countries, according to EU Environment Agency studies. Raising further concerns over diesel, the World Health Organization's International Agency for Research on Cancer classified diesel engine exhaust fumes as carcinogenic in 2012.

This is why consumer advocates say the new EU fine is the tip of the iceberg when it comes to compensation for emissions-related claims.

A Dutch foundation pursuing legal claims in the wake of the dieselgate scandal, Diesel Emissions Justice Foundation (DEJF), has been following the EC's latest move against manufacturers.

It has sought to extend the public fines arising from dieselgate to private compensation of automobile consumers through collective action court cases.

For example, last year DEJF brought collective proceedings against Volkswagen, Audi, Porsche, Skoda, and Seat, and other parties in the Netherlands using the new Dutch law, the Mass Damage in Collective Action (WAMCA) Act. It is pursuing similar actions across Europe.

DEJF plans on working with economists to decide whether related legal action will follow in this case. "What is very difficult to assess is the amount of damages for the clients. What would be the financial cost to the clients lacking the technology that would have allowed his or her car to be cleaner than it is today? This is very important to assess," said DEJF executive board member Maria José Azar-Baud, an associate professor at the University of Paris-Saclay and collective redress expert,

Azar-Baud said it is too early to say whether this matter will have the same fallout as dieselgate. "But we're dealing with those same companies in these cartels when dealing with the audit. It's also exactly the same period, 2009 to 2014," she told IHS Markit.

The latest controversy is different as the engine technology is only found in passenger cars, whereas in the dieselgate matter the engine technology was found in both cars and trucks, she added.

She said that in such cases, manufacturers can anticipate writing off the limited amount of an EU fine, but they will not be able to do so for private or collective damage cases. Pursuing both routes is the way to influence manufacturer behavior, she explained.

The foundation is seeking to make compensation for diesel vehicle consumers more widely available. "And it's very important because these pan-European companies should be accountable. [Citizens won cases in] Australia, Germany, and Italy, but what about Belgium? That is what our initiative is about, trying to make compensation the same for all Europeans and not just in situations that are company-friendly, or in some jurisdictions but not in the other ones," she said.

The EC's fine came in just shy of a week before it is due to propose legislation to toughen vehicle emissions standards, and to include transport emissions in an expanded EU Emissions Trading System.

The EU is expected to regulate vehicle emissions as it is now legally obliged to target carbon neutrality by 2050 following the passage of a climate law that builds on its 2019 European Green Deal.

Posted 13 July 2021 by Cristina Brooks, Senior Journalist, Climate & Sustainability, IHS Markit

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