The Guest Blog

Guest blog post by Hans-Jochen Luhmann, Senior Expert at the Wuppertal Institut für Klima, Umwelt, Energie.

The not even steadily but actually increasingly increasing discrepancy between target and real (NOx emission) values of cars and vans has not been a new phenomenon – it has been measured and published since more than a decade. In September 2015, the authorities got aware of the thoroughly illegal or nearly illegal nature of the causes of this increasing increase. It became now obvious also for everybody. This is an act of all of sudden attracting attention – commonly called „Dieselgate“. Dieselgate is about illegality, not about the emissions themselves.

Further investigation revealed as root cause a state failure. That is the result arrived at by EMIS or the European Parliament respectively. EMIS declined the label “state failure”, as the European Union is not a “state” in strict legal meaning – EMIS called the systemic cause „maladministration“. Whatsoever it may be labelled: It is undisputed, that agencies of national states were together the subjects responsible for slipping the slope towards non-compliance. More specifically: Agencies of some of the European Member States did fail, not an EU agency – as there does not exist such a regulatory agency at EU level, which could have failed. Nearly each of the ten (out of 29) state agencies really involved in the type approval certification business helped their clients to underperform in some of their cars’ quality. State agencies offered aid, in a discriminatory treatment. That is, reframed, EMIS’ result. EMIS diagnosed “state aid”, even not explicitely.

For European people, the (states’) failure, the detected state aid, expressed itself in three extremely harmful consequences:

(1) The number of automotive products with non-conforming type approval certificates on European roads has so far increased up to more than 30 Mio, the stock of those cars still increasing. (2) The illegal part of NOx emissions from the exhaust pipes of all these vehicles over the last ten years has already resulted in premature death cases of about 100.000, according to the European Environment Agency – also this figure increases still, year by year. (3) The damage in Europe piled up over more than a decade to a magnitude of about 800 billion Euros. That is calculated applying specific cost factors as used by US-EPA. The direction of movement also here is of course pointing upwards.

These consequences cannot be made undone. To cancel the ruling non-conformity state in total, to implement the rule of law immediately, is an aim of illusionary nature. It would imply to revoke the type approval of more than 30 Mio vehicles in Europe and to allow them to re-enter the roads only after having brought each of them in legal conformity. This approach conforms to legal textbooks, but is too radical for being implementable. It would imply litigation cost of about 400 billion Euros for OEM, mostly with producing facilities in Europe. Apparently they won’t be able to bear such a burden, but also members of the car manufacturer family are “too big to fail” – “their” member states would have to bail them out, a second sovereign debt crisis, as in the aftermath of 2008, would arise. That is simply too much for Europe.

We seem to be condemned to live with the given and even growing illegal state of affairs, even if it may be against basic principles of states where allegedly the law may rule. The ambiguous behaviour of all Ministers responsible in states with an automotive industry is to be understood as an expression of this dilemma. Any Minister in charge, Alexander Dobrindt in Germany e.g., has no choice than ambiguously deal with the outcome of what his predecessors have decided in the second half of the 2000-decade.

The EMIS report reveals: For the ruling political class in Brussels as well as in the EU-member states it has been obvious after the legislation to Euro 5 at least, that the system of regulating type approvals, if allowing its further undisturbed running as it runs, would result in a fall of the established limits. Nevertheless, it has been decided to let the system run, i.e. “due to choices of political priorities”. The driving motive has allegedly been “the focus of the Commission and the Member States on avoiding burdens on industry in the aftermath of the 2008 financial crisis.” (Conclusions, p. 4). [1]

The mechanics of the system’s run is crystal-clear: Due to the abandoning of the monopoly of national type approval authorities in connection with the introduction of the common European market and the accompanying regulatory “new approach” in the 1990ies those authorities were urged to behave as companies – but without any supervision about the (legal) quality of their ‘product’, i.e. the issuance of type approval certificates with EU-wide validity. One of the implications was the increase of certificates for non-conforming automotive products. That implied consequences for the healthiness of the competition in which the – by them – regulated OEM are engaged in Europe: It were (also) turned into unfairness. Violations, distorted competition, at both levels.

To sum up: Dieselgate indicates phenomenons of unfair competition promoted by, in systemic scope, state failure or, in legal scope, state aid. Negatively affected by the unfair conditions are subjects in the automotive industry, the automotive supply industries as well as the competitors at the general mobility market, i.e. rail, local public transport and bikes.

The European law for the protection of fair competition provides the opportunity of corrective action. The case under consideration entails two characteristics: (i) Some companies, which produce or import cars (or LDVs), got “aid by a state (authority)” – a (member) state authority allowed them, to fall short of the respective car quality requirements according to European law. „Due to this aid, they got an advantage vis a vis some competitors “.

Both phrases put in quotation marks comply rather exactly with the definition of state aid in European law, which is in principle illegal according to Article 107 Lisbon Treaty. There is no doubt: what EMIS has revealed has been state aid for some companies in the common market, which resulted in a distorted competition by granting advantages in a discriminatory manner. And this aid is still being granted – it has neither been brought to an end with the detection of Dieselgate nor with the correction of the EU legislation on type approvals in May 2017.

In terms of the special law on type approvals, the EU Commission declared not having a mandate for interfering with the obviously illegal situation originated by member states which refused and further refuse to implement the EU type approval law accordingly; one has to deplore but nevertheless to consent to this appraisal of legal impotence at EU level.

But for general perceptions or assertions of impotence there is no reason – such perceptions are only imagined, given the competences of the EU in the law to protect fair competition. The respective mandate of the EU Commission is far reaching. She failed up to now only to bring it into play. The disadvantaged competitors contributed as they failed to ask the Commission to use its competence. The DG Competition of the EU should be carried to the hunt, in order to enforce the rule of law appropriately and with a sense of proportion, without provoking a next sovereign debt crisis in Europe.

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