Brussels Sketch

Beware Europe’s automotive-political complex

The VW emissions scandal dredges up uncomfortable questions about German influence in Brussels.

The Volkswagen scandal over emissions tests has many noxious miles still to run and it is not yet clear what other car companies might be drawn in. But it would be a miracle if the European Union walked away from this story unscathed.

The EU is already coming under attack for having failed as an environmental cop. It was left to an American regulator to expose the corporate skulduggery. Closer examination of the record of VW’s relations with the EU will only add to the charge sheet.

It is no secret that VW occupies a special place in the German political economy. The VW law of 1960 gave the federal government and the government of Lower Saxony (Niedersachsen) special privileges, including seats on the supervisory board. In 2001, the European Commission challenged VW’s share structure, which included limits on voting rights, arguing that it was incompatible with a single market and the free movement of capital. The German government, led by the Social Democratic Chancellor Gerhard Schröder, resisted that charge strongly. Schröder had previously been prime minister of Lower Saxony, and in that capacity sat as a member of VW’s supervisory board, as did David McAllister, who was prime minister of Lower Saxony from 2010-13, and is now a center-right member of the European Parliament.

The ties that bind

Although the Commission did win court judgments against Germany over the VW law, which forced some modifications, the close relationship between VW and Germany’s political elite remains to this day. Sigmar Gabriel, Germany’s vice-chancellor, who is minister for economic affairs and energy, is another former prime minister of Lower Saxoy.

This close relationship in turn contaminated the Commission, particularly from 2004, when the then President José Manuel Barroso bowed to German demands and assigned the industry portfolio to Günter Verheugen, who was embarking on a second term as one of Germany’s European commissioners.

Barroso declared that combating climate change would be a priority of his Commission, and there ensued a series of fierce struggles between Stavros Dimas, the European commissioner for the environment, and Verheugen. In 2005, Verheugen convened CARS 21, a high level group of stakeholders, drawn from the auto industry and its regulators. The acronym stood for Competitive Automotive Regulatory System for the 21st century: The emphasis was on ensuring that the German/European car industry was competitive and, by implication, that regulation did not put European carmakers at a competitive disadvantage.

However, the German car companies — and indeed the German government — resisted Commission proposals to revise downwards the limits on carmakers’ (fleet average) carbon emissions.

Since the likes of BMW and VW tended to make heavier cars, while the fleets of the French carmakers were lighter, Germany and France struck a deal on the methodology of calculating the emissions relative to the weight of the car, so that Germany was not disadvantaged. This intense lobbying was sustained through every turn of the EU’s lawmaking machinery.

A version of the Commission proposal was, however, eventually passed in 2009, with some aspects watered down and delayed. It involved transferring some of the obligation to reduce carbon emissions to EU legislation on biofuel — so that some of the savings would come from fuelmakers rather than carmakers. The carmakers were also given “supercredits” for making battery-electric and plug-in hybrid cars. The European Parliament, in which German MEPs predominate, played its part in amending the legislation. It was further revised in 2014, after a second wave of lobbying in 2012-13.

The lobbying over carbon emissions was accompanied by a similar effort to resist tougher standards on particle pollution (or particulates.) That was consistent with VW’s preference to reduce carbon emissions with a switch to diesel-powered cars, even though diesel engines are more polluting in other respects. The difficulty for VW in America has stemmed from tougher rules there on particulates.

What we can now expect is environmental campaign groups to rake over the history of the negotiations on EU emissions rules in light of the current disclosures about “defeat devices” — software that was installed so that VW engines would recognize when they were being tested for emissions and adjust engine performance accordingly.

Juncker’s headache

It is already clear that parts of the Commission were skeptical about the reliability of existing laboratory tests. In 2013, the Commission’s in-house research department, the Joint Research Center, reported on possible
supplementary tests and referred to the possibility of “defeat strategies.” What Alexander Italianer, the Commission’s new secretary-general, might care to examine is how and why the departments for environment and climate change lost out in the arguments over regulating road transport to the departments for enterprise, and transport and energy.

It should be acknowledged that Jean-Claude Juncker, at the outset of his term as president of the European Commission, made some sensible changes by overhauling what had been the directorate-general for enterprise.

The creation of DG GROW might yet break down the previous silo mentality, which was bound to see Commission units and directorates forming cozy relationships with the industries that they were supposed to nurture/promote/regulate.

National interest

However, the VW episode poses questions about Juncker’s wisdom in assigning portfolios to commissioners according to the particular preoccupations of their countries. (Farming went to the commissioner from Ireland, financial services to the Briton, fisheries to the Maltese.) And for Barroso, whatever the demands at the time from Schröder, Verheugen should not have been allowed to become commissioner for the German car industry.

While the success of the car industry is very important to the European economy (albeit not as important as it once was), the Commission will struggle, in light of VW’s admission of wrongdoing in the US, to justify the concessions that it made, particularly on emissions standards.

Why, it will be asked, did you weaken standards for a company that was ready to breach those standards anyway, paying only lip-service to the fake tests?

The damage here goes beyond the harm to the environment and human health. It includes the exposure of the EU as both a toothless regulator and a flawed lawmaker.

We already know that, whereas environmental regulators in the U.S. are feared, their EU counterparts do not inspire the same respect. They do not have the powers of direct enforcement that are enjoyed, for example, by the Commission’s competition department, so that taking on non-compliant companies is largely a matter for national regulators.

But the VW saga goes further than that: It casts doubt on the way that EU laws are drawn up. It reminds us that the legislation has already been shaped according to corporate taste, with an abundance of stakeholder consultation and lobbying. “We need the input of the lobbyists,” has been the constant refrain of many lawmakers.

In the wake of the defeat devices admissions, that claim is bound to provoke some sarcastic laughter. This emissions scandal will be seized upon by those who believe that EU regulation has been captured by corporate lobbying. VW has done its corporate brothers and sisters no favors at all.

Tim King writes POLITICO’s Brussels Sketch.