EU seeks to harness VW outrage in diesel testing push

By Barbara Lewis and Laurence Frost

BRUSSELS/PARIS (Reuters) - The European Commission sought on Tuesday to increase pressure on carmakers to agree to faster, deeper diesel emissions cuts, counting on public anger over Volkswagen's test-rigging to help its case.

In an unprecedented test of its political heft - and of European regulatory enforcement - the industry is resisting a push by Brussels to crack down on nitrogen oxide (NOx) emissions that are as much as seven times the legal limit on average.

European government officials met in Brussels in an attempt to unlock a stalemate over plans to introduce real-world measurements of diesel emissions rather than rely on easily manipulated lab tests.

The results of the meeting, when they become apparent, may offer "one of the first weather vanes" for an auto industry now facing tougher emissions regulation, said Arndt Ellinghorst, a London-based analyst with Evercore ISI.

The U.S. Environmental Protection Agency's exposure of VW cheating has provoked wider scrutiny of the chasm between official test results and excessive real-world diesel emissions by much of the industry in Europe. NOx and particulates are blamed for many thousands of deaths each year.

The chronic failure to close that gap, confirmed by European Commission research, has drawn unfavourable comparisons with Washington's track record in policing business. U.S. authorities have recently seized the initiative in bank rate-rigging and sports corruption investigations.

Europe's regulatory lapse has also handed talking points to anti-EU politicians while disappointing supporters of European integration, like Dutch Liberal Gerben-Jan Gerbrandy.

"The U.S. has a huge advantage in having its own independent authority, which is something we lack here," the member of the European Parliament said. "We have to create strong, independent surveillance."

VW told German lawmakers it had installed illegal "defeat devices" in 8 million European cars, in addition to the 480,000 affected in the United States. The software was used in 11 million vehicles globally, the company has said.

Real-world NOx testing is due to begin early next year, with its results coming into play in late 2017, seven years after the European Commission announced the initiative.

The stakes are high for the European car industry, which employs 3 million manufacturing workers and faces a potential bill for billions of euros if forced to make big, sudden changes to its latest "Euro 6" diesel technology.

The Commission's current proposals would require about one in ten currently certified car model types to be retired or significantly altered before the end of their lifespans, according to officials.

In the VW scandal's aftermath, EU Industry Commissioner Elizbieta Bienkowska said the political will now existed for speedy implementation of the new test regime, while pledging "zero tolerance" of fraud.

But while Britain, France and Italy support the new testing plans, one Commission official said, Germany, Austria and a handful of Eastern European carmaking countries are backing the industry's rearguard action to water them down.

German diplomats declined to comment. The auto industry has one of Europe's most powerful lobbies, thanks in large part to its steadfast support from Berlin.

Chancellor Angela Merkel has weighed in before to defend German automakers at EU level, notably in 2013 over future carbon emissions cuts. This time, however, her government's stance is attracting more criticism at home.

"Consumer deception is no trivial offence," Germany's VZBV umbrella group of consumer organisations said after the VW scandal broke, echoing environmentalists' longstanding calls for tougher EU tests.

"Until now the German auto industry has been handled with kid gloves by politicians and the authorities," it said.

GIFT TO EU CRITICS

Through their Brussels lobby group, ACEA, the carmakers argue that they should be allowed to continue overshooting the 80 milligramme/kilometre NOx limit by 70 percent, to account for real-world testing inaccuracies, according to an Oct. 1 presentation seen by Reuters.

An ACEA spokeswoman said it was "too early in the process to confirm or comment on hypothetical figures". A Commission spokeswoman also declined to discuss proposals in detail.

In a letter, seen by Reuters, to ministers and EU officials, however, current ACEA chairman and Renault Chief Executive Carlos Ghosn said that no significant progress on NOx was possible before 2019.

The Commission is proposing that real-world NOx readings be allowed to exceed the limit by a more modest 20 percent after a two-year transition period at 60 percent, EU officials said.

National officials will now consult with their capitals, two diplomats said after Tuesday's meeting, and the measures are likely to be discussed by transport ministers on Thursday.

Whatever the eventual deal on emissions testing, the cheating by Volkswagen and its exposure by U.S. authorities are a gift to EU critics across the 28-member bloc.

"The Volkswagen scandal shows the European rules don't work," said Owen Paterson, a British Conservative former environment minister who is calling for the country's EU exit in an impending referendum.

"The EU has completely failed here - and people have been poisoned."

(Writing by Laurence Frost; Additional reporting by Guy Faulconbridge in Manchester, Caroline Copley in Berlin and Gilles Guillaume in Paris)