Germany's Diesel Decision: Bans Are Allowed, But Are They Wise?

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(Bloomberg View) -- A top German court in Leipzig ruled on Tuesday that cities have the right to ban diesel cars. Though the incoming coalition government has vowed to avoid such bans, the ruling is a deadly blow for diesel engines in Germany, an event on a par with the country's 2011 decision to phase out nuclear power plants. From now on, buying a diesel car is an act of unnecessary courage.

The Federal Administrative Court affirmed the legality of bans imposed by courts in Duesseldorf in 2016 and Stuttgart in 2017. These cities, prodded by an environmentalist group, Deutsche Umwelthilfe, wanted the right to keep out older diesel cars because of higher than normal pollution levels. State authorities appealed the bans, but Tuesday's decision ended that legal avenue. In practical terms, this means only the newest diesel cars, conforming to the Euro 6 standard, are safe from bans that could be imposed anywhere -- and especially where pollution is consistently high. Unsurprisingly, Germany's most populous areas are on this list. Locations in Berlin, Gelsenkirchen, Leipzig, Munich, Nuremberg, Dortmund and Hamburg are among those where fine particle pollution regularly exceeds the norm. All big German cities now overshoot the European nitrogen oxide (NOx) limit, with Munich, Stuttgart and Cologne the worst. 

Not even the owners of Euro 6-compliant diesels can rest easy: Norms can change, and environmental groups can get hungry for more successes.

The coalition agreement on the formation of the next German government specifically says -- twice -- that diesel bans are to be avoided and that cleaner air can be achieved by other means, such as increasing the share of electric cars and using them for government service. In typical style, Chancellor Angela Merkel sought to calm the public after the Leipzig ruling, saying that no universal Germany-wide ban was coming and that the federal government would talk to states and cities with high pollution about trying other measures. However famed Merkel's negotiating talent, it's not something on which to hang a major decision like a car purchase. There isn't even a universally recognized program for clearly marking vehicles that comply with the modern standard.

According to DAT Group, which collects data on the German car market, 23 percent of those who bought a new car and 15 percent of used car buyers in 2017 said the discussions around diesel influenced their purchase decision; almost one in five of these buyers were in the market because they got rid of their diesel vehicles. That was probably a wise move: Diesel residual values -- the value after depreciation -- dropped significantly last year while gasoline-powered autos gained.

That's a major headache, not just for car owners but also for the German car industry. Diesel cars made up 45.8 percent of new registrations in Germany in 2016, the latest year for which data are available from the European Automobile Manufacturing Association. That's not as high as Ireland's 70 percent, yet high enough to make quick retooling expensive -- not to mention the potential for angry car owners' demands that manufacturers retrofit their cars to comply with pollution regulations. There's already political pressure on them to bear any potential costs of such retrofits.

Dealers have a problem of their own. Today, according to DAT, it takes 102 days to sell a used diesel car, compared with 89 days for a gasoline one. A wave of driving bans could be an existential threat to the business, given how many old diesel autos are out there.

And then there's the logistics and delivery business. A lot of it depends on diesel trucks in Germany, and if city centers close to those trucks, there could be lengthy disruptions. Businesses are already up in arms as the smaller ones cannot afford to replace their vehicles.

Merkel has made abrupt decisions with far-reaching consequences, such as the nuclear phaseout after the Fukushima disaster or the open-door policy for refugees in 2015. The diesel decision is a similar scary leap into the unknown, only it's been made without Merkel and against her will. It'll be a mammoth job to make sure the diesel phaseout, which is all but inevitable today, is gradual and as painless as possible for everyone involved.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

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