Volkswagen diesel scandal hastens end of dominant use of oil for transport

We should beware of panaceas – policies that promise a universal solution to our energy and environmental problems. Europe’s shift to diesel cars was hoped to reduce carbon dioxide emissions, reduce exposure to oil price shocks and aid technologically sophisticated car makers, particularly the Germans and French. But the revelation that VW cheated on pollution tests throws all of that into doubt.

Diesel cars can get up to 30 per cent better mileage than petrol. But due to diesel’s higher emissions of other pollutants – particularly nitrogen oxides which contribute to smog and acid rain, and fine particulates that cause lung damage – this strategy could only work if manufacturers could make clean diesel engines.

The European Union set laxer pollution standards on diesel than petrol engines. As diesel fuel and diesel engines are more expensive, European countries had to tax petrol more heavily to encourage motorists to switch.

The incentives achieved the aim of attracting drivers: diesel vehicles made up 53 per cent of new car sales in Europe last year. India is the only other large market to have such reliance on diesel, while the United States, Japan and China have only small numbers of diesel passenger cars. Recent models, though, seemed to be able to pass not only European tests, but also stringent US smog regulations.

That was until independent US researchers found the VW Jetta emitted 15 to 35 times as much nitrogen oxides in real world driving as in tests, and the Passat five to 20 times as much. After investigations, VW admitted that the software in its cars was designed to detect when vehicles were being tested in laboratory conditions, and switch on pollution controls.

The Obama administration showed with BP’s Macondo blowout its keenness to levy huge fines on foreign companies – which could total US$18 billion for VW in the US, not to mention any EU penalties. The fact that no other car maker detected or complained about VW’s subterfuge must raise questions as to whether some were using similar tactics.

What is still not clear is how much performance, fuel economy and engine life will be lost by turning VW’s pollution controls on during normal driving. European cities are increasingly complaining about diesel pollution. Bigger and higher-end diesel cars may well survive, while the preference for smaller vehicles switches back to petrol.

Even if they themselves have done nothing wrong, other car companies may suffer from a shift away from diesel vehicles. VW is not the most exposed – 56 per cent of its 2013 European sales were diesels, compared to 81 per cent for BMW and 87 per cent for Volvo.

A switch away from diesel will hurt not only certain car makers but refiners who have invested massively in new facilities compliant with European standards. Saudi Aramco’s two new 400,000 barrel per day refineries are geared towards diesel, while Adnoc’s recent expansion of the Ruwais refinery means that diesel represents about a third of its output.

Designers are trying simultaneously to make an engine that is cheap, efficient, reliable, clean and high-performing. There is no panacea to achieve all these goals, only a steady improvement that also responds to consumer preferences and government direction. If car makers struggle to sell clean diesels, the European, US and Chinese markets will turn instead to highly efficient petrol engines with direct fuel injection; to natural gas-fuelled vehicles, already popular in China; hybrids; and electric cars, which already make up 23 per cent of all new sales in Norway. Self-driving vehicles offer further fuel-saving possibilities.

It is the turn to non-petroleum-fuelled vehicles that should most concern oil exporters. Truly competitive electric cars would satisfy environmentalists, drivers and energy security hawks alike. Oil's loss of its transport monopoly is on the way, and the VW scandal will only accelerate it.

Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis.

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