German Court Puts Millions of Diesel Cars at Risk of Bans

(Bloomberg) -- Germany's top administrative judges put millions of diesel cars at risk of being banned from city centers in a ruling that sent the shares of the country's carmakers lower.

The judges in Leipzig refused to overturn lower court decisions that pushed Stuttgart and Dusseldorf toward plans that would remove older diesel vehicles from inner cities. The court said the towns can be forced to implement bans if they are the last resort to cut pollution but some drivers can get exemptions to avoid disproportionate effects.

“Bans are generally permissible and can be implemented in a way to avoid disproportionate effects,” Presiding Judge Andreas Korbmacher said Tuesday. “European Union rules require that cities must implement them if there are no other effective measures to reduce pollution.”

Shares of carmakers declined after the decision. Volkswagen fell as much as 2 percent, while BMW fell 0.8 percent and Daimler shares were down 0.6 percent.

Drivers and carmakers have been anxiously watching the case, which leads to questions about the future of diesel models. The judges' decision is a blueprint for more than fifty other municipalities that also struggle with regulation-busting pollution levels of nitrogen dioxide.

“This is a full win for us,” said Juergen Resch, head of environmental group DUH, which brought the initial cases. “We now expect the car industry to upgrade cars and the federal government to provide the necessary rules to allow cities to apply bans coherently.”

The lower courts had argued that banning diesel cars in inner cities is the most effective way to meet EU pollution limits. No other proposal would bring cleaner air to quickly mend the situation, the Stuttgart court decided. Car owners' property rights are less important than protecting the health of citizens, according to those rulings.

In 2017, 66 German cities failed to meet the EU standards, although some only break the threshold by a few grams.

“We have legal clarity now," said Wolfram Sandner, a lawyer for Baden-Wuerttemberg, Stuttgart's home state. “The ruling allows the sort of flexibility we wanted to get. The federal government now should amend laws to allow a coherent application across Germany.”

How German Rulings Could Bring Diesel's End: QuickTake

The ruling should bring to an end the era when policymakers try everything to protect the auto industry, Claudia Kemfert, a transport policy expert at the Berlin-based DIW research institute, said in a statement.

“Policymakers and car companies now finally have to act,” Kemfert said. “The auto makers are at last obliged to effectively retrofit models with excessively high emissions.”

Diesel engines are the main emitters of nitrogen dioxide, which causes respiratory problems and has been linked to premature deaths. Under European Union rules, member countries had to keep the gas under 40 microgram per cubic meter in the air by 2010. Six years years after that deadline, the average levels in Stuttgart were still about double of what's allowed.

Owners of diesel cars with Euro 5 emissions technology face a “significant” drop in the resale value of their vehicles, consultancy EY said in a report. The court said Euro 5 cars must be exempt from bans until Sept. 2019, while older Euro 4 vehicles and earlier models can be removed from the streets immediately.

The cities must also include exceptions for some service providers and small businesses who need to have access to inner cities, according to the court.

While federal law doesn't provide the necessary rule to easily implement bans, that doesn't mean they're illegal, Judge Korbmacher said. National law must be set aside if it's an obstacle to meet limits set by EU standards. Korbmacher also urged lawmakers to provide for a national legal framework to avoid having different kind of bans in every city across Germany.

The cities now must revamp their anti-pollution plans. There's no strict deadline and the process will take at least six months. Stuttgart was ordered by the lower court to use bans and Dusseldorf was told to seriously consider them. The appeals court now said that bans must be implemented if they are the last resort to improve air quality.

Diesel Growth

The industry promoted diesel as a way to reduce output of CO2, a greenhouse gas blamed for global warming. That encouraged carmakers to stick with the technology despite difficulties in meeting tougher standards.

EY said sales of diesel cars will continue to slide and may only make up 25 percent of the total this year, compared to 51 percent in 2015.

That's the year VW admitted using software to cheat emissions tests on 11 diesel models. The company has already paid out more than 25 billion euros ($31 billion) in fines, settlements and other costs since the scandal came to light, and other carmakers still face probes.

Diesel bans are the wrong way to solve a problem that only affects specific places under specific circumstances, Thilo Brodtmann, managing director of Germany's VDMA machine makers association, said in a statement.

“It would be much more sensible to keep the air clean by improving traffic management and making public transport more attractive, "said Brodtmann. "Driving bans lead only to an increase in monitoring and a patchwork of new regulations.”

The cases are: BVerwG, 7 C 26.16 u.a.

--With assistance from Iain Rogers Angela Cullen and Elisabeth Behrmann

To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net.

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Christopher Elser

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