Ercüment Erdem Att. Mert Karamustafaoglu

New Horizons in Competition Law; Diesel Emissions Scandal

November 2018
“No one is as blind as someone who doesn’t want to see.”
İbni Sina

Introduction

The United States of America Directorate of Environmental Protection announced in 2015 that the exhaust emission tests performed on Volkswagen (“VW”) diesel engine vehicles at the factory exit point were faulty[1]. Following this announcement, it was alleged that many German Automakers, amongst which BMW, Daimler, and VW groups also take part, had been manipulating exhaust emission rates. This situation rendered the millions of vehicles produced worldwide by the above-mentioned automakers controversial. It is alleged, however, that the exhaust emission tests performed at factory points of exit on 11 million vehicles manufactured only by VW were faulty.

In fact, many vehicles were also recalled due to airbag, gearbox problems, or other faulty issues, such as braking systems. However, the incident referred to as the “Diesel Emission Scandal” involves very different aspects than these noted issues. According to the alleged claims, the subject vehicles’ carbon emissions are being deliberately understated through software placed in the diesel engine vehicles. In other words, the manufacturers are deliberately understating the exhaust emission rates through software, thereby deceiving the consumers.

The Diesel Emission Scandal consumed the agenda of public opinion over the course of time. The stock share values of the aforesaid automakers decreased by the billions of dollars as a result of this scandal. Certain German cities imposed several prohibitions with respect to allowing entry of these diesel vehicles. However, the most important development was the VW settlement announcement regarding the claims for damages published by the USA Directorate of Environmental Protection[2]. Thus, VW settled, with prejudice, agreeing to pay billions of dollars in compensation by accepting the claims against it.

On 18 September 2018, namely, approximately three years after the Diesel Emission Scandal outbreak, the European Union Commission (“EU Commission”) announced that it had opened an investigation with respect to BMW, Daimler and VW (Volkswagen, Audi, Porsche) on charges of violating competition laws[3]. The EU Commission will investigate whether the automakers are part of an agreement that eliminates competition between them regarding the development and dissemination of emission-reducing technologies for gasoline and diesel vehicles. Thus, it will be examined whether automakers that are competitors for the development of emission technologies in gasoline and diesel vehicles are violating the competition laws by eliminating the technological competition between them.

Diesel Emission Scandal Investigation by EU Commission

The EU Commission took its first action regarding the Emission Scandal in October, 2017. The EU Commission announced on 20 October 2017 that they conducted on-the-spot investigations on the suspicion that these German Automakers are violating the competition laws[4]. The EU Commission closely followed the developments regarding the Diesel Emission Scandal over the course of time, and continued to monitor events as they unfolded. However, in its press release dated 18 September 2018, the EU Commission clearly indicated that at this time, automakers, such as VW, BMW and Daimler are being investigated regarding the Diesel Emission Scandal.

The statement of the EU Commissioner for Competition, Margrethe Vestager, concerning this matter is also remarkable. Vestager stated that they have investigated the claim that the above-mentioned automakers are violating the competition laws with respect to the development of emission-reducing technologies used in gasoline and diesel vehicles. Vestager qualified this claim as an infringement of the competition law that prevents consumers from purchasing lower pollutant-emitting vehicles, despite what is technologically available.[5] Therefore, an interesting investigation concerning the unusual claim that the competition laws are being violated by preventing technological development and restricting the competition between the competitors was birthed.

The EU Commission is also investigating the claim that BMW, Daimler, Volkswagen, Audi and Porsche, which are commonly referred as the “Circle of Five,” are exchanging information with respect to clean vehicle technologies through various meetings held amongst them. The EU Commission is specially concentrating on two emission systems used in the European Union. Whilst the SCR (Selective Catalytic Reduction) system is used to decrease harmful nitrogen oxide oscillation in diesel passenger vehicles, the system called OPF (Otto Particulate Filters) decreases the harmful particles’ oscillation in gasoline passenger vehicles.

If the BMW, Daimler and VW groups have formed an agreement to restrict technical development, this will be in violation of Article 101 of the Lisbon Treaty, through an agreement or a concerted action. In the relevant announcement of the EU Commission, it is also stated that at this stage, there is no clear evidence that these manufacturers used deceptive tools to mislead exhaust emissions tests, or that there was a consensus to this end amongst the said automakers. However, this is undoubtedly one of the first issues to be examined in the investigation phase.

Whilst the EU Commission's main claim in the scope of the investigation concerns emission control systems, it is alleged that the automakers are also exchanging information on other matters, as well. For example, it is claimed that the mentioned undertakings are exchanging information on technical matters, such as common technical standards on automotive spare parts, as well as procedures for vehicle tests. In addition, it is known that the mentioned enterprises held various meetings on technical issues, such as sun roof and cruise control systems. It is also claimed that the Federal German automakers expanded their coordination to areas related to vehicle safety, such as crash tests, and shared their knowledge and experience in this area in a common pool.

Conclusion

The Diesel Emission Scandal, which started in 2015, radically changed the future plans of the relevant market’s players, particularly the German Automakers, eespecially with respect to the developments in the USA and Germany, which are quite remarkable. In the USA, the settlement negotiations, on behalf of millions of consumers, continue[6]. Recently, this issue is more current, in Germany. For example, the Braunschweig Prosecutor's Office levied an administrative fine on the VW Group of EUR 1 billion[7]. VW announced that it would not object to this penalty, and accepted its responsibility. The Prosecutor's Office stated that between 2007 and 2015, approximately 10.7 million vehicles, worldwide, have installed software that manipulates emission rates. In addition, the price paid by the VW Group for the Diesel Emission Scandal reached EUR 25.5 billion. In addition to the compensation paid to the consumers, this amount includes the administrative fines that were paid.

In May, 2018, Hamburg was the first major city that introduced restrictions on the entry of diesel vehicles into the city[8]. Diesel vehicles were banned, and warning signs were placed in various parts throughout Hamburg[9]. In April, 2019, the Diesel Ban will enter into force in Cologne and Bonn[10]. It was decided to apply various bans on diesel vehicles in other cities, such as Berlin, Frankfurt, Gelsenkirchen, Essen, Mainz and Stuttgart[11]. In short, the Diesel Emission Scandal is rapidly growing and deepening.

The EU Commission's investigation on the Diesel Emission Scandal is a challenging process, as it will have to distinguish the negotiations between the automakers on technical issues, from information exchange, which is an infringement of competition law. Although the rules of competition law allow cooperation between enterprises for the purpose of technical development, this does not include infringements of competition law. The EU Commission will have to examine a very interesting claim of an infringement of competition law on the basis of the investigation, particularly, the restriction of competition through the prevention of technical development. Thus, this will be the precursor of new developments in competition law.

[1] See also for detailed information, https://www.bbc.com/turkce/ekonomi/2015/09/150922_volkswagen_emisyon (Access date: 28.11.2018).

[2] See also for detailed information, https://www.epa.gov/enforcement/volkswagen-clean-air-act-civil-settlement#civil (Access date: 7.12.2018).

[3] http://europa.eu/rapid/press-release_IP-18-5822_en.htm (Access date: 7.12.2018).

[4] http://europa.eu/rapid/press-release_STATEMENT-17-4084_en.htm (Access date: 7.12.2018).

[5] See also for detailed information. http://europa.eu/rapid/press-release_IP-18-5822_en.htm (Access date: 7.12.2018).

[6] https://www.epa.gov/enforcement/volkswagen-clean-air-act-civil-settlement#civil (Access date: 7.12.2018).

[7] https://www.morgenpost.de/wirtschaft/article214571605/VW-muss-in-der-Dieselaffaere-eine-Milliarde-Bussgeld-zahlen.html (Access date: 10.12.2018).

[8] https://www.zeit.de/mobilitaet/2018-05/diesel-fahrverbote-hamburg-stickstoffbelastung (Access date: 10.12.2018).

[9] http://www.spiegel.de/auto/aktuell/diesel-fahrverbote-in-hamburg-ab-31-mai-a-1209050.html (Access date: 10.12.2018).

[10] https://www.faz.net/aktuell/wirtschaft/diesel-affaere/diesel-fahrverbote-in-koeln-und-bonn-von-april-2019-an-15880711.html (Access date: 10.12.2018).

[11] https://www.adac.de/rund-ums-fahrzeug/abgas-diesel-fahrverbote/fahrverbote/dieselfahrverbot-faq/ (Access date: 10.12.2019).