Counting the real cost of dieselgate

Carmakers now face an uphill challenge to meet stringent EU tests for diesel exhaust pollutants as well as super-low CO2 and fuel consumption regulations. 'Clean' engines come at a price.

by Hilton Holloway
Last Updated: 13 Mar 2017

It's no exaggeration to say that the European car market is about to drive into a diesel-fuelled technological and legislative cul-de-sac. Long-held EU plans to reduce average fuel consumption - which gave the advantage to diesel engines - have suddenly collided with rigorous new air pollution tests, which are very difficult for those same diesel engines to meet.

For fleet and business users - perhaps the single most important part of the new car market - what should have been a useful transition to ever-lower fuel costs, now seems likely to result in more expensive and more complex new vehicles.

A worst-case scenario could see businesses pushed to purchase electric and plug-in hybrid vehicles, which might well have less solid residual values. After all, the cost of running business fleets is underpinned by private market demand at resale time, and will private buyers want to purchase a complex diesel-electric car when it is three years old?

With European-level government in the frame for this clash of contradictory expectations, perhaps it's no wonder so many people sympathised with Michael Gove's Brexit dismissal of 'experts'.

In the late 1990s, diesel engines were billed as the answer to driving down CO2 emissions. But they're now recognised as also driving up levels of harmful pollutants (specifically particulates and oxides of nitrogen, NOx) in urban areas.

It was the 2015 Volkswagen Dieselgate scandal - where US market VW diesel cars were found to use software designed to get around the country's super-strict air quality laws - that also put similar vehicles in Europe under intense scrutiny. Indeed as this is written, US authorities have accused Fiat Chrysler of irregularities around some of its American-market diesels and, in Europe, an investigation into the emission levels of Renault's diesel vehicles has been passed on to the French Public Prosecutor.

While they can be remarkably economical, it's now becoming clear that only the most expensive and up-to-date forms of diesel engine are 'clean' enough for use in towns and cities.

Indeed, such is the backlash against the fuel that the leadership of four global cities - Paris, Athens, Mexico City and Madrid - have vowed to drive diesel-powered vehicles off the road altogether by 2025. In the UK, a legal firm called ClientEarth has twice won judgments against the official approach to reducing the levels and effects of diesel pollution. And UK government agencies now think that the rising use of diesel - and the consequent rise in NOx levels - is leading to '50,000 early deaths' each year.

Relying on 'natural wastage' as older cars are scrapped, it might have taken until 2030 for Greater London and until 2025 in the Midlands and West Yorkshire for NOx levels to fall below the current EU legal limits.

But as a result of those successful court actions, the government may now have to bring in 'low-emission' zones as early as 2018. That's likely to mean any diesel vehicle would have to have a modern EU6-rated engine (something standard on new vehicles from 2014).

Indeed, that's exactly what's proposed for the new London Ultra-Low emissions zone (ULEZ), planned for September 2020. As things stand, that's not a serious hurdle for business, because the ULEZ will only cover the existing Congestion Charging Zone.

However, the huge political pressure on diesel and air quality (including claims that 360 London primary schools are in areas with high NOx levels) is pushing the Mayor of London Sadiq Khan to consider extending the ULEZ out to the North and South Circular roads.

Aside from the huge potential administration costs of tracking various ages of diesel vehicle, the economic impact would be significant. Hundreds of thousands diesel vehicles would be banned from Greater London. And the pressure for the UK's other polluted urban areas to follow suit would be significant.

As 2017 dawns, the European car industry, governments and car buyers are thus facing a potentially unmanageable impasse. Ambitious laws, set for 2020, for super-low CO2 emissions could be substantially disrupted by new engine-testing regimes and the potential costs of building truly 'clean' diesel engines.

Before Dieselgate erupted, the EU's main priorities for car industry were safety (via EuroNCAP crash tests) and to gradually reduce the average CO2 output of the cars sold across the single market.

Back in 1998, an agreement between ACEA (European Automobile Manufacturers' Association) and the European Commission was reached to 'achieve a target of 140g/km CO2 emissions for the average of new cars sold in the European Union'. Average emissions in 1995 were around 186g/km according to the paper. The European Commission also said that it wanted to get the average down to 120g/km by 2012.

It's not a coincidence that the Kyoto Protocol had been adopted just months before on 11 December 1997. The global target was to reduce GHG (greenhouse gases) output by 18% compared to 1990 levels, by 2020.

So far, so clear. The good news for the European carmakers was that they had just the thing to improve fuel economy: new generation turbodiesels. Transformed from the rattling and ponderously slow engines of memory, Peugeot and Citroen introduced a series of frugal, swift and refined engines in the early 1990s.

By the second half of the 90s, diesel technology took another leap with the introduction of 'common rail' engines and direct injection, which saw fuel squirted into the engine at tremendously high pressures.

The arrival of direct-injection diesel engines appeared to square the circle. EU legislators got a jump in fuel economy and lower CO2, drivers got vehicles with remarkable performance and business fleets got lower fuel costs.

According to figures from ACEA, in 1990 just 13.8% of cars sold in Western Europe were diesel powered. The diesel share rose steadily, hitting 53.3% of the market in 2007 and eventually peaking at 55.7% in 2011, before dipping back to 51.6% in 2015.

In the UK, the power and influence of the business and company car market meant that from a low of 13.8% in 1999, the diesel share peaked at 50.8% in 2012.

Encouraged by the progress, the EU moved again to reduce average CO2 output and really put the arm on carmakers, as the warnings about climate change became far more prominent. To that end, the EU decided that the average CO2 output of the new car fleet should be just 95g/km. That's 69mpg.

There was some wriggle room under the formula that the EU drew up, allowing more CO2 headspace for companies making bigger, heavier vehicles. Even so Daimler's Mercedes arm had to hit an average 140g/km, reducing to just 101g/km by 2020 for 95% of its vehicles, and 100% by 2021. Can you imagine the average Mercedes managing 64.8mpg?

Volkswagen's equivalent target is 94g/km (68.2mpg), Ford and Toyota 92g/km (71.2mpg) and Fiat-Chrysler a remarkable 89g/km (73.6mpg). Clearly, these targets are going to be very difficult to achieve. Most of what engineers call 'easy wins' - such as the mass adoption of diesel - have already been done.

Clean diesel-hybrids like the Mercedes E300 Blue TEC Hybrid may be the solution to stiffer regulations, but they don't come cheap

Further improvements in fuel economy might require costly lightweight materials, electrification (expensive), greater use of battery packs so a vehicle can be partly powered by plugging it in (also expensive), or even considering building smaller and lighter vehicles to gain CO2 improvements (which probably means smaller profit margins for makers).

The 2020 targets are a serious hurdle for carmakers and you can see why they are betting heavily on the widespread adoption of electric vehicles. Both VW and Mercedes are planning to launch a family of EV vehicles by 2020, which, if successful, would bring fleet average CO2 crashing down. Even so, diesel-powered vehicles will still have to do the majority of the heavy-lifting when it comes to meeting the 2020 targets. Which is where the beautifully planned EU targets come off the road.

Dieselgate has not just resulted in VW paying north of $18bn to US authorities and seeing its employees being arrested in (so far) two counties. It has also triggered a realisation in the EU that the way pollution levels have been certified and monitored has been hopelessly lax.

When it comes to air quality and human health, there are two pollutants that have to be dealt with in a diesel exhaust: particulates (soot) and NOx. As we have seen, the EU has focused on reducing CO2: by contrast its air quality regulations have not been as rigorous as those in California, a state that has led the world in clean air regulation through the California Air Resources Board (CARB).

Indeed, when CARB and the EPA ruled in the early 1990s that the exhausts of diesel passenger vehicles had to emit the same level of pollutants as petrol engines, it pretty much killed diesel cars sales in the US.

It took until 2006 for Mercedes, with its new BlueTEC diesel engines, to pass the air quality tests with oil-burning engines. These engines use a particle filter trap in the exhaust and urea injection technology, which squirts an ammonia-based fluid into the exhaust stream to reduce NOx emissions.

The diesel engines sold by VW in the US from 2009 did not have the expensive urea-injection system. Instead, they used software to alert the vehicle's brain as to when it was in laboratory test conditions, allowing it switch to low-emission mode. This was the infamous defeat device.

Cutting straight to today, the EU is now committed to a new tougher real-world pollution testing regime called RDE (Real Driving Emissions) which means - according the engineers MT has spoken to - that at the very least, urea-injection systems will have to be fitted to all diesel engines. Although companies such as Peugeot-Citroen have been doing this since 2014, most carmakers haven't and it's an expensive piece of kit.

In cold conditions, when a car is heavily loaded or when the driver accelerates hard, NOx emissions leap, says Nick Pascoe of Controlled Power Technologies, a company working on CO2-reducing technology. This will require the urea injection to be used more often and more heavily.

Alan Jones, Jaguar Land Rover's chief engineer for calibration & controls, told MT that he agrees. 'More urea, more of the time.' That means all future diesel cars - certainly the size of a Focus and above - will have to be fitted with urea injection to meet the EU's rigorous new air quality tests.

Trouble is, while absorbing the costs of urea injection is easier for premium makers such as Jaguar Land Rover and Mercedes, profit margins on mass-market cars are wafer thin. VW's head of development Frank Welsch recently admitted as much, saying that the firm will develop no more new small diesel engines due to the cost of cleaning up the exhaust - over $850 per vehicle. 'In small cars like the Polo and Up, diesel will be much too expensive in 2020,' he said.

'In the very near future, people will say, "OK, to add a diesel is 25% more on the price." They will say "forget it".'

Controlled Power Technologies is developing clever, inexpensive electric hybrid kit to further reduce CO2 emissions. These include the CPT SpeedStart and SpeedTorq, using small, powerful electric motors to help assist the engine when under load, reducing fuel consumption.

Pascoe says that he's not sure the super-strict new test regime and the need for a vehicle to stay 'clean' for its whole life, is going to be easy to achieve, even with particulate traps and urea injection. He says the turmoil caused by the new pollution tests is encouraging carmakers to look at adding CPT's electric assistance technology, 'so as to rely less on exhaust after-treatments'.

But there's another bombshell in the road ahead. The EU is also moving away from the old and inaccurate New European Driving Cycle (NEDC) test for checking fuel consumption. A new test called Worldwide Harmonized Light Vehicles Test Procedures (WLTP) is due this year. This shift is expected to result in official fuel consumption figures around 5-8% worse than those under the old NEDC tests. But UK company Emissions Analytics, which helped expose the Dieselgate scandal, says that they could end up being worse than that, making the hard-to-meet EU 2020 CO2 targets even more difficult to achieve.

So over the next three years, carmakers are looking at long-held plans for greatly increased fuel consumption colliding with two new and more rigorous test regimes for pollution and CO2.

Meeting both - if it is at all possible - could demand extremely expensive electrified diesel powertrains, which will be too costly to fit on all but the most premium models.

Consequently the car industry now finds itself facing perhaps its most serious challenge for decades. The EU market cars of 2020 will be much more expensive and are bound to be more complex to service over a lifetime.

The good news is that exhaust pollution will be cleaned up, though it will take real action to get older diesel off the road to improve things quickly.

But demanding that mass-market vehicles should achieve a real-world 67mpg, while having a whisper-clean exhaust pipe and be affordable to buy and maintain, could really be a step too far for a car industry that struggles to make money on anything but the most upmarket vehicles.

Dieselgate may have been a story about deception in the US, but the consequences for Europe will be huge.

DIESEL'S STALLED

Share of UK new car sales
2015: 48.4%
2013: 49.8%
2012: 50.8%
2005: 36.8%
2000: 14.1%

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