EUROSCOPE. Volkswagen’s Libor moment?

The shock news about Volkwagen’s rigging of emission tests in the US had barely emerged a fortnight ago when parallels began to be drawn with recent banking scandals, in particular LIBOR.

It was argued that Volkswagen was likely to be only the tip of the iceberg — with the revelations likely to dredge up the dirty secrets of the auto industry, and prompt a global overhaul of standards, in much the same way that the rigging of benchmark interest rates did to the banking industry.

It is still too early to say how true this parallel will be: the crisis at Volkswagen has indeed deepened, with the company’s admission that up to 11 million diesel vehicles (just under half a million in the US) could have the so-called “defeat devices” which enabled the cars to detect when a test was under way, and to only then bring in full emission controls.

Earlier this week, VW’s Audi and Skoda brands admitted that over 3 million cars were also impacted. Numerous investigations are under way globally including in Germany, Switzerland, Italy, France and South Korea. For now at least, however, the scandal remains confined to the Volkswagen Group, though some of the investigations have left open the option of extending to the rest of the diesel car industry.

Despite this, there are reasons that it can’t just be seen as the problem of one company alone.

In the past week, attention has focused on increasing emission testing standards, globally. While the US has pulled up companies in the past (Ford, Caterpillar, and Volvo among them) other national authorities have been less successful at doing so.

Observers have pointed to a disconnect, particularly in Europe — which while being a leader when it comes to setting global standards for emissions requirements, (the Euro 6 standards required of cars produced in Europe from this September are probably the toughest in the world) have not been matched by an equally rigorous, standardised testing regime.

With tests able to take place in idealised conditions that bear little resemblance to real driving conditions (whether it’s the friction, temperature, acceleration), it has meant that auto producers have been able to get away with producing cars that might meet the strict requirements of the law by fulfilling the requirements done during tests, but aren’t ever really replicated on the road.

Testing in artificial environments has also enabled the use of defeat devices as the predictable conditions mean that it’s relatively straightforward to create software capable of detecting when a test is under way.

Regulation has also by and large been left to the companies themselves. It is rather telling that the defeat devices were uncovered in the US — where less than a percentage of cars are diesel — against in Europe where the percentage is around 54 per cent. New standards, requiring testing to be conducted in real driving conditions are set to come in for Euro 6 cars in 2017, though without rigorous enforcement across the region it remains to be seen how effective it will be.

Another similarity to the LIBOR scandal is that the warning signs have been there for a number of years. Following the 1998 scandal in the US, the European NGO Transport Environment published a report that alongside questioning the testing regime, warned that car manufacturers were able to recognise that it was “being driven according to a specific test-cycle and adjust the combustion accordingly”.

More recently, a paper by The European Commission’s Joint Research Centre published in January 2013, warned of devices capable of “detecting the start of an emission test in the laboratory” which were then able to “activate, modulate, delay or deactivate emission control systems.”

The Commission, which did nothing at the time, has now urged all EU member states to investigate the use of defeat devices and report back to the EU, though campaigners argue that what is really needed is a Europe wide standards body for roads or vehicles similar to that for other sectors (such as the European Aviation Safety Agency, or the Maritime Safety Agency).

As with the LIBOR scandal it’s also raised questions about the willingness of governments not just to look the other way when warning signs have appeared, but to actively take steps that block the raising of standards.

Last week, TheGuardian pointed to leaked documents that showed how the governments of Britain, France and Germany had lobbied to maintain loopholes in the emission testing regime, ahead of its strengthening in 2017 — including proposals to allow real-world tests to be carried out on downhill tracks, and charging batteries to the full before tests.

It has pointed to the power of the car lobby in Europe: it’s striking that German Chancellor Angela Merkel, who has by and large shown her ability able to rise about domestic issues to campaign on matters of wider European interest, appears to have been particularly willing to press the case for lax regulations in this area. The Financial Times reported earlier this week that in 2013 she lobbied the then EU President to delay plans to introduce tougher rules on carbon dioxide emissions (she managed to delay it by a year).

The LIBOR scandal triggered major investigations and calls for reform globally that went far beyond the benchmark rate — whether the same happens for the auto sector remains to be seen. There is certainly likely to be plenty of pressure — while the impact of the LIBOR scandal at point felt distant to the lives of ordinary people (its impact on mortgages, loans and so on is still becoming clear), the impact of the VW scandal is all too apparent.

Online the anger is palpable on social media, with hash tags such as #BuyBackMyTDI #VWGate trending online. Aside from the issue of buyers feeling duped into buying cars that didn’t meat standards, there is the issue of the potentially massive environmental toll: a study published by Nature magazine last month estimates that as many as 3.3 million people die prematurely each year as a result of air pollution — with traffic playing a significant role in some parts of the world.

In addition, if the emissions being produced by cars are worse in reality than the test car results suggests, governments which base car taxes partly on emissions may be losing out on a much needed revenue stream.

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