Pipework sits on the diesel engine of a Volkswagen AG (VW) Passat automobile in London, U.K., on Wednesday, Dec. 2, 2015. Volkswagen is grappling with an emissions scandal on three fronts: cheating software installed in about 11 million vehicles worldwide with 1.2-, 1.6- and 2.0-liter engines; irregular carbon dioxide ratings on about 800,000 vehicles in Europe; and questionable emissions software in about 85,000 VW, Audi and Porsche vehicles with 3.0-liter diesel engines in the U.S. Photographer: Miles Willis/Bloomberg
The diesel engine in a Volkswagen Passat © Bloomberg

In April 2010, Mary Nichols, chair of the California Air Resources Board, had breakfast with Angela Merkel, the German chancellor, and Arnold Schwarzenegger, the California governor, at the Four Seasons hotel in Beverly Hills. Climate change and renewables were on the agenda. When the doors closed and the photographers left, however, the talk shifted to cars.

Ms Merkel turned on Ms Nichols, telling her that California’s tough limits on nitrogen oxide emissions “were damaging German carmakers” such as Volkswagen, the CARB chair said. She retorted that such restrictions were vital for the health of the state’s citizens. “Your carmakers can comply with these limits,” she said.

The incident rattled her. Ms Nichols says she was surprised by how aggressively Ms Merkel defended Germany’s motor industry. She says she had “never seen a politician intervene in this way” against US environmental laws “before or since”.

A German government representative said she could not comment on “non-public conversations” but insisted: “Any suggestion that the chancellor in 2010 or at any other time unilaterally spoke out in favour of the car industry’s interests to the detriment of environmental concerns is completely unfounded.”

The conversation, reported in the German media and confirmed by CARB officials, sheds light on a paradox. Ms Merkel is a former environment minister who has spearheaded Germany’s radical rejection of nuclear power, embraced renewables and adopted far-reaching climate change goals — but she has also been a good friend of her country’s car industry, lobbying hard to protect its interests.

The ties between Ms Merkel’s government and big carmakers have come under increasing scrutiny since September, when US regulators revealed that Volkswagen’s diesel vehicles were fitted with special software enabling them to cheat in emissions tests. The scandal, the worst in VW’s history, has tarnished Germany’s reputation for quality in manufacturing and left many wondering whether the German authorities’ closeness to VW, Mercedes-Benz and BMW blinded them to the potential for wrongdoing in the industry.

“When you know that you have a very large part of the political class in your pocket — and that was clearly the case with VW — then you feel safe,” says Philippe Lamberts, the Belgian co-chair of the Green group in the European Parliament. “That inevitably leads to complacency; that whatever you do, you have the German government fully lined up behind you.”

Carmaker’s tests

The VW affair is approaching crucial milestones. The company faces a deadline on Thursday to finalise a fix for the almost 600,000 cars in the US that were equipped with the test-cheating software, known as defeat devices. Next week it releases its delayed financial results for 2015, as well as its report into the affair, commissioned from Jones Day, the US law firm. That may give some insight into who at the company first authorised the installation of the defeat devices.

The closeness between Germany’s car industry and its government has been reflected in a number of ways since Ms Merkel became chancellor in 2005.

Officials intervened in Brussels to water down curbs on pollutants, abandoned stringent independent tests of car emissions and ignored repeated warnings from research groups about suspicious readings from tests on diesel cars. Now Ms Merkel’s government stands accusedof wrapping its own inquiry into the VW scandal in a shroud of secrecy, which even seasoned MPs are finding hard to penetrate.

Yet Ms Merkel’s lobbying efforts are in many ways understandable. Carmaking is Germany’s largest industry, employing 792,500 people and recording turnover of €404bn in 2015 — a fifth of the country’s industrial revenue. The jobs of one in 20 Germans depend on the motor sector.

Ms Merkel has suggested that the carmakers are synonymous with Germany. Addressing VW employees in 2008, she called the company a “great piece of Germany”, and a “symbol of [our] development from the second world war until today”. VW’s history exemplified the reconstruction of the postwar years. “The German government stands by VW,” she said.

Elite ties

The impression of closeness is enhanced by the revolving door between government and industry. Eckart von Klaeden, a former senior official in Ms Merkel’s chancellery, is now chief lobbyist for Daimler. Thomas Steg, a former government spokesman, is now head of government relations at VW. And Matthias Wissmann, president of the VDA, the automotive industry association, was a transport minister.

The elite of the car sector has access to decision makers others can only dream about. This was shown in a government response to a parliamentary question by leftwing opposition party Die Linke in 2013. It showed that between 2009 and 2013 Ms Merkel met Dieter Zetsche, chief executive of Daimler, 15 times and Mr Wissmann and Martin Winterkorn, then head of VW, nine times each.

The financial ties are also strong. In 2013, Ms Merkel’s party, the Christian Democratic Union, received two big donations: the Quandt family, who together own 47 per cent of BMW, gave it €690,000, while Daimler donated €100,000, with another €100,000 going to the Social Democrats, the CDU coalition partner.

© Getty

Critics say the German authorities must bear some responsibility for the mess that VW is in. “It is this cronyism between the government and the car industry that contributed to the emissions scandal,” says Oliver Krischer, an MP for the opposition Green party.

The government denies that charge. It notes Germany’s advances in reducing emissions from road transport: it cut carbon monoxide by 84 per cent, nitrogen oxides (NOx) by 59 per cent and hydrocarbons by 92 per cent between 1990 and 2010, despite there being more vehicles on the road. It says it also backed the European Commission’s recent plan to test car emissions on the road rather than in a laboratory, rendering useless the defeat devices that VW used to cheat the system.

However, the German government has a record of shielding its motor manufacturers, particularly on the issue of pollutants. In 2007, the European Commission proposed limiting the average carbon dioxide emissions of new vehicles sold in the EU to 120g per kilometre. After resistance from the German car lobby, as well as the Merkel government, it set a limit of 130g/km instead.

“The German government was afraid that they would lose a lot of jobs. The car industry said it would have to fire 65-70,000 workers,” says Stavros Dimas, then EU environment commissioner. He insists that the compromise was a “wise decision”.

A similar move came in 2013, ahead of a Brussels summit that was expected to finalise curbs on CO2 emissions for carmakers. Officials from the European Parliament and national governments had agreed tougher rules, to take effect from 2020, and the deal was set to be endorsed by EU states.

Germany’s car industry, though, had been fighting for more time. On the eve of the summit, Ms Merkel rang Enda Kenny, prime minister of Ireland, which at the time held the rotating presidency of the European Council, and asked him to remove the item from the agenda. He agreed. Ultimately, the EU set a target that cars should emit 95g/km of CO2 by 2021, rather than 2020. Germany’s carmakers only gained an extra year, but the phone call illustrated how hard it has been for the commission to clean up European cars.

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“It was brutal, and also highly unusual for a head of government [Merkel] to intervene in this way,” says Matthias Groote, a member of the European Parliament and head of its environment committee at the time.

While Germany’s lobbying efforts were under way in Brussels, regulation of the car industry, such as measures to test that vehicles met pollution laws, was changing at home.

Between 1994 and 2010, a government body, the Federal Environmental Agency, was in charge of a programme to test the emissions of cars available in Germany. Vehicles would be borrowed from their owners and monitored for pollutants, including carbon dioxide and NOx. If emissions exceeded legal limits, the agency presented the data to the manufacturer, which checked the affected vehicles and, if necessary, made repairs.

The environmental agency discontinued those tests in 2010 due to a lack of funding, says Lars Moench, an agency researcher involved in the programme. “As far as I know, no one carried out such extensive, independent emissions tests on cars [in Germany] after that,” he says.

Another official, Axel Friedrich, who retired in 2008 and has since become an outspoken critic of the car industry, says the roots of the VW scandal lie in the decision to halt the spot checks.

“If you have no independent public control, how can you oversee the manufacturers’ behaviour?” he asks.

Remake, remodel

Other changes were made. In 2008, Germany altered the emissions test carried out during a car’s regular inspection by a technical service provider (TÜV). It permitted measurements on newer cars to be made using computer-based “on-board diagnostics”, a system that monitors engine performance, including emission controls, rather than testing at the exhaust pipe. Some experts say the diagnostics test is potentially more vulnerable to manipulation than the exhaust-pipe equivalent.

There has also long been criticism of the way emissions tests are carried out on new vehicles in Germany. These are conducted by the TUVs, on behalf of the carmakers — a system some say could lead to conflicts of interest.

A European Commission paper recently highlighted the fact that the TÜVs are paid directly by manufacturers for carrying out the tests. This entailed a “potential risk that commercial and financial pressure may be exercised” which could “negatively affect the independence and performance of the technical services”.

Test results are submitted to the Federal Motor Transport Authority. Organisations such as the International Council on Clean Transportation, an independent research group, have criticised the authority, known as the KBA, saying it does not sufficiently scrutinise the results. The German transport ministry rejects that charge, saying the KBA carries out its own spot checks and can order follow-up tests on vehicles.

Volkswagen

Over the past few years, the government ignored warnings that could have prevented VW’s diesel affair developing into a full-blown crisis, experts say. Organisations like the ICCT and Deutsche Umwelthilfe, an environmental group, continued to measure car emissions and began to notice that their own measurements were diverging significantly from those of the manufacturers.

The groups explained their concerns to the government. In February 2011 Jürgen Resch, the head of Deutsche Umwelthilfe, and Mr Friedrich met officials from the transport ministry to pass on their suspicions about the VW Passat diesel model. They said their tests indicated the possible use of defeat devices.

Mr Resch says the officials failed to act. “Think how much smaller the emissions scandal would have been if the transport ministry had decided to investigate this [back in 2011],” he says.

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