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How diesel became the new environmental “evil” in Europe

As news of the Volkswagen scandal broke in the US, it was only a matter of time before the storm hit Europe’s shores. The news was just one more log on the blaze of bad publicity the diesel industry has received in recent times. Moreover, in cultural terms, nitrogen oxide emissions seem to have overtaken carbon dioxide as the more “evil” of the two pollutants.

Within the last year or so there have been growing calls for restrictions on diesel vehicles, most notably in Paris and London. The mayor of Paris, Anne Hidalgo, has called for diesel cars to be banned from Paris by 2020, and Simon Birkett, head of the Clear Air in London environmental pressure group, has asked that both the UK government and London Mayor Boris Johnson apologize for their promotion of diesel over gasoline vehicles.

For most Europeans, diesel engines are the “go-to” when buying a car; the majority of European governments greatly encourage the use of diesel vehicles — through financial incentives of one sort or another — with around half of Europe’s fleet now made up of diesel, compared to 2% in the US.

In the UK the government introduced a lower tax for diesel cars in 2001 as a result of diesel’s low C02 credentials. Fourteen years later, former science minister Lord Paul Drayson has reversed his opinion on the decision made by then Chancellor Gordon Brown, saying that diesel cars are “killing people.”

VW’s scandal could end up costing the company more than BP’s Deepwater Horizon drama in 2006, according to Credit Suisse. The total costs could reach around 78 billion Euros ($87 billion).

The knock-on effects of the scandal are several-fold and with one trader telling Platts that “the situation has been known for years! Nobody has ever trusted the data,” it could be highly likely that there are many more twists to come in this saga.

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Ramifications for the diesel industry

With rising public and governmental scrutiny expected to bear down on the industry, the question is how the Volkswagen scandal might change consumer behavior over the coming months, years and decades.

Aside from immediate political investigations, it seems that a consumer-based move away from diesel to gasoline-powered cars would be unlikely as long as diesel fuel remains the cheaper alternative.

“Most consumers don’t go for the green, or have the environment in the back of their minds when buying a car,” said one biofuel broker this week; instead, the price will continue to be the deciding factor in consumers’ decision making process.

Sources in the European biodiesel market said that the penchant for diesel won’t change until the EU changes its policy, either by reducing the subsidies on diesel fuel in Europe or by increasing taxes on diesel cars. However, according to one trader, this is unlikely to be an immediate implementation and is something that “won’t happen in the next 2-5 years.”

In order to do a “180” on decades of diesel promotion in Europe, the EU will have to fight against large industry bodies, including the influential French diesel lobby, which heavily protects the industry in favor of their home brands Peugeot and Renault.

A step away from a traditional fuel base

Rather than the VW scandal being a catalyst for a move towards gasoline, it could leave a wide open door for alternative fuels to finally make a significant impact in the European fuel mix.

This could be the time the European Union goes “full-green” and bets on electric cars by increasing subsidies and supporting the implementation of electrical infrastructure in cities.

In Amsterdam, Schiphol airport has started adding Tesla Model S cars to their fleet of taxis in an attempt to reduce both CO2 and NO2 emissions. Amsterdam now has some 167 Teslas, the largest fleet of all-electric taxis of any airport, according to Schiphol.

Along with electric, the moment could be prime for a resurgence in the support for biofuels. Over the past few years, first-generation biofuels have come under increased criticism resulting from their use of land for fuel rather than food in a world where millions of people go hungry every day.

But the dangers of NO2 emissions could bring biofuels back to the fore for green campaigners as the lesser of two evils.

Currently, there is a mandate for biofuels in road fuels in Europe until 2020; after that, the path is unclear and the biofuels industry is more than aware of the possibility of the disappearance of this mandated support in five years’ time.

Currently in Europe, the Renewable Energy Directive (RED) sets out targets for reaching the objectives of a 20% share of renewable energy in final energy consumption and cuts in greenhouse gas emissions by 20% compared to 1990 levels by 2020. The targets currently include a 7% cap on the amount of crop-based biofuels.

If Wood Mackenzie’s estimates about the drop of diesel consumption turn out to be true and consumers decide to show their disapproval on the forecourts of Europe and switch to gasoline, a sea change for biofuels consumption could occur. Ethanol consumption would have to increase versus biodiesel in order for blenders to hit targets.

Those involved in the day-to-day trading of biofuels did not hold out much hope for a tidal wave of support for the industry to the detriment of traditional fuels.

“I reckon it’s a catalyst for the move to electrical cars, not really a move to gasoline. That will take time, and there won’t be a huge impact on diesel or biodiesel,” one trader said.

“Maybe there will be a rethink on EU strategy on subsidizing diesel but any small sign that dieselization has slowed might just be short term,” one industry commentator said.

A third trader was even more damning, “I don’t think it [the scandal] will stop anyone buying diesel cars because it’s cheaper. Cheaper fuel and better consumption, which would you pick?”

Even if private drivers were to make the decision to turn their backs on diesel, it would be commercial decision makers that could end up having the biggest impact; a significant slice of diesel powered engines are in trucks and lorries. It is here the big change lies.

Ultimately, the battle diesel faces is one of image. With VW potentially set to lose billions, it can’t afford to lose the public’s support as well. If “going green” is the way to win back hearts and minds, Europe’s car fleets could look less like Golf-y and a little more Leaf-y.