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Power Switch: Second in a continuing series about the German energy transition.

BERLIN—The night before the leaders of the European Union met in Brussels in 2013, German Chancellor Angela Merkel made a phone call.

After more than a year of talks, the EU nations had agreed on a plan to slash greenhouse gas emissions from cars and trucks.

But Merkel, the leader of the largest and most economically powerful of those countries, had a last-minute change of heart.

In a call to Ireland’s prime minister, Enda Kenny, the European Union president, Merkel persuaded him to delay a vote on the transportation issue. Using threats to close auto plants in other European nations and promises to cooperate on other issues, Germany then lobbied its way to a plan with more favorable terms for its auto industry.

“It was, for everybody, shocking,” said Rebecca Harms, a former member of the European Parliament from the Alliance 90/The Greens party, who was representing Germany in Brussels.

Germany’s transition to clean energy has had successes that can serve as models for other countries of how to combat climate change. But one of the most important lessons comes from a failure: The nation’s decades-long unwillingness to cut emissions from cars and trucks.

Germans’ love affair with cars and the auto industry’s political clout meant that, from 1990 to 2019, the country made almost no headway in cutting the transportation sector’s emissions, which represent about one-fifth of total emissions. During that same time, Germany was making substantial progress in reducing emissions from electricity production.

The German government repeatedly deferred to its auto industry, wary of doing anything that might affect manufacturing jobs and raise car prices for consumers. Cars and trucks are the country’s No. 1 export, led by Volkswagen and followed by Daimler and BMW, companies that together constitute a huge force in politics and policy.

Whether in national legislation or with the European Union, the government long acted as an advocate rather than a regulator of these corporate giants.

The result was dissonance: Germany nourished wind and solar power and democratized its electricity system through local cooperatives. At the same time, it was burning gasoline and diesel with abandon. The failure to cut vehicle emissions was severe enough to derail progress on meeting climate goals for the whole economy. 

Last summer, I went to Germany to see where the energy transition stood now. I did not expect that I would spend so much time talking about cars.

I learned that the struggle to cut auto emissions is Germany’s great unsolved problem, and the process of addressing it was just beginning, a shift that is at once cultural, political and economic. In 2019, Volkswagen announced a major change in strategy to emphasize electric vehicles, calling for “political and social forces” around the world to join in accelerating the transition to EVs. Months later, the German Parliament passed the country’s first-ever carbon tax for motor fuel. 

The United States faces its own long-term challenges in cutting transportation emissions, and can learn from the German example.

“The bigger lessons are really in the failure stories,” said Jonas Meckling, a University of California, Berkeley, professor of energy and environmental policy, who previously worked as a senior advisor for the German environment ministry.

One lesson, he said, is that an energy transition is not monolithic. It is made up of a series of challenges, and governments need strategies for each major sector of the economy. But even more important, he said, the leaders need to build and then maintain public support for making changes in each sector. And that gets complicated in a country where the love of cars runs deep, and speed is almost a religion.

It would take the scandal that came to be known as Dieselgate to set change in motion. 

A High-Speed Joyride for Everyday People

I had been in Germany for more than a week before I felt like I got to the heart of the car culture, a day when I was visiting renewable energy sites across the rural state of Rhineland-Palatinate. Along the way, I realized from highway signs that I was near an attraction called the Nürburgring and stopped to take a look.

The Nürburgring is an auto racing complex that seats about 150,000 people, with tracks known for their challenging twists and high-banked curves. I was there on a weekday, standing in a big parking lot facing the back stretch of one of the tracks, where dozens of people were standing or sitting in lawn chairs.

They were waiting for the instant when a car roared by. The cars were driven not by professional race car drivers but by everyday people, who had paid 25 Euros (about $28) for the privilege of taking a few laps around the legendary track—a joyride.

The Nürburgring is the German track “with the most emotion,” said Ferdinand Dudenhöffer, an auto analyst and former director of the automotive research center at the University of Duisburg-Essen in Germany. The curves have a danger that attracts drivers in a way that is different from modern oval courses, he said.

Most routes to and from the racing complex include the Autobahn, the federal highway system that has long stretches without speed limits. While I was there, the highways had too much traffic for anyone to really cut loose, but even the idea of having no speed limit has made the country legendary for gearheads.

But the absence of speed limits is, in a way, just a symbol of Germany’s long romance with the automobile.

How the Love Affair Began

Germany’s attachment to motor vehicles is not surprising in a country that can make a strong case that it was the birthplace of the automobile.

In 1886, Carl Benz completed building a three-wheel “motorwagen” in his workshop in Mannheim in southwestern Germany. Two years later, his wife, Bertha, drove the vehicle on a 120-mile round trip to visit her mother in Pforzheim, a journey that helped to publicize that this was a machine capable of long trips.

Benz’ company eventually merged with one of its rivals, Daimler-Motoren-Gesellschaft, best known for the Mercedes-Benz brand. Meanwhile, the company that would become BMW started in 1916 in the southern city of Munich.

In 1937, the Nazi government founded Volkswagen in an effort to develop a car that was affordable for everyday Germans. After World War II, the company moved on from its Nazi origins to become a linchpin of Germany’s economy.

Cars were soon Germany’s leading export, and Germans embraced a culture of driving and speed. The auto industry became one of the most influential interest groups, cultivating close ties with the center-right Christian Democrats and the center-left Social Democrats in federal and state politics.

Volkswagen, in particular, had unusually close ties to the government. The company had an unconventional ownership structure in which the German state of Lower Saxony was part owner, and the state government had two seats on the company’s board of directors. The company’s union also had seats on the board.

As a result, it was not unusual for people who later went on to top jobs in the federal government to have “Volkswagen board member” on their resumes.

For many Germans, the interests of the auto industry and national interests were indistinguishable, and the government often behaved more like the industry’s advocate than its regulator.

In an Energy Transition, a (Large) Oversight

Germany began its Energiewende, or energy transition, in earnest in 2000, led by Chancellor Gerhard Schröder and a center-left coalition of Social Democrats and Alliance 90/The Greens.

The new leaders made rapid changes, but they were focused on the country’s largest emissions source, the electricity sector. The moves led to a boom in renewable energy and an ability for local communities to control projects and benefit from them. The transportation sector, however, was almost ignored.

Schröder was one of the officials who had been a Volkswagen board member during his time as prime minister of Lower Saxony from 1990 to 1998. His association with the company and his government’s lack of action on transportation emissions were not a major concern, underscoring how the close connection between the auto industry and government was largely accepted.

In 2005, voters gave the center-right Chistian Democrats a plurality in the parliament, led by the new chancellor, Angela Merkel, who would turn out to be a staunch defender of the auto industry’s interests.

Merkel took office at a time when other European governments were frustrated with the European Union’s history of regulating tailpipe emissions through voluntary standards which the automakers could take or leave—and often left.

Over the next few years, a pattern emerged, in which Germany did little at the national level to deal with transportation emissions and also worked to weaken rules being considered by the European Union.

In 2007, the European Union enacted its first mandatory emissions rules for vehicles, a plan that would have been more stringent if Merkel’s government had not successfully pushed to set the standards at a level amenable to Germany’s auto industry.

But that was just a warmup for an even bigger fight to come.

Throwing the Rules Overboard

The standards that the EU passed in 2007 took effect in 2009, in the middle of a global economic downturn. Environmental advocates were pleased to see early evidence that mandatory rules seemed to be working in a way that voluntary rules had not.

And they were eager to get back to the table to update the rules and make them more stringent, a process that came to a head in 2013. 

Dorothee Saar, head of transportation policy for Deutsche Umwelthilfe, a leading German environmental group, participated in more than a year of negotiations in which environmental advocates and auto industry representatives worked on the details with policymakers from member states, including Germany.

The deal they reached was a fair compromise, she said, with rules that were not as tough as environmental groups would have liked, but clearly a step in the right direction.

On a Monday in June, members of the European Parliament and representatives of national governments signed an agreement that laid out the specifics of the policy, with timetables and emissions levels. This set the stage for heads of state to hold a final vote three days later at an EU summit meeting.

Then, out of nowhere, Merkel intervened. She phoned various heads of state to ask them to join her in pushing to reopen the negotiations.

The most important of those calls was to Enda Kenny of Ireland, who controlled the summit agenda. Following Merkel’s personal plea, he removed the vote from the schedule.

Saar learned of the sudden change of plans from a newspaper.

“What a mess,” she said, remembering her reaction. “Everybody was fighting for such a long time, with so much effort, and you think you have a deal.”

Merkel’s actions had short-circuited the regular process of EU lawmaking. In the background, an auto industry trade group was circulating a document warning that the stricter emissions rules would lead to job losses.

It was an election year in Germany, and Merkel’s party would face voters in a few months. Her party ended up gaining seats in the Sept. 22 election, maintaining control of the German federal government.

Harms, the European parliament member, was horrified by what had happened with the emissions rules. She was from Lower Saxony and she understood the importance of the auto industry to the economy. But she thought it was time for more stringent rules.

“The real scandal is that Germany is not just softening the climate goals, but that Germany also throws the democratic rules overboard,” she said at the time, referring to Merkel’s action, which she said essentially cut out the European Parliament and substituted negotiations among a few high-placed individuals.

Reopening the negotiations, however, only led to minor changes to the agreement. Six months later, the sides agreed on a plan to impose tougher emissions rules by 2021 instead of 2020, with new provisions that would give automakers extra credit for electric vehicles that would count toward offsetting emissions for other models.

Harms now thinks Merkel’s actions affected the credibility of the process in a way that ended up doing much more damage than the changes to the policy.

“Interfering in the done deal at that moment severely harmed the reputation of the German chancellor,” she said, noting that Merkel had been, until then, one of the EU’s leaders on climate policy.

In response to a question from InsideClimate News about Merkel’s role in the 2013 negotiations and the criticism that she has been too close to the auto industry, a spokesman for the Merkel government said the chancellor “maintains working relationships to all major sectors of the German economy.” He added that the EU rules for carbon emissions from vehicles, including those passed since 2013, set a “global benchmark.”

“Germany is both a key driver for an ambitious European climate policy and a globally competitive location for car manufacturing,” the spokesman said. “Thus the German government is constantly balancing climate policy and economic policy objectives.” 

To someone outside of Germany, it might have seemed odd that the nation was a leader in calling for action on climate change and supporting renewable energy, but also a steadfast adversary of attempts to deal with transportation emissions.

Yet, inside the country, it made sense. 

“Our economy still is dominated by the mobility sector, mainly by the German automotive industry and the suppliers,” said Christian Hochfeld, director of Agora Verkehrswende, a Berlin think tank that focuses on clean transportation policy.

Transportation emissions, he said, are “the elephant in the room” when it comes to Germany seriously addressing climate change. 

Auto manufacturers, including parts suppliers, employ more than 800,000 Germans, making the industry an economic powerhouse. Those numbers alone would be enough to wield political influence. But the industry also has plants in nearly every German state, giving it local and national power.

In 2015, though, this bedrock industry was about to squander its goodwill. 

Deconstructing ‘Dieselgate’

The German government’s efforts to protect the auto industry made even more sense in the context of a growth strategy at Volkswagen, and the government’s desire to avoid getting in the way.

In 2015, Volkswagen was eight years into a corporate plan to increase its annual sales to 10 million vehicles, a number that was likely to make the company the world’s leading automaker. It was an audacious strategy to overtake General Motors and Toyota, and it would require Volkwagen to boost its sales from a healthy, but not world-leading, 6.2 million in 2007.

Volkswagen, led by a hard-charging CEO, Martin Winterkorn, needed to increase sales everywhere: tapping the vast growth potential in China; emerging from niche status in the United States; and maintaining strong sales in Europe.

Volkswagen aimed to grow in the United States by competing in the SUV segment, and by marketing its diesel vehicles as good for the environment. The catchphrase for the company was “clean diesel.”

A U.S. advertising campaign featured three brassy “old wives” who drove their diesel Volkswagen, while dispelling old wives’ tales about how diesel is dirty.

“Aren’t diesels dirty?” one of the women asked. The reply: “They used to be dirty, but this is 2015.”

While it was true that Volkswagen’s diesel engines were fuel efficient, with low carbon dioxide emissions, diesel vehicles emitted high levels of nitrogen oxide, a major contributor to air pollution.

To sell diesels in the United States and meet air quality regulations, Volkswagen needed to install equipment to reduce nitrogen oxide emissions. But this equipment also harmed the vehicles’ performance, making the cars feel sluggish when they were driven.

So the company cheated. Its engineers developed software that could detect when a car was driving onto a lab platform for emissions testing and would then engage pollution controls. On the open road, however, the vehicles spewed nitrogen oxide at levels up to 40 times legal limits.

The decision to cheat came from near the top of the company. Winterkorn would later say he knew nothing of this until the vehicles had been on the road for years, an assertion that goes against his image as an executive obsessed with details.

Executives below the CEO’s level held a meeting at Volkswagen’s headquarters in Lower Saxony in which they discussed and approved the illegal plan, according to Faster, Higher, Farther, a book about the Volkswagen scandal by New York Times reporter Jack Ewing.

“Some of those present felt that the cheating was simply wrong,” Ewing wrote. “Among them were idealists who truly believed they were working to build a cleaner engine. The idea of cheating was demoralizing; it was not what they had signed up for. Others argued that all the carmakers cheated. Volkswagen had to take shortcuts, too, or it wouldn’t be able to compete, they said.”

A Volkswagen spokesman declined to comment about this account of the meeting, citing ongoing litigation.

Volkswagen was not the first company to use a so-called “defeat device” to cheat emissions testing. In 1998, seven manufacturers of heavy trucks agreed to pay a total of $1 billion to settle charges brought by the U.S. Justice Department that the companies had used defeat devices.

For Volkswagen, with sales much greater than the heavy truck makers, the potential penalties were much more severe.

The scheme might have gone undetected if not for a small group of researchers from West Virginia University that did tests of various brands and vehicles to see how emissions in the lab compared to emissions on the road. The project was part of a larger effort overseen by the nonprofit International Council on Clean Transportation on behalf of California’s emissions regulator.

After several tests, it was clear something was amiss with the Volkswagen cars.

Volkswagen initially deflected, then blustered, accusing the testers of making mistakes. But the company had been caught, and the evidence continued to accumulate.

Volkswagen publicly admitted its wrongdoing on Sept. 20, 2015. Winterkorn resigned three days later. And the company faced a German government that felt badly betrayed.

Trouble in the Marriage

The Volkswagen scandal released the pent-up energy of activists and others in European countries who for years had been frustrated by the power of the auto industry to avoid or reduce regulations.

It also led to a slew of investigations of other German automakers that used diesel engines, ensnaring Daimler and BMW, although BMW’s violations were small, and hitting other Volkswagen brands such as Audi and Porsche. Non-German companies, like Nissan, Fiat Chrysler and Renault also faced investigations and penalties for violating diesel emissions rules.

But none had been as brazen as Volkswagen or had paid anywhere as close to as high a price, adding up to what is now 31 billion euros—about $34 billion—in fines and legal settlements. The legal challenges are ongoing, with recent actions in courts that may allow still more lawsuits by EU consumers and U.S. county governments.

Merkel urged Volkswagen and other companies to fully disclose what they had done, but her government also wanted to make sure that the scandal did not lead to bans on diesel technology, which remained a key part of German industry.

“I am just as disgusted with this deception as you are, with this cheating of customers,” Merkel said in a 2017 interview.

Longtime observers of German politics and business could see signs that the government and the auto industry were no longer in lockstep, setting the stage for another round of European Union talks about increasing vehicle emissions standards in 2018. The participants took familiar stances, with many nations and environmental advocates calling for strict regulations, and Germany urging a more gradual approach.

But the negotiations did not play out as they had before. Other countries pushed harder for aggressive action, and were less deferential to Germany. The result was a compromise, but one that went further than ever before.

Under the new rules, adopted in December 2018, countries are required to reduce carbon dioxide emissions from new cars by 15 percent by 2025 and 37.5 percent by 2030, compared to a 2021 baseline.

The rules are forcing automakers to make major changes, because the only way to meet the requirements is to sell a lot of zero-emission vehicles to help reduce their fleets’ average emissions.

Yet Germany’s process of learning from its mistakes was still in an uncomfortable middle chapter. The country was still figuring out how much appetite it had for dealing with vehicle emissions and whether it was willing to take any substantial actions at the national level. 

The consequences of inaction were becoming clearer. The German government said in 2018 that it was likely to miss, by a lot, its 2020 targets for cutting emissions, a goal Merkel’s government had set with much fanfare in 2007.

Svenja Schulze, the environment minister, said in a 2018 speech that it was “painful” for her to announce the impending failure.

She singled out the transportation sector, where emissions were virtually unchanged since 1990, as the main reason the country was falling short of its goal.

A Change of Heart

Volkswagen soon demonstrated that it was ahead of its government in recognizing that the future of the auto industry lay in electric vehicles.

Despite the scandal, booming sales in China offset a sales drop in the United States, and the company sold 10.3 million overall vehicles in 2016, outselling Toyota and General Motors to become the global sales leader for the first time. But Volkswagen was still in turmoil, digging out from the financial damage of the diesel scandal and trying to repair its reputation.

In 2018, the company’s board named a new CEO, Herbert Diess, who had previously overseen the Volkswagen brand. Under Diess’ leadership Volkswagen was prepared to make a leap from viewing electric vehicles as an ancillary product to saying that EVs were at the heart of Volkswagen’s future.

Diess rolled out a new strategy in March 2019, announcing an increase in the number of planned EV models and a new goal of selling 22 million EVs in the next 10 years, up from the previous goal of 15 million in the same period.

“Volkswagen will change fundamentally, and I think this has become clear over the last few weeks and months,” Diess said at a news conference at the company’s headquarters. “Some of you may still be rubbing your eyes in amazement, but there’s no question this supertanker is picking up speed. We are addressing the key trends of the future, particularly in connection with climate action.”

Diess’ plan included the flagship Volkswagen brand and all other brands owned by the company, including Audi, Porsche and Škoda. If the company reaches its target, EVs will represent 40 percent of sales by 2030, up from the low single digits today.

In the year since that announcement, Volkswagen has followed up with details of specific models and timetables. The strategy will get a big test this summer with the release of the all-electric ID.3 in Europe, a compact sedan that is the first in a planned “ID” line of electric vehicles.

Peter Mock, the managing director for the International Council on Clean Transportation’s offices in the European Union, a group that has never shied away from criticizing Volkswagen, said it looked like the company’s change of course was real.

“Of course it is a huge company, and it takes a while until these kind of major announcements have an actual impact in everyday activities,” Mock said. “But it is my impression that the company is serious about it and is moving towards taking leadership in EV production and sales within Europe and possibly worldwide.”

Saar, from the environmental group Deutsche Umwelthilfe, is much less convinced. She said Volkswagen’s talk is “80 percent public relations,” and would like to see the company move even faster, and place less of emphasis on SUVs and other large vehicles.

If Volkswagen follows through on its stated goals for electric vehicles, it would be a giant step toward Germany increasing its EV market share, which was 2.9 percent of new vehicles sold last year. That’s more than the 1.9 percent in the United States, but less than in countries like Norway, where a combination of incentives for electric vehicles and penalties for gasoline vehicles made EVs 56 percent of new car sales last year. (The market share figures cover all plug-in models, including all-electric and gas-electric hybrids.)

Volkswagen’s leading competitors, including Toyota and General Motors have followed with their own major plans for EVs. Automakers within Germany have also taken significant steps. In 2019, Daimler began selling the all-electric Mercedes-Benz EQC, the first in the “EQ” series that the company says will be a showcase for the new technology that will expand its electric lineup. And BMW was ahead of the curve saying in 2017 that “electrification is one of the central pillars” of its strategy, pledging to make EVs to 15 percent to 25 percent of company sales by 2025.

Enter California Dreamin’ 

Meanwhile, another big player has appeared on the scene: Tesla, the global leader in EV sales, announced last November that it would open a factory just outside of Berlin.

Tesla, based in California, sold 367,500 vehicles globally in 2019, a number Volkswagen can reach with a few good weeks of sales. But Tesla has a cachet that exceeds its market share, having staked out an identity as the leading maker of cars of the future. That makes the factory an economic development prize for Germany, and German officials have issued giddy statements about having attracted Tesla, and with it, up to 10,000 factory jobs.

Tesla’s decision to locate in Germany suggests that the company wants to be a bigger player in Europe, a clear challenge to Volkswagen, Daimler and BMW.

But Tesla’s arrival in Germany is also an opportunity for German automakers, Dudenöffer said, with the potential to share suppliers and make Germany a hub for global EV knowledge and production.

“It makes a lot of sense to have to have one of your major competitors next door to you. Then you better understand him,” he said.

With German automakers committing to EVs, the German government was running out of reasons not to pursue national legislation to reduce vehicle emissions.

In December, Merkel’s governing coalition passed legislation designed to accelerate the country’s progress in cutting greenhouse gas emissions. Among its many provisions, the law included Germany’s first-ever carbon tax for transportation, which will increase the cost of motor fuels such as gasoline and diesel when it takes effect next year.

The carbon tax was a clear step forward for Germany, but a small one, said Meckling, the Berkeley professor. He pointed to research, including a 2019 paper from the National Bureau of Economic Research, showing that carbon pricing leads to only minor reductions in emissions from fossil fuels.

Meckling said he is looking for what steps might follow that would build on the carbon tax and would “be the real litmus test” for how serious Germany is about moving on from the internal combustion engine.

Breaking the Chains 

As bad as the Volkswagen scandal was, it may ultimately have saved the company and, by helping to enact more aggressive vehicle emissions rules, provided much-needed momentum for the German energy transition.

“Without ‘Dieselgate,’ the old management would still be in today,” said Dudenhöffer, the auto analyst, referring to Volkswagen, “and they would still be just saying ‘We have the best diesels.’”

He thinks the German government’s deference to Volkswagen before the scandal was harmful to the company by encouraging complacency rather than innovation.

This view is shared by Hochfeld, director of Agora Verkehrswende, the Berlin think tank.

“The diesel scandal broke a lot of chains between the policymakers and the car industry and it also broke a lot of chains between German people and the car industry, because they lost their trust and they lost their pride in this industry,” he said.

Now, he added, “it’s a more realistic and a more rational relationship.”

Even Volkswagen can see that the scandal has led to positive changes.

“The diesel crisis, the scandal, was a loud and clear call for action,” said Ralf Pfitzner, Volkswagen’s head of sustainability, in a phone interview. “It’s now helped us to be at the forefront of electrification.”

Pfitzner said the company has made substantial changes. One example is that when he was hired in 2017, his department was part of the public relations and lobbying side of the company, he said. Since then, though, Volkswagen has made the sustainability department a close partner of the division that works on vehicle planning and strategy.

“It’s nothing about PR. It’s really a strategic issue,” Pfitzner said, adding, “In the past, probably there was not enough distance between government and automakers and authorities.”

The government’s approach to its auto industry is changing at the same time that Germans’ love of cars appears to be waning. Younger Germans care less about cars than previous generations, Dudenhöffer said. He noted that many young people of driving age would give up their cars before they would give up their mobile phones.

The diminishing importance of driving is evident in the debate over speed limits. For decades, the idea of imposing speed limits on highways was so unpopular in Germany that few people in the political mainstream would seriously suggest it. Now, as cars get smaller and fewer people grow up learning how to drive extremely fast, there is a robust debate about whether there should be speed limits to improve safety and reduce emissions.

In January, ADAC, the German equivalent of the auto club AAA, said it was changing its stance to neutral on speed limits, after long opposing them. The group’s leaders said this reflected the fact that there was no longer a clear consensus on the issue among its 20 million members.

Even a few years ago, “it was unthinkable” that ADAC would change this view, Hochfeld said. 

For anyone not paying close attention, the shift amounted to a blaring siren announcing that things have changed. 

Environmental advocates are cautiously hopeful that this change is enduring, part of a broader shift that could turn around what has been the greatest failure of the country’s energy transition.