TED Case Studies

EC Vehicle Emissions Limits

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          CASE NUMBER:          21 
          CASE MNEMONIC:      ECCAR
          CASE NAME:          EC Vehicle Emissions Limits

A.        IDENTIFICATION

1.        The Issue

     The EC has tried to further impose limits on petrol-driven
vehicles since 1984.  In December of 1987 EC members attempted to
reach agreement on emissions limits for vehicles with engines
smaller than 1.4 liters.  The German, Dutch and Danish
governments argued for limits of 20 grams/test for carbon
monoxide (CO), and 5 grams/test for hydrocarbons (HC) and nitrous
oxides (NOx) combined, while the other member States, argued for
less stringent standards of 35 grams/test for CO and 12
grams/test for HC and NOx combined.  The umbrella group of
environmental organizations in the EC, the European Environmental
Bureau, argued for standards similar to those in the United
States: 12 grams/test for CO and 4.54 grams/test for HC and NOx. 
The economic and environmental implications are significant in
the debate.

2.        Description

     After the passage of the Single European Act, a weighted
majority, not a unanimous vote, was necessary for measures to be
implemented to further the single market.  Vehicle standards fall
under these conditions, and in June, 1988 an agreement to halve
exhaust emissions by the early 1990s was reached among eight of
the governments.  However, in July the French government reversed
its commitment on the grounds that the accord "did not offer car
manufacturers sufficient market unity nor legislative certainty"
because several nations were unilaterally moving beyond the
agreed EC targets.  The French reversal resulted in a blocking
majority with Greece, Germany and the Netherlands, although the
latter three governments argued that the limits were not strict
enough. 

     Some manufacturers argued that unilateral action taken in
other member states was indirectly affecting purchasing decisions
of consumers, while some argued that stringent regulations would
put industries of certain nations at a competitive advantage. 
Specifically, the French contended that actions taken by some of
the German L„nder (states) as well as the Dutch government
resulted in the obstruction of trade.  

     In order for EC vehicles to meet U.S. gas emissions
standards, catalytic converters would need to be installed or
still-in-development "lean-burn" engine technology would need to
be used to achieve the requirements (see USCARTAX case). 
(Catalytic converters reduce pollutant emissions by filtering a
car's exhaust gases).  The auto industries in France, Italy and
the United Kingdom were against the stringent requirements (see
GERMAUTO case).  Small vehicle auto makers, like Peugeot, argued
that the requirement could prohibitively increase the costs of
automobiles for the less-affluent consumers in the small car
market.  Peugeot estimated that catalytic converters would
increase the costs of the small cars by at least 5 percent and
other estimates were as high as 10 to 15 percent.  France lags
behind many of the EC nations in sales of cars equipped with
catalytic converters and sales of cars running on unleaded
gasoline.  The German automobile industry, however, was not
threatened by higher standards since many of their vehicles
already have catalytic converters.

     By 1988, seven of the German L„nder (states) had mandated
that only cars equipped with catalytic converters meeting U.S.
standards, that were higher than the EC standards at the time,
could be driven on days that smog levels were too high.  Several
German cities had banned driving private vehicles on specific
days of the week when smog levels were above the acceptable
level.  In the late 1980s, most French cars were not equipped
with catalytic converters, and therefore the auto industry
lobbied the government to declare that the German restrictions
limited the free movement of goods within the EC.  

     In October, 1988, the Commission sent a reasoned opinion to
Germany regarding the exceptions that the seven L„nder gave to
cars that met stringent (compared to the European standards at
the time) U.S. and Swedish standards.  The Commission concluded
that even though cars not equipped with catalytic converters were
ordered off the road infrequently, purchasing decisions of
consumers would be affected by not being able to drive their
automobiles, therefore possibly distorting the single market. 
The Commission felt that the L„nder regulations distorted trade
by encouraging consumers to purchase cars meeting U.S. standards. 
The reasoned opinion rendered by the Commission moved the process
closer to being argued at the European Court of Justice.

     In the Netherlands, fiscal incentives were offered to
consumers who purchased cars equipped with catalytic converters. 
The Dutch offered tax incentives of 1700 guilders ($812) for each
car purchased with a U.S. type catalytic converter.  The French
argued that the offering of incentives to purchase cars with
catalytic converters, four years prior to EC legislation coming
into force, distorted competition.  Germany and Denmark's
consideration of similar incentives added to France's concern.

     By 1988 representatives of Fiat (Italy) and Renault (France)
backed the EC agreement on the grounds that the requirements
would affect the small car manufacturers relatively equally and
although both the German requirements and the Dutch incentives
could have been ultimately decided in the ECJ, the support of
Fiat and Renault as well as the political climate prevented this. 
A compromise was reached, passed by a qualified majority vote,
but was then rejected by the European Parliament, because the
standards were not strict enough.  In July of 1989, the EC
Directive 89/458/EEC, now with the stricter U.S.-type standards,
amended emissions standards for new vehicles below 1.4 liters. 
The limits set were 19 grams/test for CO and 5 grams/test for HC
and NOx and were to take effect by  December 31, 1992.

     The possibility of legal action against the Netherlands and
other nations offering or planning to offer fiscal incentives for
purchase of cars with catalytic converters was applied to all
cars meeting the requirements, be they manufactured domestically
or imported.  Additionally, the incentives would end when
mandatory emissions limits went into effect, and the incentives
were to be "substantially lower" than the cost of purchasing and
installing catalytic converters.

     While the EC was trying to both protect the environment and
ensure the free movement of goods, the more stringent standards
were agreed to in 1988 in large part because of the June European
Parliament elections in which environmental issues were expected
to (and did) play a major role.  The parties leading the Member
States' governments and European Community politicians who were
against the U.S. style emissions standards did not want to be
seen as selecting industry and commerce over the environment at
that time.  The limits mandated in the June 1989 Directive were
equal to or more stringent than the proposal of the minority of
member states in 1987.

     The EC was trying to limit harmful emissions as well as
continue progress toward the internal market by establishing
common compulsory standards and by ensuring during the transition
period the free movement of vehicles that comply with European
standards.  Finally, the Commission has tried, by making its
policy absolutely clear, to cast as much light as possible on the
future for the manufacturers, for it is well aware of the
detrimental effect of uncertainty on European Industry.

     In July, 1989, the EC adopted its directive on emissions
from vehicles with engines smaller than 1.4 liters.  U.S.-type
standards were adopted.  The Dutch were allowed to continue with
their incentive program for cars equipped with catalytic
converters, as long as the incentives met stated requirements. 
One reason the EC Ministers were able to agree on a directive
after several years of dispute was that "green" issues were
playing a strong role in European politics and, with the European
Parliamentary elections being held in 1988, none of the political
parties governing the individual governments who were against the
stricter requirements were willing to damage their chances in the
European elections.

3.        Related Cases

     GERMAUTO case
     CLEAN case
     ECPACK case
     SULFUR case

     Keyword Clusters         

     (1): Trade Product            = AUTOmobiles
     (2): Scope                    = REGION
     (3): Environmental Problem    = Pollution Air [POLA]

4.        Draft Author:  Michelle Dearing

B.        LEGAL Clusters

5.        Discourse and Status:  AGReement and COMPlete

6.        Forum and Scope:  EURCOM and REGION

     EC requirements will use the same type of converters (three-
way catalytic converters) as U.S. Federal standards (U.S.-83).

7.        Decision Breadth:  12 [EURCOM]

     The decision would apply to all members of the EC.  It
probably will impact countries that export cars to the EC,
particularly Japan and the United States.

8.        Legal Standing: TREATY

C.        GEOGRAPHIC Clusters

9.        Geographic Locations

     a.   Geographic Domain : EUROPE
     b.   Geographic Site   : European Community [WEUR]
     c.   Geographic Impact : European Community [EURCOM]

10.       Sub-National Factors: NO

11.       Type of Habitat: TEMPerate

D.        TRADE Clusters

12.       Type of Measure: Regulatory Standard [REGSTD]

13.       Direct vs. Indirect Impacts:  INDirect

14.       Relation of Measure to Environmental Impact

     a.  Directly Related     : NO
     b.  Indirectly Related   : YES  AUTO 
     c.  Not Related          : NO
     d.  Process Related      : YES  Pollution Air [POLA]

     The measure does not discuss trade, either in a conceptual
(emissions rights trading) or practical manner.  It does discuss
only the products that emit these particulates, whether domestic
or foreign.  Accumulating pollution levels are blamed for a
variety of problems such as acid rain (see SULFUR case).

15.       Trade Product Identification:  AUTO

     Vehicles concerned are those with engine capacity of 1.4
liters or less.  The standards set in 1989 were expected to cut
pollution from small vehicles by approximately 70 percent.

16.       Economic Data

     In Europe, as in many developed countries, the automobile
industry is one of the largest in the economy.

17.       Impact of Trade Restriction:  BAN

18.       Industry Sector:  AUTO

19.       Exporter and Importer:  MANY and EURCOM

E.        ENVIRONMENT Clusters

20.       Environmental Problem Type:  Air Pollution [POLA]

21.       Name, Type, and Diversity of Species

     Name:          Softwoods and Hardwoods
     Type:          Plant/Angiospermae/Dicot
     Diversity:     Many

22.       Resource Impact and Effect:  MEDIUM and REGULatory

23.       Urgency and Lifetime:  MEDIUM and NA

     Air pollution is becoming a severe problem in Europe and
contributes to problems ranging from smog to acid rain. 

24.       Substitutes:  Bio-Degradable products [BIODG]

VI.       OTHER Factors

25.       Culture:  NO

26.       Trans-Border:  YES

     Due to prevailing wind patterns and the small size of the
countries in Europe, many of these emissions easily cross
national boundaries.

27.       Rights:  NO

28.       Relevant Literature
Alterman, Simon.  "EC in All-or-Nothing Gamble for Tough Car 
     Pollution Controls."  Reuter 13 (April 1989).
"EC Rethinking Standards Just Set for Car Emissions."  Wall 
     Street Journal 10 (March 1989): A13.
European Community.  "Emission Limits for Small Cars."  Press 
     Release IP(89) 224 (Brussels, April 5, 1989).
"Experts Divided on Anti-Pollution Measures for Small Cars." 
     Internal Market 1364 (December 9, 1987): 2.
"France Rejects Provisional Agreement on Small Car Pollution." 
     Internal Market 1424 (July 29, 1988): 8.
Greenhouse, Steven.  "France Balks at Pact to Cut Car Pollution."
     New York Times (September 6, 1988).
"Pollution Curbs For Cars are Set by EC Ministers."  Wall
     Street Journal (June 12, 1989), A11.

                          References