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 The carmaker has been embroiled in crisis since last September, when
it admitted it had cheated U.S. emissions tests using software known
as "defeat devices".
The U.S. Justice Department is suing the German company for up to
$46 billion for allegedly violating environmental laws - though some
legal experts expect the final settlement to be far lower.
Other countries have also acted - Brazil and South Korea, for
example, have both imposed fines of well over $10 million on VW for
cheating on emissions.
But although VW says 8.5 million of the 11 million vehicles
world-wide that contain banned software are in Europe, no European
national authority has ordered any penalties so far.
EU sources and lawyers say it would be surprise if the firm received
any significant fines in the European Union.
While the bloc outlawed defeat devices in 2007, there are no defined
penalties for using such software to mask emissions. Under U.S. law,
by contrast, carmakers must identify and describe any emissions
control devices, meaning they can be pursued for omission or
wrongful declaration, widening the scope for punitive action.
EU states are also reluctant to mete out tough financial penalties,
because of an unwritten rule in the 28-member club that some
national interests are sacred, according to the EU sources - and
Germany's car industry has traditionally been one of them.
VW, Europe's biggest motor manufacturer, employs more than 750,000
people in Germany, and has been a symbol of the nation's engineering
prowess. VW, Daimler <DAIGn.DE> and BMW <BMWG.DE>, Germany's big
three German carmakers, hauled in revenues of 413 billion euros in
2014, far bigger than the German federal budget, which stood at just
under 300 billion.
Even if the European Commission wanted to impose penalties on VW,
its powers are curbed. The EU executive can directly only impose
financial sanctions on trade and competition issues. Lucas Bergkamp,
a partner at law firm Hunton and Williams in Brussels, said any
change to that "would be a huge step".
"In general when companies are already in great difficulties due to
some crisis, European governments tend to be understanding and will
not necessarily seek the imposition of all possible penalties," he
said, adding he could not comment on VW specifically.
VW also declined to comment on anything pertaining to possible fines
in Europe.
LAWSUIT THREAT
Britain has said it could prosecute a vehicle manufacturer if there
were proof it knew or was reckless when supplying false information,
for which there is an unlimited fine on conviction.
But proving recklessness is a high hurdle - it remains unclear who
at Volkswagen knew what and when, while the company itself has
blamed a small cadre of employees.
Lawyers say a bigger financial threat to VW than any EU regulatory
fines is likely to come from private litigation. Lawyers are
gathering investors for group actions in Europe and hundreds of
lawsuits on behalf of enraged drivers have been filed in the United
States.
The VW scandal has exposed the weaknesses of the regulatory system
in Europe, where there is no EU-wide authority with oversight of car
testing - like the U.S. Environmental Protection Agency (EPA) - but
instead a patchwork of 28 national agencies with varying standards.
A vehicle approved in one country can be sold across the bloc, which
environmental campaigners say allows carmakers to take their pick
from national regulators.
However European Commission proposals, expected over the coming
weeks, will add some teeth to the EU regulatory regime and penalties
for excessive emissions could start to bite around the start of the
next decade.
Some members of the European Parliament and environment campaigners
want an independent EU-wide regulator, along the lines of the EPA.
European Commission spokeswoman Lucia Caudet did not entirely rule
out establishing such a body, but said there were other ways to
improve oversight.
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"All options are on the table, but greater oversight can be achieved
without the need for another EU agency," she said, adding it was too
soon to give detail of a proposal expected "in the coming weeks".
The International Council on Clean Transportation (ICCT), which
alerted the EPA to Volkswagen's use of defeat devices to trick
regulators, has said mandatory, independent testing of cars once
they are in use is crucial to good regulation.
EU PLAN
EU sources said the European Commission proposal was expected to
ensure greater independence of the private firms that test car
emissions in the bloc, which typically have worked very closely with
the national regulators.
The proposal, which would then face around 18 months of vetting from
the European Parliament and member states before it can become law,
could also hand powers to the European Commission to verify that
cars on the market conform with standards and to exact clear
penalties if they do not.
The sources said the plan from the EU executive would be viewed as
far too ambitious by some member states and not ambitious enough by
members of the European Parliament.
The parliament has set up an inquiry into whether the European
Commission has done enough to police the car industry, but the
Commission also faces counter-pressure from the industry and member
states.
Even at the height of the VW scandal, in October last year Germany
led the dilution of separate new rules to restrict how much
pollutants cars are allowed to emit above official limits, EU
sources said.
The sources said that Germany was supported by Britain, which is
unwilling to hand extra powers to Brussels; Prime Minister David
Cameron, whose party includes several Eurosceptic lawmakers, is
seeking to renegotiate Britain's relationship with the EU ahead of a
referendum on membership of the bloc.
The difference in the tone struck by U.S. and European authorities
was underlined this week; even as the United States announced its
legal action, the European Commission said it was giving VW an extra
month - until the end of January - to explain why carbon dioxide
levels emitted by cars were higher than stated.
For breach of carbon dioxide limits, there are clear penalties that
so far have never needed to be enforced because EU cars - even
allowing for Volkswagen's discrepancies - have as an average across
the EU fleet been well below the legal limit of 130 grams per
kilometer (g/km).
But the target becomes more challenging in 2021 when a 95 g/km limit
takes effect and the penalty for breaking that law will be 95 euros
for every gram above the limit.
"When we get to the 95 gram target, things (fines) could get more
interesting," said Julia Poliscanova, policy officer at campaign
group Transport & Environment.
(Additional reporting by Alissa de Carbonnel in Brussels, Andreas
Cremer, Ilona Wissenbach and Georgina Prodhan in Frankfurt and
Caroline Copley in Berlin; Editing by Pravin Char)
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