By Dan Neil 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 18, 2018).

LET'S IMAGINE I work for a hedge fund as a researcher. My only purpose is to make management aware of anything in the public realm that might affect the value of the fund. By the way, since this is my scenario, I'm getting $1.5 million annually and my boss is played by Dwayne Johnson.

One day the Rock calls me to his office. "Come in, Stan. Close the door. Sit, be comfortable."

"It's Dan, sir."

"Oh, right! Sorry. So, Stan, we're looking at a project that involves injecting pleasing aromas -- like, a wintergreen, or kettle corn -- into diesel exhausts. Huh? Right?"

"Yes, sir."

"Damn right, yes, sir. Now, what I want to know is, where's the diesel market going?"

Uh-oh. I can tell the Rock loves the fruity-smelling tailpipe idea. I hate to disappoint. He's so large in person. But I wouldn't be doing my job if I didn't tell him: Diesel is doomed. Three years after the revelations of Dieselgate -- revelations that VW Group engineers and executives conspired to cheat tailpipe tests and defraud buyers -- European sales of diesel vehicles have been in free fall. U.K. sales of new diesel dropped 24.4% in July, month-over-month. Even in VW's home market, sales have fallen by double digits and taken resale values with them. Diesel's decline threatens the foundations of the German auto industry, which represents 15% of GDP and employs about 800,000.

The Rock goes into beast-mode. "Those waffle-eating Belgian bastards!"

Well, sir, let's put the blame where it belongs: with the German car industry first, and only then with their captive regulators in Brussels. Since Dieselgate, the European Union has ratcheted up both vehicle standards and enforcement. For example, next month, EU certification will require passing the new World Harmonized Light Vehicles Test Procedure, or WLTP, using results from Real Driving Emissions (RDE) tests instead of lab tests so easily gamed by auto makers.

But reform at the EU level is happening too slowly for European cities plagued with intense diesel-related air pollution (hazardous nitrogen oxide and particulate matter, or soot) exacerbated by climate change. In February Germany's Federal Administrative Court ruled that cities, including Stuttgart -- the home of diesel supergiants Bosch and Daimler -- had the power to restrict or ban older cars from city centers in order to meet European Union air-quality standards.

Dozens of German cities exceed EU air-quality standards. Soon after the ruling, Hamburg announced it would use its newly affirmed power to restrict diesel access in its city center. Dozens more municipalities across the EU have the same problem and can be expected to use the German ruling as a template.

In other diesel-hating news, as of last month diesel and gasoline-powered vehicles face new restrictions during peak hours in east London. This is in addition to the congestion tax and T-charge (T for "Toxic") already levied on older diesels, which can total 21.50 GBP per day. In April 2019, central London will become an official "ultralow emissions zone." Clear-air regulators in Paris have pledged to ban diesel cars by 2024 and all internal-combustion vehicles by 2030. The Mayor of Rome also announced this year that the city would ban diesel vehicles in its city center by 2024. Have you ever been to Rome, sir?

"Of course I've been to Rome, idiot!" The Rock leaps over his desk and picks me up by my lapels, glaring at me. No, please no, not the People's Eyebrow. "What about China?" he growls.

To fight the appalling air pollution that hangs over its major cities, China has made vehicle electrification -- replacing IC-powered personal transportation with electrics -- a national strategic priority, more or less starting with diesel. There are already zoned restrictions in Beijing. The world's largest car market (about 25 million unit sales in 2017), China has soft-targeted 2040 for a total ban on IC transportation; but the point at which diesel becomes uneconomic for auto makers will come long before.

The Rock pushes back. "Doomed, huh? I have a friend who bought a fabulous Range Rover HSE Td6 with a six-cylinder turbodiesel -- pulls like a mule, purrs like a jungle cat, gets 28 mpg on the highway."

"Lovely car. Already obsolete," I reply coolly, feeling the conversation move to my advantage. I go for the headlock. "Resale value." Grrr.

The Rock muses. He leans back in his chair, stretching wearily. Double python.

"America's different," he says.

It is. European luxury auto makers like Jaguar Land Rover and Daimler can continue to amortize their last round of diesel investments by way of boutique U.S. sales; and they can afford to make attractive deals, like your friend's HSE Td6. But they are just burning through back stock. There is no next generation of diesel coming.

And America is not that different. We have cities too, and many of them have acute, no-fooling hazardous air. We too have a clunky, federal-level apparatus groping for a middle way on emissions that is being outpaced by regional authorities. California Assembly Bill 1745 -- The Clean Cars 2040 Act -- proposes a Euro-style ban on the sales of IC engines by 2040. It's in committee.

The Rock shakes his fist at the sky. "Damn you, Sacramento!!!!"

Sir, please, you pay for the truth. I'm just saying, what happens to your friend's investment if, in 60 months, he can't drive his car in Bel-Air or Cupertino? It could happen.

I'll throw myself out.

(END) Dow Jones Newswires

August 18, 2018 02:47 ET (06:47 GMT)