German cities can ban the most heavily polluting diesel cars from their streets, a court ruled on Tuesday, a move likely to be mirrored in other parts of Europe and to force automakers to pay to improve exhaust systems or switch to cleaner vehicles.
There has been a global backlash against diesel-engine cars since Volkswagen admitted in 2015 to cheating US exhaust tests, meant to limit emissions of particulate matter and nitrogen oxide (NOx), known to cause respiratory disease.
The ban in the birthplace of the modern automobile is a new blow for automakers, and an embarrassment for Chancellor Angela Merkel’s government, which has come under fire for its close ties to the car industry, and had lobbied against a ban.
The ruling was praised by environmentalists but angered right-wing politicians, who said millions of drivers faced de facto expropriation of vehicles they could no longer use. Tradesmen and retailers said it could hit their business.
Merkel noted that the ruling did not affect all drivers in Germany, but said the government would discuss with regions and municipalities how to proceed.
The ruling could have wider implications.
Paris, Madrid, Mexico City and Athens have said they plan to ban diesel vehicles from city centers by 2025, while the mayor of Copenhagen wants to ban new diesel cars from entering the city as soon as next year.
Sales of diesel cars have been falling fast in Europe since the Volkswagen scandal, with fears of driving bans sending demand sharply down in Germany in the last year.
The ruling by the country’s highest federal administrative court came after German states had appealed against bans imposed by local courts in Stuttgart and Duesseldorf in cases brought by environmental group DUH over poor air quality.
“This is a great day for clean air in Germany,” DUH managing director Juergen Resch said.
“This is a debacle for the policies of the grand coalition, which has sided with the auto industry,” Resch added, referring to the ruling coalition of conservatives and Social Democrats that Merkel hopes to renew in the coming weeks.
The court on Tuesday ordered the German cities of Stuttgart and Duesseldorf to amend their anti-pollution plans, saying that city bans can be implemented even without nationwide rules.
The shares of German automakers Volkswagen, Daimler (DAIGn.DE) and BMW (BMWG.DE) slipped after the ruling, trading down 1.4 percent, 0.3 percent and 0.6 percent, respectively.
The DUH group sued Stuttgart and Duesseldorf to force them to implement driving bans, after about 70 German cities were found to exceed European Union NOx limits. The group is also suing another 20 cities in Germany over air quality.
The court said that Stuttgart - the birthplace of the combustion engine and home of Mercedes-maker Daimler - should consider gradually imposing a year-round ban for all older diesel models, as well as some even older gasoline models.
However, it said cars which meet Euro-5 emissions standards should not be excluded until Sept. 1, 2019, four years after the introduction of the latest Euro-6 standard. Stuttgart should allow exemptions for tradesmen and some residents, it added.
Automakers could still try to avert a ban by agreeing to upgrade exhaust cleaning systems of older diesels, German motorists club ADAC said, calling on the government to pass legislation allowing that swiftly.
Of the 15 million diesel cars on Germany’s roads, only 2.7 million have Euro-6 technology.“Such bans hit drivers such as craftsmen or service technicians who depend on their diesel vans for their work,” Thilo Brodtmann, managing director of German engineering trade body VDMA, said in a statement.
The court said Duesseldorf should consider banning diesel vehicles if that is the only way to quickly cut emissions.
“This is a groundbreaking ruling, and one which we expect has set a strong precedent for similar action across Europe,” analysts at Evercore ISI said.
“The result is ... damaging to already-battered diesel sentiment, which we should see reflected in continued decline in diesel market share and residual value estimates.”
The share of diesel cars in overall vehicle production in Europe could be cut to 27 percent by 2025 from 52 percent in 2015, Barclays forecasts.
The German government had sought to avert driving bans by pushing automakers to agree to overhaul software on 5.3 million diesel cars and offer trade-in incentives for older models.
But environmental groups have lobbied for improvements to exhaust cleaning systems for cars with Euro-6 and Euro-5 standards, which Evercore ISI has estimated could cost up to 14.5 billion euros ($17.9 billion) for just Euro-5 diesels.
An outright ban could also slash resale prices, which are used to price leasing and finance contracts.
The government has begun work on legal changes to permit driving bans on certain routes on an emergency basis, transport ministry documents seen by Reuters showed.
It is also considering making public transport free in cities suffering from poor air quality.