BERLIN, Feb 27 (Reuters) - Germany's top administrative court will decide on Tuesday whether cities in Europe's biggest auto market can ban diesel cars, potentially wiping hundreds of million of euros off the value of up to 12 million vehicles.
Since Volkswagen was found in 2015 to be cheating on emissions tests in the United States, diesel emissions containing toxic nitrogen oxide (NOx) which is known to cause respiratory disease, have come under close scrutiny.
The environmental lobby DUH sued Stuttgart and Duesseldorf to force them to implement driving bans, after about 70 German cities were found to have NOx levels exceeding European Union limits.
The German states of Baden-Wuerttemberg and North Rhine-Westphalia have appealed against the decisions, leaving the federal administrative court in Leipzig to rule on whether such bans are legal.
The Leipzig tribunal was expected to announce its decision at 1100 GMT on Tuesday. Judge Andreas Korbmacher delayed a verdict last Thursday amid speculation that the European Court of Justice could be consulted over the matter.
The regulatory and legal backlash against diesel emissions could cut by almost half the share of diesel cars in overall vehicle production in Europe by 2025, to 27 percent from 52 percent in 2015, Barclays said in a note on Monday.
Fiat Chrysler plans to eliminate diesel from its passenger vehicles by 2022 as demand collapses and costs surge, the Financial Times reported on Monday.
Germany's government and the auto industry have been seeking to avert driving bans. Carmakers have pledged to overhaul software on 5.3 million diesel cars and are offering trade-in incentives for older models to help improve air quality.
But environmental groups have called software updates insufficient and have lobbied for cars with Euro-6 and Euro-5 emissions standards to get hardware updates of their exhaust treatment systems.
Meanwhile, 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 .
The government is also considering plans to make public transport free in cities suffering from poor air quality. The opposition Green Party approves of that idea; it has called for using the 8 billion euros of annual public diesel subsidies pay for it.
If diesel bans are legalized, cities will probably target models with older emissions-control technology. Of the 15 million diesel cars on Germany's roads, only 2.7 million are equipped with the latest Euro-6 technology, data by the KBA motor vehicle watchdog showed.
Retrofits would be costly for carmakers, and an outright diesel ban could slash vehicle resale prices, which are used as a benchmark for pricing leasing and finance contracts.
"Driving bans are antisocial and should be avoided," Matthias Wissmann, the outgoing head of Germany's VDA auto industry lobby said in an interview with the Stuttgarter Zeitung published on Monday.
"There should be solutions that will not burden motorists, are socially acceptable and ensure planning capability." (Reporting by Andreas Cremer, editing by Larry King)