Fuel consumption would be a very accurate proxy for CO2 production, unlike NOx, which strongly affected by vehicle processing, so it is really unclear what the cheat could possibly be.
It's a joke. They should have increased fuel taxes. But that was too unpopular, so we have mess of regulations. As a result you either want to have new car with very small engine, or very old car with big engine. No matter how much emissions you actually make.
(or well, at least here in Sweden)
But it would still have been the only logical action. It would have fought congestion, as idle running would have been more expensive. It would have encouraged to buy less consuming car and drive less.
On the other hand taxing car ownership might make unemployment worse. If you have to sell your future means of commuting because of the taxes, you are in deeper shit.
Volkswagen says CO2 on their news site [1].
http://www.volkswagenag.com/content/vwcorp/info_center/en/ne...
So the official fuel consumption numbers were reported too low, possibly as a result of the dyno cheating mode.