Yes, it was the emissions. Specifically, the cars made more Nox (Nitrous oxides) than allowed. And this happened because VW had a “cheat” built into the ECU, so that when it detected that it was being tested, it would run a different set of values. When tested, it would then produce nice low Nox values, but with slightly more fuel consumption.
The weird part of it all, is that they would not be able to use the lower fuel consumption number in advertising or for tax purposes. So essentially they made a car that would be “better than advertised” and the owners would only discover this after the car was already sold… which makes you wonder what happened. Did some engineer just stubbornly refuse to give up on the gains made in fuel consumption, and insisted on putting it into production despite those whining ninnies at the environmental agencies?
So yes, your guess is correct. The two are interrelated. Newer diesel engines are actually heavier on fuel (than they need to be) in order to make less Nox.
Same thing actually happened to Petrol engines. It was perfectly acceptable to run petrol engines lean at low loads and part throttle, leading to better fuel economy when cruising. No longer, since lean mixtures makes more carbon monoxide.
It gets even more interesting. Even though a lot of effort goes into not running an engine lean… the opposite end has less of that. When running at full load, many many ECU’s skips the whole closed loop oxygen sensor feedback stuff and just goes open loop “gooi mielies” mode, ie it makes the mixture rich. Safer for the engine (a rich mixture runs cooler). From what I’ve read, Tata is one of the few manufacturers who doesn’t do this…