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* Stepped-up tests apply to both gasoline, diesel cars
* Tests will measure CO2 and smog-forming pollutants
* More tests could add costs to carmakers
* BMW, Daimler insist they do not manipulate results (Recasts first sentence; adds broadening of tests, background)
By Timothy Gardner and David Morgan
WASHINGTON, Sept 25 (Reuters) - U.S. environmental regulators on Friday announced tighter and broader auto emissions tests to detect "defeat" devices in all cars and light trucks in the United States and Canada, including gasoline engines, after Volkswagen admitted it cheated on diesel emissions.
The Environmental Protection Agency notified auto manufacturers in a letter saying authorities could require additional tests for "any vehicle" to determine whether it meets emission standards under normal road conditions, not just at controlled testing facilities.
The change could mean higher costs for automakers, particularly any that become subject to recalls or production changes, as well as bigger regulatory hurdles in obtaining certification that vehicles meet North American emissions standards.
Additional tests will look not only for nitrogen oxide emissions linked to smog and acid rain, but also for carbon dioxide, a primary greenhouse gas emitted by gasoline and diesel engines that is a proxy for a vehicle's fuel efficiency.
European regulators on Friday promised separately to show "zero tolerance" for cheating on emissions tests as European Union lawmakers pushed for tougher, real-world testing of vehicles.
"We aren't going to tell them what these tests are. They don't need to know," Chris Grundler, EPA's head of transportation and air quality, told reporters in a teleconference.
Volkswagen could face $18 billion in fines from the EPA after it admitted using software in diesel cars that evades emissions tests. This week Volkswagen said 11 million cars were fitted with engines that had shown a noticeable deviation in emissions levels between testing and road use.
Grundler said Volkswagen embedded a sophisticated algorithm within 100 million lines of software code to defeat current emissions test procedures.
Separately, the U.S. Department of Justice said it is working closely with the EPA in the VW investigation. "We take these allegations, and their potential implications for public health and air pollution in the United States, very seriously," a spokesman said.
Two other German automakers issued statements insisting that they do not manipulate or rig emissions tests.
Bayerische Motoren Werke AG, whose BMW X5 vehicle met EPA standards in early tests that called Volkswagen's into question, said "our exhaust treatment systems are active whether rolling on the test bench or driving on the road."
Daimler AG, the maker of Mercedes-Benz, categorically denied allegations by lobby group Deutsche Umwelthilfe that it had rigged emissions data for its vehicles.
Meanwhile, environmental groups welcomed the news of enhanced testing but wondered how effective the effort would be.
"The VW cheating scandal shows car companies can't be put on the honor system," said Frank O'Donnell, president of Clean Air Watch, who added that it remains to be seen whether EPA can move quickly to improve testing.
The EPA will test cars under a partnership that also includes regulators at Environment Canada and the California Air Resources Board.
Grundler said he expects solutions to be found "relatively quickly" for 2015 model year Volkswagen vehicles. But he said older models, other than Passats, could require "additional engineering development" because of changes in technology.
Reporting by Timothy Gardner, David Morgan and Joel Schectman; Editing by Joe White and Matthew Lewis