The Volkswagen emissions cheating scandal will yield a landmark payoff for efforts to promote cleaner transportation under a tentative settlement that calls for the German automaker to spend almost $5 billion to create a pollution-reduction fund and to promote the use of zero-emissions vehicles.
Under the proposed consent decree filed today in U.S. District Court for the Northern District of California, Volkswagen will pay $2.7 billion to create a U.S. EPA trust fund for remediation projects to offset excess emissions of nitrogen oxides (NOx) that resulted from the company’s use of illegal "defeat devices" on almost a half-million 2.0-liter diesel-powered vehicles sold or leased in the United States for model years 2009 through 2015.
States and tribes — including Puerto Rico and the District of Columbia — will split the money on a pro-rated basis mainly tied to their share of the affected vehicles, with the minimum state portion set at $7.5 million and California getting the maximum of $381.3 million, according to the proposed settlement.
Recipients will be able to spend money on "clean air projects that make sense for them," EPA Administrator Gina McCarthy said in a news conference this morning at Justice Department headquarters, adding that they will be able to cut NOx pollution "in ways that current budgets never could have realized."
McCarthy likened the initiative to the existing Diesel Emissions Reduction Act program, which doles out grants to replace or retool older, more heavily polluting diesel engines used in buses, locomotives and other equipment with newer, cleaner models. It represents "the largest monetary obligation for pollution reduction in Clean Air Act enforcement history," she said.
Over the next decade, Volkswagen will also pump $2 billion into spending on electric charging stations, public relations campaigns and other efforts intended to promote the use of zero-emission vehicles (ZEVs). In California, the program could also help pay for zero-emission transit and freight projects. Once the settlement is approved, Volkswagen will have to turn in a "National ZEV Investment Plan" spelling out its spending strategy for at least the next 30 months.
"These investments will help catalyze the deployment of cleaner vehicles of all kinds — today and in the future," McCarthy said.
In all, the settlement is worth up to $14.7 billion, with the remaining $10 billion potentially going to compensate consumers who bought what were in some cases marketed as "clean diesel" vehicles but in fact spewed out as much as 40 times the allowable NOx emissions. Under the agreement, which covers turbocharged direct injection diesel models of Jettas, Passats, Golfs and Beetles as well as the Audi A3, Volkswagen must offer to buy back any of the affected models or else fix them, assuming the company can win approval from EPA and the California Air Resources Board for the needed emissions systems modifications.
If approved by a judge, the settlement would not end VW’s legal and regulatory woes. It does not, for example, cover 3.0-liter diesel vehicles equipped with the defeat devices. In addition, a Justice Department criminal investigation "is active and ongoing," Deputy Attorney General Sally Yates said at the news conference.
"We’ll follow the facts where they go and make a determination on whether any companies or individuals should be criminally charged," she said.
In a related development, VW said it reached a separate settlement worth about $603 million with the attorneys general of 44 states, the District of Columbia and Puerto Rico to resolve existing and potential state consumer protection claims.
In a statement, Matthias Mueller, CEO of Volkswagen AG, the automaker’s German parent, said the carmaker takes its commitments seriously and views the proposed agreements as "a significant step forward."
"We know that we still have a great deal of work to do to earn back the trust of the American people," Mueller said. "We are focused on resolving the outstanding issues and building a better company."
At the Safe Climate Campaign, an environmental advocacy group, director Dan Becker called the agreement "a good start."
But in the future, stopping automakers from polluting too much "will require loophole-free anti-pollution rules, strict enforcement, and criminal prosecution of VW," he said in an email. The government also needs to make sure that the vast majority of affected vehicles are fixed "properly and promptly," he said.
The shape of the $2.7 billion remediation fund partly follows recommendations advanced last month by the National Association of Clean Air Agencies, which represents state and local regulators.
The settlement "reinforces the fact that cheaters never win," Bill Becker, the association’s executive director, said in a statement welcoming the agreement, adding that Volkswagen’s cheating interfered with the ability "of state and local air pollution control agencies to carry out their responsibilities under the Clean Air Act to protect public health and welfare."
NOx emissions, which help lead to the formation of smog, can trigger lung airway inflammation and other respiratory problems, besides contributing to premature deaths. The proposed trust fund "will provide essential funding to ameliorate these problems," Becker said.
The cheating, which came to light last September, was a major embarrassment for EPA officials in as much as it was uncovered by West Virginia University researchers working for the International Council on Clean Transportation, a private nonprofit group. The agency soon after announced it was stepping up emissions testing of vehicles made by other carmakers.
"If we find any type of infraction, you certainly know that we’re going to take it very seriously," EPA’s McCarthy said today.