Emissions Scandal U.S. Regulator: VW Must Help Clean Up

Volkswagen and the California Air Resources Board have been at loggerheads since the agency caught the German car maker in a massive diesel emissions fraud. In an exclusive interview, CARB boss Mary Nichols says the relationship is improving but the carmaker must do more.
Mary Nichols, Chair of the California Air Resources Board.

The California Air Resources Board, is Volkswagen’s nemesis. It was technicians at the Air Resources Boards lab that discovered the defeat devices Volkswagen had installed in some of its diesel engines to manipulate emissions data. Last month, the German car maker announced a settlement with US authorities worth up to $15 billion. Under the deal Volkswagen will buy back affected vehicles and fund clean technology. Under the deal with the Justice Department, VW will provide $2 billion over 10 years to fund the development of electric car charging stations, zero emission vehicles, or ZEV, and other clean technologies. Mary Nichols, the outspoken chair of the California Aid Resources Board, talks about the settlement, and Volkswagen’s future.

Handelsblatt: California is a big beneficiary of the remediation and the ZEV fund that are part of the settlement. What does that mean for California’s automobile future?

Mary Nichols: The $2 billion set aside for improving ZEV infrastructure and marketing is a very important element of the settlement from our perspective. First of all it is a tangible commitment on the part of Volkswagen to an electric vehicle future which up to now they had not been involved in. They made some very big announcements about their plans for producing electric vehicles; so far they only have one model, the E-Golf, in California. The fact that we now also now have this commitment to provide support for charging stations and helping to make electric vehicles more available for a much broader range of consumers will help insure that we are paving the way for a future in which we have a much larger electric vehicle fleet.

How did the ZEVs get into the settlement in the first place?

California was invited to be at the table when we began discussions with VW about settling the environmental claims that are at the heart of the problem. We weren’t litigants but we were beginning an enforcement action. We hadn’t yet filed in any court but it was considered important by the Department of Justice and I think by Volkswagen that California be a party to these discussions. That’s because we played such a critical role in uncovering the defeat device in the first place but also because California does play a unique role within the American environmental regulatory system. We are the only state that can set its own stricter emissions standards for vehicles.

Was that your idea?

This emerged in the earliest stages of the discussions as a way to reflect that the damage that was done by Volkswagen’s cheating was twofold. On the one hand there is the environmental damage caused by the excessive emissions of nitrogen oxide. But it also had an impact on consumers and on the market for vehicles because Volkswagen aggressively marketed them as an alternative to zero emission vehicles. So it seemed appropriate and necessary that a portion of the penalty Volkswagen would pay for their misconduct would be to help overcome this delay they had helped to create in building the market for ZEVs.

What role did the ARB play in the negotiations?

In addition to figuring out what the actual mechanism was that Volkswagen used to cheat on the emissions tests, we played a critical role in also developing the detailed and precise requirements that VW must meet in developing a modification to reduce the excess emissions. Those requirements are found in 60 pages of very technical documentation that is part of the Consent Decree. Our engineers have a lot of knowledge and expertise in evaluating not just whether a test has been passed or failed, but also how the vehicles are functioning in the real world. And in this case we don’t want to see consumers hurt again as a result of the potential fix – that is, we wanted to be sure any fix we approved would not negatively affect the fuel economy or the drivability of vehicles. In a sense we are helping Volkswagen and their reputation in this regard because we want to make sure whether the cars are as fuel efficient and as fun to drive as they were when the customers bought them.

Do you think people would want to keep their cars?

Some people will just want to get rid of their cars. But many people I think will want to be able to keep them if they can be fixed. We don’t know how many there will be in both cases, but we also want Volkswagen to be able to repair and resell these cars. In the long run we think that’s a more efficient use of resources.

Our job is to protect the health of the people that are breathing the air that Volkswagen has helped to pollute.

Will a fix be possible, though? You still haven’t approved a fix for the two-liter cars.

The answer is not yet final because we are still in the process of working with the company. But discussions have been going well. Certainly, Volkswagen has been much more forthcoming and prompt in responding to questions and getting us documents and information when we need them. And our estimate -- and this is reflected in the consent decree-- is that these vehicles can be fixed to reduce emissions by between 80 and 90 percent compared to where they were with the defeat device in place. So it is not 100 percent, but that is the reason why we have the mitigation fund to fully address the excess emission not only from the past but also going forward.

Why is a fix so complicated?

One of the problems with the whole scandal is that consumers were actually getting better fuel economy than what the cars were originally rated for according to the label. That is unheard of. Normally it is the other way around -- that the consumer gets worse fuel economy in so-called ‘real world’ driving. In this case, however, we were seeing better fuel economy than the label which was one indication that something was wrong. Emission control systems reduce Nox emissions but typically have an impact on on fuel economy. But at Volkswagen the emissions control system was actually having zero impact on fuel economy. We now know that was because they were using a less effective emissions control system.

Some say $15 billion is way too expensive. How do you see that?

I think the settlement is fair as it accurately reflects the damage that was caused. Maybe if you don’t value public health or don’t think air pollution is bad you don’t think what VW did is a problem. But our job is to protect the health of the people that are breathing the air that Volkswagen has helped to pollute, and in order to make up for the excessive emissions caused by their cheating we have to go out and spend the money to do various projects that will reduce emission from other sources.

So this money is not going to the Treasury.

No. Other vehicles will have to be changed out or cleaned up in order to make up for what Volkswagen did. The money is going to be spent to achieve additional air pollution reductions. And the two billion dollars that is in the EV fund will be spent by Volkswagen; it is under their control and that money is not coming to us, although we will be fully reviewing their plans. They view it as an investment in activities that will help to build a market for all electric vehicles but of course will benefit Volkswagen as well.

You just rejected the recall plan for the 3 liter vehicles. What are the next steps for those cars?

We are now working to develop a new and approvable plan that includes a possible fix. This is a much smaller issue overall as there are many fewer vehicles involved and we think that there’s a likelihood that they actually can repair most of them. But we need to work through the details of that. There will be some penalties involved but again the dollar value is not as great.

Can you say what the sticking points are with the three liter cars?

I can’t.

But worst case they would also have to be bought back?

If they can’t be repaired sufficiently, yes.

Bosch has also been part of the big class action lawsuit, since they supplied the software for the defeat devices. Are you also looking into them?

I am guessing since Bosch has such a close relationship as a supplier with the company I would imagine there are discussions going on between them but we are not a party to them. And I can’t comment because we regulate the automobile companies -- we don’t directly regulate the associated companies like Bosch.

 Is this still only the beginning of diesel scandals? There’s an internal investigation at Daimler. Could other car makers follow?

At this point we are not pursuing any other cases against any other diesel manufactures. I think the Volkswagen situation has probably clouded the market for all diesel passenger cars. But there is not another shoe waiting to drop at this point.

Does diesel still have a future in California?

 It does. I think it will continue to be popular with some consumers. Clearly diesel in the heavy duty sector will continue to play a big role and some of these same emission control technologies are applicable to some of the heavier vehicles as well. But in California we are more interested in promoting advanced hybrids, plug-ins and fuel cell vehicles because we see those as getting closer to a zero emission future -- which is what we really need.

When can we reach the zero emission future?

We are well on our way. We have 22 different models of electric and fuel cell vehicles that are being offered for sale in California. They are still a very small fraction of the market but it is growing all the time. We will not do anything to restrict the availability of diesel in market place but in terms of our activities to promote the development of infrastructure, to help get the cleanest cars into the market, we are focusing on these other technologies. And we believe that certainly by a 2025 and 2030 time frame we will see a very large percentage of the cars out there being these more advanced technology vehicles.

The car lobby has criticized the new standards as very hard to achieve and as potentially being very expensive for consumers to buy these cars.

The technical assessment report just came out recently and it provides a very strong technical rebuttal to that argument. The report says it is clearly possible, that the technologies to meet those standards are here now, and further savings are possible for the model years 2022-2025 beyond what we agreed to in 2012. So really we could actually be more aggressive in setting the greenhouse emissions standards and fuel economy standards going forward. But that is a topic that is going to be taken up later. We are not making any proposals right now.

 Do you have a time frame in mind when there will only be Zero Emission Vehicles in California?

Well, it takes a long time to turn over the fleet as a whole although we are certainly trying to accelerate that process. Based on modeling work and projections, we think that somewhere between 2030 and 2040 every new car sold in California should be either an advanced hybrid, a battery electric car, or a fuel cell vehicle. That would still only represent a fraction of the whole fleet but it would be a very strong direction that would be headed in.

VW also announced that they want to produce EVs in North America. With the turnaround they have announced do you think they can recover from the damage the diesel scandal has caused?

Yes I do and I am hopeful. Sometimes the critics don’t understand that we in California and at the Air Resources Board are “pro car”. We like cars! We just want them to be as clean as they can be. And we have no reason to believe that Volkswagen is incapable of producing excellent cars that also meet our standards.

Ms. Nichols, thank you very much for the interview.

 

Astrid Dörner is part of Handelsblatt's team of correspondents covering finance and U.S. corporations in New York. To contact:  [email protected]