Environmental regulation was thrown in the spotlight this week, after the US EPA issued a Notice of Violation (NOV) of the Clean Air Act to German car manufacturing giant, Volkswagen. Volkswagen is accused of, and has admitted to, including software in their four cylinder diesel cars that deliberately circumvents EPA emissions standards for air pollutants.
The scandal, which went public on Friday 18 September, was discovered by an environmental group while they were trying to prove that Volkswagen was a leader in emissions control. The group, called the International Council on Clean Transportation, funded road tests that revealed large disparities with the US EPA's lab tests.
Volkswagen has declared that up to eleven million Volkswagen and Audi diesel cars manufactured between 2009-2015 are involved. The US EPA expects to compel VW to issue a recall of all affected cars at some point in the future.
Cynthia Giles, Assistant Administrator for the US EPA's Office of Enforcement and Compliance Assurance, said that the software was "illegal and a threat to public health". She also said that the EPA was working closely with the California Air Resources Board to "investigate these very serious matters". The California Air Resources Board has separately issued an 'In-Use Compliance letter' to Volkswagen.
Assistant Administrator Giles told journalists that companies can face civil penalties of up to US$37,500 (AU$53,000) for each car that breaches federal clean air regulations. This prompted media speculation that the costs to Volkswagen could exceed AU$25 billion to bring their vehicles into compliance. However, as Business Insider Australia states, it is unlikely that this maximum amount will ever be reached. Instead it is more likely that the EPA will determine an appropriate overall amount. For its part, Volkswagen has declared that it has set aside AU$10.4 billion to cover the costs of the scandal.
In addition to the sanctions imposed by US EPA, the matter has been referred to the US Justice Department for a potential criminal investigation. US EPA has confirmed that they will now be looking for the devices in other diesel vehicles, but has not named any particular manufacturers.
You can hear directly from Cynthia Giles in her Keynote Presentation at the 2015 AELERT Conference
Defeat Device The software, labelled a 'defeat device', was manufactured by Volkswagen and installed in their cars' electronic control module (ECM). The device senses when the vehicle is being tested based on a range of parameters that are specific to EPA emissions testing. This includes the position of the steering wheel, vehicle speed and the duration of the engine's operation. During testing, the cars' ECM runs software that produces compliant emission results. However during normal operations, the software runs a separate "road calibration", reducing the effectiveness of the emission control system. This results in increased emissions of NOx, reaching 10-40 times the EPA's compliance levels depending on how it is driven (i.e. city versus highway driving).
Public Backlash There has been a significant backlash to the deception, with public sentiment supporting strong environmental regulation of the car industry. The incident has also been described as 'deceitful' and a 'slap in the face to customers who paid a premium for what they thought was a greener car' (BBC).
At the launch of their 2016 VW Passat, chief executive Michael Horn said that the company "was dishonest" and had "totally screwed up". Volkswagen has stated that they will work towards rectifying the error and restoring public trust in the company. In response to their admission, Volkswagen shares took a dive of almost 20% on Monday.
Global Response The German government has launched their own investigation into whether similar deception has occurred in Germany or Europe. The French finance minister has called for a Europe-wide investigation, while South Korea has opened a probe into the company's operations.
Volkswagen Australia has stated that they are attempting to determine whether Australian sold cars are involved. VW cars sold in Australia are built in Europe, while those sold in the United States are generally built in Mexico. It is currently unknown whether the defeat device is included in cars manufactured outside Mexico. UPDATE 10 October 2015: Volkswagen Australia has confirmed the recall more than 80,000 Volkswagen and Skoda cars.
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