Academic journal article Chicago Fed Letter

The VW Scandal and Evolving Emissions Regulations

Academic journal article Chicago Fed Letter

The VW Scandal and Evolving Emissions Regulations

Article excerpt

In September 2015, Volkswagen (VW) admitted to having programmed nearly 11 million of its diesel vehicles to cheat on tailpipe emissions tests.1 To put VW's emissions rigging into a broader context, the authors review the different approaches that the U.S. and Europe have historically taken in regulating automotive emissions and fuel economy. Moreover, they discuss the scandal's implications for regulatory changes in both regions.2

Automobiles are subject to emissions and fuel economy regulations in most regions of the world. Underlying the VW scandal are trade-offs between controlling a vehicle's emissions and improving its performance (i.e., its acceleration, power, etc.). VW, like most other European automakers, pursued diesel technology-which, compared with gasoline technology, provides greater fuel economy, resulting in lower greenhouse gas (GHG) emissions, such as carbon dioxide (CO2). Yet, relative to gasoline engines, diesel engines tend to emit more nitrogen oxide (NOx) and particulate matter,3 which contribute to the formation of smog. VW pursued a "clean diesel" strategy rather aggressively; but when some of its diesel engines could not meet the stringent tailpipe emissions standards in the U.S. and Europe without sacrificing on-road performance, the company installed "defeat devices," which allowed its vehicles to circumvent lab tests.

In this Chicago Fed Letter, we discuss the different approaches that the U.S. and Europe have historically taken in regulating the emissions and fuel economy of light-duty vehicles (i.e., cars and light trucks)4 and some implications of the VW scandal for the regulation of the auto industry in both regions.

The history of U.S. regulations

Vehicles emit pollutants as byproducts of fuel combustion in their engines. According to the U.S. Environmental Protection Agency (EPA), light-duty vehicles accounted for one-third of carbon monoxide emissions, about one-fifth of nitrogen oxide emissions, and about one-quarter of carbon dioxide emissions in the U.S. in 2011.5 Some of these tailpipe emissions are key ingredients in the formation of smog, which can be harmful to human health and the environment.

The hazards of smog were first recognized by state and federal officials in the U.S. during the 1950s and 1960s.6 Rapid motorization in the U.S. led to smog becoming a major public health issue back then. On account of the unique weather conditions in the Los Angeles Basin, Southern California experienced some of the worst smog in the nation. The subsequent scientific and regulatory discussions were concentrated in that state. California passed the Motor Vehicle Pollution Control Act in 1959, but it was several years before the issue vehicles to be certified for sale in a market. The outcomes of those tests do not necessarily reflect real-life driving conditions.25 For example, the EPA adjusts fuel economy ratings of vehicles communicated to U.S. consumers from the lab results in order to better reflect actual driving conditions. Typically, the test results are reduced by about one-fifth, meaning that the EPA estimates that the testing overstates fuel economy by around 20%.26 In addition, the EPA conducts in-use (on-road) testing of vehicles-both at low mileage (at least 10,000 miles) and at high mileage (more than 50,000 miles).27 Europe's regulators pursue a similar testing approach, but European tests tend to be less restrictive and have not included an on-road component.28

Vehicle fuel economy became an important policy issue in the U.S. during the 1970s, when oil prices spiked multiple times.9 Legislators enacted national corporate average fuel economy (CAFE) standards in 1975. Automakers needed to roughly double the average fuel economy of their new light-duty fleets by 1985-to 27.5 miles per gallon (mpg) for cars and to 19.5 mpg for light trucks. Fuel economy standards were tightened again starting in 2007-to 35.5 mpg for cars and light trucks combined, to be achieved by 2016. …

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