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VW Settlement: A Needed Jolt for Electric Trucks and Buses, But More Is Needed

, vehicles analyst | July 11, 2018, 2:18 pm EDT
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It has been nearly three years since the Volkswagen diesel scandal first broke. Since then, a handful of settlements have been reached, one of which provides states funding to offset the extra pollution emitted by defective Volkswagens.

A dozen states have recently finalized such funding plans and others are taking public comment on draft plans. These plans offset a majority of the pollution by providing financial incentives for the purchase of clean trucks and buses.

And rightfully so. Trucks and buses make up a small fraction of vehicles on the road (7 percent), but a disproportionately large fraction of emissions. In fifteen states, heavy-duty vehicles make up the largest source of NOx emissions from the transportation sector, despite being significantly outnumbered by cars.

For many states, the Volkswagen settlement likely represents their largest single investment in clean technologies for heavy-duty vehicles. Combined with the allure of a scandal, there’s a deserved buzz about these spending plans.

As news around the Volkswagen settlements continues, there’s two important things to keep in mind: (1) this settlement is only a fraction of the incentive funding we need to spur the deployment of electric trucks and buses, and (2) if history is our guide, incentives are only part of the equation. Solutions to global warming and air pollution ultimately rest on large scale market shifts in response to plans, commitments, and standards, such as vehicle fuel efficiency standards and renewable electricity standards.

Righting the wrongs of the Volkswagen diesel scandal

If you haven’t followed the Volkswagen diesel scandal, here’s a quick recap: In 2015, Volkswagen (and its subsidiary Audi) admitted to intentionally cheating on emissions tests affecting 580,000 diesel cars sold in the United States since 2009. The cars’ emissions of nitrogen oxides (“NOx,” a precursor to ground level ozone, aka smog) are a head-shaking 10 to 40 times higher than what’s allowed under law.

Settlements were reached between the California Air Resources Board (which led the investigation against Volkswagen), the US EPA, and Volkswagen requiring the company to (1) buy back or fix the polluting vehicles (estimated at $10 billion); (2) invest in charging infrastructure and consumer education for electric vehicles ($2 billion); and (3) provide funding to states and tribes to offset the extra pollution emitted by the cars ($2.9 billion).*

States are taking public comment on plans to offset pollution from Volkswagens

Actions eligible to offset pollution include replacing old trucks, buses, and freight equipment. Up to 15 percent of a state’s plan can also be used for electric vehicle charging infrastructure and hydrogen fueling stations.

States have discretion as to which types of vehicles and equipment to invest in, whether zero-emission battery and fuel cell technologies or combustion technologies. Importantly, plans must consider how the investments can benefit communities that bear a disproportionate share of air pollution.

A dozen states have already approved Volkswagen mitigation plans

Plans from Wyoming, Ohio, Connecticut, Pennsylvania, Maine, Utah, and Wisconsin remain broad, with many types of trucks and buses eligible for funding. In these cases, important decisions will come as the funding is awarded to specific applicants.

Other states’ plans have provided more details. Georgia’s focuses exclusively on electric shuttle buses at Hartsfield-Jackson International Airport and new buses for the XpressGA commuter service. Minnesota’s plan uses a phased approach, evaluating its funding priorities over time. Arizona’s plan focuses exclusively on public fleet vehicles, with most funding going towards school buses. Oregon’s plan only allows funding for school buses but, unfortunately, caps funding at $50,000 per vehicle. This amount is likely not enough to encourage school districts to buy electric buses, which are the best option for children’s health.

California recently approved the largest Volkswagen mitigation plan

As the state with the largest number of defective Volkswagens, California will receive the largest amount of funding to offset the vehicles’ pollution ($423 million). California’s recently approved plan provides the strongest signal amongst states’ plans for electrification, directing $300 million towards zero-emission buses, trucks, and equipment. More than 50 percent of California’s plan will benefit low-income or disadvantaged communities.

California’s plan strikes an appropriate balance, with significant funding going towards the cleanest (zero-emission) technologies and a more measured amount ($60 million) for combustion vehicles and equipment in categories where zero-emission technology is less developed. This combination of investments is expected to more than offset the Volkswagen pollution. UCS joined many other groups across the state in supporting California’s plan.

Table showing allocations of investments in California's Volkswagen environmental mitigation funding plan.

A summary of California’s plan for offsetting Volkswagens’ illegal emissions.

Putting the Volkswagen settlement into perspective

As large of a windfall as the $2.9 billion Volkswagen settlement is, it won’t be enough to meet our clean air and climate goals. In fact, its primary intention is to offset just the emissions from Volkswagen cars that were above the legal limit. But to meet our air quality and climate goals, we have to reduce a lot more pollution than from 580,000 Volkswagens.

State budgets: less flashy, but equally important investments

Last week, an even larger commitment to clean vehicles continued with passage of California’s annual budget and allocation of the state’s cap and trade revenues. State budgets don’t have the same intrigue or news hook of an emissions scandal, but represent opportunities for the sustained investments needed to achieve our climate and air quality goals.

While the recently approved budget for low carbon transportation ($467 million) is lower than the current year’s funding ($560 million), California has quietly invested $1.2 billion in clean vehicles over the last five years. These investments are much larger than the state’s share of the Volkswagen environmental mitigation settlement ($423 million), which will be spread out over the next few years.

California’s funding for low carbon transportation has supported everything from electric car rebates (on top of the federal tax credit) to vouchers for electric trucks and buses. Demand for the incentive funding has often exceeded the supply, indicating consumers and fleet owners are more than ready to adopt clean vehicles.

Electric truck and bus support is limited beyond California

While fourteen states provide purchase incentives for electric cars, only New York offers incentives comparable to California’s for electric trucks and buses, but from a smaller overall pot of funding ($19 million in New York vs. $180 million in California this year).

Utah and Colorado offer a tax credit for heavy-duty electric vehicles, but the credits are capped at $20,000, which doesn’t offset much of the additional cost of an electric truck. Georgia used to have a similar tax credit, but it expired.

For comparison, California and New York’s rebates are roughly $100,000 per truck or bus, depending on the size and type of the vehicle. And the rebate structure is much better for fleets, allowing the savings to be had upfront, rather than waiting for a tax credit several months later.

Federal support for heavy-duty electric vehicles has also been limited to a relatively small amount of funding for transit buses and airport shuttle buses. This is in contrast to the $7,500 federal tax credit for electric cars, which has been critical to uptake of these vehicles. Electric trucks and buses need similar incentives to spur widespread adoption.

The Volkswagen settlement could be a catalyst

While investments from the Volkswagen settlement are only a start in reaching the number of electric trucks and buses we need on the roads, they may prove critical in demonstrating the market readiness and benefits of these vehicles to justify additional investments. The availability of electric trucks and buses is increasing rapidly and public policy must keep up with these advances.

* Two other settlements – for $4.3 billion – addressed Volkswagen’s criminal and civil penalties for cheating on emissions tests and lying about cheating.

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