EPA Inserts Central Planning into VW Settlement

EPA on Tuesday announced the final details of its settlement agreement with VW, the automaker that had illegally equipped 11 million diesel cars with software—known as a “defeat device”—that turns on emissions controls during vehicle inspections and deactivates the controls during normal driving conditions.

While no one disputes VW’s skulduggery, the settlement includes centralized economic planning not required to correct the underlying violation. As part of the $14.7 billion agreement, the automaker must spend $1.2 billion on an "EPA-approved investment plan" for zero-emissions vehicles—i.e. electric vehicles.

As my colleague William Yeatman observes, dictating billion dollar investments in auto technology is not among the agency’s powers as delegated by the Congress, nor does EPA have expertise as a carmaker or venture capitalist. “Simply put,” says Yeatman, “EPA should not be imposing industrial policy through enforcement of environmental statutes.”

There’s an obvious parallel to the “Clean Power” Plan. Environmental regulator EPA has “no expertise overseeing the generation, transmission, distribution, and consumption of electricity,” yet the agency undertakes to centrally plan the evolution of U.S. electricity markets.

EPA mixed environmental enforcement with industrial policy once before, albeit on a lesser scale, when it prosecuted the U.S. trucking industry in the early 2000s for installing “defeat devices” in diesel trucks.

In a nutshell, EPA not only forced the industry to spend nearly $1 billion on fines and compliance with existing emission standards, it also required truckers to accelerate by 15 months the schedule for meeting new, more stringent engine standards. EPA’s overreach—mild compared to what it contemplates in the VW case—disrupted the marketplace, dramatically increased the frequency of engine failures and maintenance problems, and fell far short of promised emission reductions. For additional detail, see this comment letter.