How will Volkswagen’s Dieselgate settlement be spent?

German car maker Volkswagen, caught cheating on emissions tests in 2015 in the “Dieselgate” scandal, is rolling out plans to spend almost $15 billion in penalties and settlements. Some of the money goes back to customers, but about half will be used for infrastructure and pollution mitigation. Ben Paulos takes a look.

sign reading "electric vehicle parking only" in bright green at a charging station at a Mall in Miami, USA.

Volkswagen must invest $40 million on charging stations in 11 cities across the US (Photo by Mariordo, edited, CC BY-SA 4.0)


Caught by regulators and researchers, Volkswagen confessed that it had secretly and deliberately installed a “defeat device,” software designed to fool emission testers, in nearly 583,000 VW and Audi-branded diesel vehicles sold in America between 2009 and 2015.  The ruse resulted in an estimated 44,000 tons of extra nitrogen oxide (NOx) emissions, a potent contributor to smog and lung disease.

VW and the US Environmental Protection Agency (EPA) agreed to a series of three settlements to resolve the charges, with VW committing to major payments. The largest chunk of money will go directly to customers who bought or leased the vehicles.  VW is offering a buyback and lease termination to those customers, at a cost of over $10 billion.

The rest of the funds, $4.7 billion, will help mitigate the pollution caused by the cheating cars and invest in green vehicle technology.

Of that amount, $2 billion will be spent on building out electric vehicle infrastructure, while $2.7 billion will be used to establish an Environmental Mitigation Trust, which states and territories will use to invest in transportation projects that cut NOx emissions.

While states can use the funds for a variety of NOx-reduction technologies, it is likely to provide a significant boost to electric cars.

“This settlement does favor electrification,” says Cassie Powers, Senior Program Director at the National Association of State Energy Officials (NASEO).  NASEO is working with the National Association of Clean Air Agencies (NACAA) to help states craft their plans.

EV Charging and Education

To manage the spending on electric vehicle infrastructure, education, and access, Volkswagen set up a subsidiary company, Electrify America.  The company will invest $1.2 billion in four rounds over the next 10 years outside of California, plus an additional $800 million in California.

In the first tranche of national spending, Volkswagen will invest $190 million on a long-distance highway charging network, $40 million on charging stations in 11 cities, and $25 million on consumer education.  In all, the funds will support over 2500 non-proprietary chargers across 450 individual stations, including 240 fast-charging stations along highway corridors.

Just before leaving office, the Obama Administration designated 55 Alternative Fuel Corridors, spanning 35 states and Washington, DC, covering approximately 85,000 miles of highway.  Most of the corridors are for EV charging, meaning they have at least one fast charging station every 50 miles.  But Congress appropriated no funds to support alternative fuel stations along the corridors.  The VW settlement funds will help fill that gap.

Powers estimates that Electrify America’s investment will cover only about 10-15% of the infrastructure needed for a fully functioning national EV market.

The first round of charging stations are expected to be operational for local community charging in Q3 of 2017 and for highway charging in Q2 of 2018.

The California part of the plan was approved by the California Air Resources Board (CARB) on July 27, which will direct $200 million for EV charging infrastructure at 100 locations in six metro areas and along highways, as well as brand-neutral education and outreach programs.

The plan also includes a new “Green City” initiative in Sacramento.  Electrify America will spend $44 million in Sacramento on charging facilities, electric car ride sharing services, and other projects to demonstrate the benefits of zero-emission vehicles.

This aspect has been criticized by advocates for low-income communities, like Dean Florez, a CARB board member and past leader of the California Senate.

“A show of force for the political class in the Capitol makes great headlines, but may not be the best for the rest of the surrounding cities suffering from higher pollution levels baked in the Central Valley sun,” he writes.

Electrify America began selecting locations for chargers in August.

Environmental Mitigation Trust

The settlement also includes $2.7 billion for states to spend on environmental mitigation, especially aimed at reducing NOx emissions from transportation vehicles.

Source: NASEO / NACAA online clearinghouse:  www.vwclearinghouse.org

States are still developing their plans. They first must be certified to participate, with applications due December 1.  States then make funding requests to the trust manager, and could begin making investments as soon as late spring of 2018.

So far, ten states have draft plans out for public comment, according to NASEO.

NASEO Executive Director David Terry sees the settlement funds as a real catalyst for change.  “NASEO is encouraging market transformation, long term benefits, and leapfrogging current practices,” he told Energy Transition. “Vehicle electrification is a pretty important thing.  The settlement can be a catalyst in overcoming some of the challenges.”

Funds can be spent in 10 categories of NOx reduction strategies, with a maximum of 15% of the funds for light-duty electric vehicle infrastructure.

Midwest states will receive more than $438 million for local air quality efforts. The Environmental Law & Policy Center, a regional advocacy group based in Chicago, has been urging states to spend 85% of the funds to electrify large, public fleets that operate in densely-populated areas, such as school and transit buses.  The rest should be spent on light-duty EV infrastructure, they say, like fast-chargers along the Midwest’s designated EV corridors.

ELPC led a four-state, six-city electric school bus road tour to raise awareness about the potential for school districts to modernize their fleets while protecting children from the harmful effects of diesel pollution. School buses transport more people nationwide than transit and rail combined, they note.

California will be spending about $423 million from the mitigation trust fund. Legislation passed in June requires that 35% of the funds be spent in low-income communities. CARB is expected to finalize a spending plan in spring of 2018.

Competitiveness concerns?

One ironic facet of the settlement is that Volkswagen is being forced into the EV charging industry. The company has been slow to the EV party, with the German government complicit in protecting their profitable business in high-end diesel and gasoline cars.

Now, forced by the settlement, Electrify America is emerging as a significant competitor to existing charging firms like ChargePoint, EVgo, and Blink. ChargePoint is the largest, with more than 41,000 charging spots.

Tesla, whose stations work only with Tesla cars, is aiming to increase their charging network to 10,000 by the end of 2017.

Regulators in California approved plans by the state’s three investor-owned utilities – Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric — to invest $195 million in more than 12,500 charging stations.

Still, Electrify America is downplaying the settlement, with no mention of it on their website. Instead their goal is “to build a network that is economically sustainable for the long term.”

“We believe electric mobility is about to enter a new era of product choice,” they write. “And we will be there with an extensive and reliable charging network to power it.”

NASEO’s David Terry is skeptical.  “They will have some hurdles to address,” he says.  “The rollout of EVs will be uneven nationally.”

EV charging companies suffer from the chicken and egg problem – not enough electric cars means the chargers are not profitable, and not enough chargers means people don’t buy electric cars.

“I find it hard to believe it will be profitable,” he says, especially outside of California.  “This is not for the faint of heart.”

Volkswagen is also planning to spend big on electric vehicle production.  At the Frankfurt auto show in September, VW announced plans to invest $24 billion by 2030, with 80 new electric models by 2025, up from a previous goal of 30, and an electric version of all 300 models by 2030.

Bentham Paulos is an energy consultant and writer based in California. His views are his own, and don’t necessarily represent those of any of his clients. For more information see PaulosAnalysis.com.

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Ben Paulos

Bentham Paulos is an energy consultant and writer based in California. His views are his own, and don’t necessarily represent those of any of his clients.

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