The Volkswagen Emissions Scandal And The Bureaucratic Pursuit Of Power

Never let a crisis go to waste, say the politicos, a stance adapted for its purposes by the permanent regulatory bureaucracy: Never let a corporate scandal go to waste.

That is what comes to mind as we behold the investigations and regulatory stances following in the wake of the Volkswagen emissions scandal that emerged in 2015, a truly brazen act of business malfeasance that will cost VW at least $15 billion in fines and other costs.

And it is likely to alter little that the behavior and technology choices of Volkswagen and the rest of the industry differ diametrically, to which point we return below.

To a degree greater than that for gasoline engines, the design of diesel engines must confront the problem of reducing emissions of both nitrogen oxides (NOx) and fine particulate matter (PM2.5). Lower engine-combustion temperatures reduce emissions of NOx but increase emissions of PM2.5, while higher engine-combustion temperatures increase NOx emissions and reduce those of PM2.5.

A regulatory change in 1999 required both diesel and gasoline engines to meet the same NOx emissions standards, making necessary the installation of additional diesel emissions-control equipment.

Two NOx-control technologies are both practical and economic for diesel engines. A selective catalytic reduction (SCR) system adds urea and water (“diesel emissions fluid”) to the exhaust flow, which breaks the NOx down into nitrogen and carbon dioxide. This system requires a reservoir for the diesel emissions fluid, a pump and a delivery system for the exhaust flow.

A nitrogen oxide trap “absorbs” nitrogen oxides during the fuel combustion process; when the trap is saturated to capacity, some diesel fuel is injected into the trap, converting the NOx into nitrogen and regenerating the trap system. Crucially, this use of diesel fuel does not power the engine, thus degrading fuel economy.

Unlike the rest of the industry, which adopted the SCR system for its diesel vehicles, VW opted for the nitrogen-oxide trap, because the space requirements for the SCR system would interfere with the need for other equipment demanded by many consumers, particularly in the small passenger cars incorporating the VW diesel engines. The floor plan would have to be changed, a second filler would be needed for the diesel emissions fluid, a quarter-panel might have to be redesigned, and the re-engineered vehicle would have to go through full crash certification.

The costs of such a redesign made no business sense for the small passenger diesel market in the U.S. Nonetheless, VW advertised its “clean diesel” technology as highly fuel efficient while meeting “the strictest EPA standards in the U.S.”

Those promises proved very difficult to achieve: Independent testing found a “noticeable decline in fuel economy” for the VW models when the nitrogen oxide trap systems were operating properly. Nonetheless, VW certified its compliance with the NOx standards, and the EPA issued a Certificate of Conformity allowing the sale of its diesel passenger cars in the U.S.

Subsequent vehicle testing by the EPA revealed that VW had installed software in the vehicles’ computer systems that sensed when the vehicles were being tested, activating the nitrogen oxide trap systems. When being driven on the road the software simply shut down the traps, thus “defeating” the emission control systems.

Note that VW is the only auto manufacturer accused of explicitly installing such systems to defeat the NOx emissions control systems.

There is the further problem that on-road emissions greater than those measured on dynamometer tests are not necessarily evidence of cheating. The specific protocols of the dynamometer tests, however honestly and diligently designed, may not replicate actual on-road driving behavior and conditions by vehicle owners and operators.

A large number of variables affect emissions performance, and it is extremely difficult to choose among the myriad sets of relevant conditions. Accordingly, emissions observed as greater in on-road conditions than those measured in dynamometer tests may substantially or wholly result from biases in the latter. That disparity can be observed even if the emissions control equipment is operating as designed, as certified to the EPA, and as advertised to the public.

Nonetheless, the VW scandal reportedly has yielded a series of other investigations. Perhaps actual cheating will be discovered, although none has been made public.

But it is worth bearing in mind that the regulatory bureaucracy itself has incentives that are not entirely salutary, as the VW cheating scandal has provided a rationale for what can be described as fishing expeditions in pursuit of objectives not at all environmental.

The investigations provide an argument for increases in the regulatory agencies’ budgets. Fines and settlements can further the ideological goals of the regulators, as the manufacturers are forced to fund particular projects not approved by Congress in the budget process, a perverse system that Attorney General Jeff Sessions has begun to constrain.

There is the further matter that the Trump administration has reinstituted the midterm review of the Corporate Average Fuel Economy standards for model years 2022-2025, after the Obama administration had canceled that review just before leaving office. It’s possible that the VW cheating scandal has given the federal regulators a bargaining chip with which to induce the manufacturers to agree to a higher, rather than lower, CAFE standard.

In short, it is perverse to fail to distinguish between the behavior of VW and that of the rest of the industry. Such a distinction is easy to miss in the public discussion, but policymakers must keep it very much in mind.

Zycher is a resident scholar at the American Enterprise Institute.

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