Blog Post

The VW Scandal and Competing Environmental Goals

The headlines about the Volkswagen (VW) scandal and prime time TV ads about the coming ozone regulations remind us of how interrelated our environmental challenges are. Last week Volkswagen, admitted to cheating on its emissions tests by disabling controls that are supposed to reduce emissions of nitrogen oxides from diesel-powered cars. The problem with nitrogen oxides is that they are a precursor to ground-level ozone, and standards for ozone and nitrogen oxides control, designed to protect public health, are very strict in the United States. And, the US Environmental Protection Agency is under court order to finalize even tighter air quality standards for ozone by October 1. These standards have grown increasingly contentious, with a heavy advertising campaign from industry against the standards in recent weeks and battling estimates of the costs of tighter regulation.

Meeting strict standards for nitrogen oxide emissions from vehicles alone might not be so difficult. But of course the other major environmental challenge we face is climate change, which requires serious efforts to reduce greenhouse gas emissions. New and stricter fuel economy standards passed in 2011 will reduce greenhouse gas emissions from new vehicles by close to 50 percent over the next 10 years. Addressing both of these issues at once, with increasing reductions in nitrogen oxides and greenhouse gases in the coming years, will be challenging for vehicles, and especially for diesel vehicles.

For some industries, things are a bit easier, because reducing emissions of one pollutant goes hand-in-hand with reducing emissions of another pollutant. For example, reducing coal-fired electricity generation and replacing it with wind or solar generation reduces both greenhouse gas emissions and other pollutants, including nitrogen oxides. So, policies that target greenhouse gas reductions, such as the Clean Power Plan, are likely to have “co-benefits” because emissions of nitrogen oxides are reduced at the same time.

But this is not the case with vehicles. Better fuel economy and lower greenhouse gases will result in higher levels of other pollutants, unless more controls are added. Diesel-powered cars have advantages in that they get about 25 to 30 percent better fuel economy and emit about 10 percent less carbon dioxide per mile traveled compared to gasoline-powered cars. But, historically, diesels have had high levels of nitrogen oxides. Thus, they offer the tradeoff of lower greenhouse gas emissions in exchange for higher nitrogen oxides emissions compared to gasoline engines. The Europeans appear to have accepted this trade-off for diesel vehicles—they have low taxes on diesel fuel and standards for nitrogen oxide emissions (0.29 grams per mile) that are much less stringent than those in the United States (0.07 grams per mile).  As a result, diesels make up over 50 percent of the light-duty vehicle market in Europe and less than one percent in the United States.

The recent introduction of clean diesel technology in the United States offered the possibility that diesels could achieve both the strict nitrogen oxides and fuel economy goals. Low sulfur diesel fuel along with new diesel engine technology appeared to offer at least one new and viable path to attain all of the complex environmental goals needed from vehicles and still have appeal to consumers.

But now the VW scandal. On many of its clean diesel vehicles, VW was not actually reducing emissions of nitrogen oxides, except when sensors detected that the vehicles were being tested for emissions levels. But why put on costly pollution control technologies and then override them? It has to be that resolving those trade-offs is still difficult and costly. This is not to excuse VW in any way—they are guilty of breaking the law, and they will suffer the consequences. But it is an indication that at least for diesel engines, and probably gasoline engines as well, there are difficult trade-offs in meeting air pollution and climate change goals while producing vehicles that compete in the marketplace. And, these trade-offs will get even more difficult as gasoline and diesel fuel prices fall.  

As standards on both pollutants tighten over time, the pressure will increase for vehicle testing to better reflect real-world performance. In the United States, power sector emissions of nitrogen oxides have decreased steadily over time, and vehicles now account for a much larger share of emissions than they used to. Compared to the electricity sector, where a few thousand plants account for most of the nitrogen oxides emissions, there are over 250 million vehicles in the fleet, each emitting a small amount of pollution. This makes it impractical, given current technology, to monitor actual emissions in real time. Instead, we rely on certification of new vehicles based on laboratory tests as well as periodic inspections. The VW case shows that these can be sidestepped. More broadly, there has been long-standing concern that the test results don’t match real world conditions (subscription required).

The VW case provides an example to all of the auto companies that even if the costs of compliance are high, the costs of cheating on the requirements may be even higher. Even so, there clearly needs to be improved methods for testing vehicles for compliance with both the ozone and greenhouse gas rules, and continued vigilance by oversight groups and by the regulatory agencies. And, consumers need to have the right signals as well—currently they don’t pay the full cost of driving. A fuel tax that reflects the ozone and climate effects of driving means consumers would be willing to pay more for more fuel efficient and cleaner cars.