Green Energy Institute Charged Debate

Monday, December 7, 2015

On the Road to Cleaner Air: Jail Time for White-Collar Violators?

Part II – Legal Expert: Prosecuting White-Collar Violators Incentivizes Regulatory Compliance

By Brandon Kline, Energy Law Fellow

This is the second in a four-part series on the legal issues arising from the probe into an alleged nitrogen oxide trap (a "Defeat Device" in the vernacular) installed in vehicles manufactured by Volkswagen of America (VW). Part 1 described the manner in which a "Defeat Device" operates and why it matters in the context of the federal Clean Air Act. In Part 2, we discuss regulatory failure, alternatives to regulatory enforcement and the evidence that VW’s actions resulted in premature deaths.

In recent weeks, VW submitted a recall plan for 2-liter diesel cars to the California Air Resources Board, and the automaker must continue to cooperate with authorities in developing a recall plan to fix this problem in other affected models. Both the California Air Resources Board and the EPA will exercise cooperative jurisdiction to review the plan, ensuring that the proposed actions restore the vehicles so that they meet clean-air requirements.

While it is encouraging to see that VW has begun paying attention to emissions standards and that the responsible authorities are now fully engaged, the ensuing fracas demonstrates a regrettable instance of regulatory failure.

By its nature, a regulation restricts a firm like VW from doing what it otherwise would have done, according to Nobel-laureate economist Joseph Stiglitz. “The purpose of government intervention is to address potential consequences that go beyond the parties directly involved, in situations in which private profit is not a good measure of social impact.” Here, Congress enacted the Clean Air Act to authorize the EPA to regulate emissions from VW's diesel engines. Emissions standards ensure that the effects of pollution don’t fall on VW owners and other parties, including particularly vulnerable members of the general public.

As Stiglitz notes, “Regulation is necessary because social and private costs and benefits, and hence incentives, are misaligned.” To be sure, VW is motivated by profit. Meanwhile, car buyers are in search of an affordable automobile that will provide them the benefits for which they bargained. Here, VW customers were promised a clean-diesel engine that complies with applicable clean-air standards. At the same time, the pollution that results from untreated emissions goes beyond the parties directly involved (see below). Absent regulatory intervention, some legal commentators have suggested alternative measures for incentivizing compliance.

1. Prosecuting white-collar criminals is a legal alternative when regulations fail to protect consumers.

Last month, Rena Steinzor, a professor at the University of Maryland Francis King Carey School of Law and founder of the Center for Progressive Reform, published a paper titled Federal White Collar Crime: Six Case Studies Drawn from Ongoing Prosecutions to Protect Public Health, Worker and Consumer Safety, and the Environment.

In the days leading up to the VW disclosure, Lewis & Clark welcomed Steinzor as its 28th annual Natural Resources Law Institute Distinguished Visitor. Her lecture on “How White Collar Criminal Enforcement Can Save the Environment” argued for prosecution of individuals at corporations involved in criminal acts related to the environment, and addressed the related social justice issues. (See here for a link to the podcast.)

Before delivering the Distinguished Environmental Visitor lecture, Steinzor spent some time on our campus attending classes and sharing her scholarship with faculty and students. During our October conversation, we discussed a range of subjects, from fresh food deserts to the University of Maryland’s response to the difficulties facing Baltimore following the tragic murder of Freddie Gray.

In her recently published text, Why Not Jail, Industrial Catastrophes, Corporate Malfeasance, and Government Inaction, Steinzor recommends innovative interpretations of existing laws to elevate the prosecution of white-collar crime at the federal and state levels.

On our way back from attending the Climate Change law lecture, Steinzor explained how incidents of regulatory failure came to shape her current views about applying criminal law to white-collar crimes.

Prof. Steinzor advocates this approach for white-collar criminals where, as here, regulatory enforcement seems to fall short of serving its consumer protection function. This view is consistent with underlying theories of criminal law, sounding in efficiency and fairness, as well as deterrence and retribution. Criminal law is traditionally described as directing its injunctions exclusively to actual or potential criminals.

Significantly, when the public learns about companies committing crimes in their community, they see a double standard. Therein lies the rub: it seems to be the typical case for white-collar criminals to escape the same type of personal consequences faced by other criminals. For instance, if a drug dealer gets convicted for operating a drug business, they go to jail; in contrast, the white-collar criminal who gets caught operating their company in an illegal way, typically pays a fine. “People are cynical and it’s not good for the country,” Steinzor said.

2. Harvard and MIT study: Volkswagen’s Defeat Device will directly contribute to 60 premature deaths across the country.

Beyond the economic malfeasance at VW, Steinzor reminds, “The results of the excess pollution sickened people and even triggered premature deaths.” The device that was installed triggered less thorough treatment of emissions when state and local authorities were not testing the car. Accordingly, "VW vehicles with the device routinely emitted unsafe levels of nitrogen oxide, a precursor gas that combines with volatile organic compounds to produce ozone or, as it is more commonly known, smog."

Steinzor’s conclusion is supported by an October 2015 study conducted by MIT and Harvard University, which quantified the U.S. health impacts of VW’s emissions defeat devices. Researchers based their calculations on measurements by researchers at West Virginia University, who found that the vehicles produced up to 40 times the emissions allowed by law. The study concludes, “VW’s cheat device, which resulted in pollution 10-40 times higher than applicable EPA standards, could result in as many as 59 deaths in the United States and impose ‘social costs’ (e.g., illness, days off work and school) of up to $450 million.”

Daniel Kammen, the editor-in-chief of Environmental Research Letters and a professor of energy at the University of California at Berkeley, says the group’s study provides a “rigorous evaluation of the scale of the impacts, which are potentially exceedingly serious.

“The analysis demonstrates the value of policy-inspired fundamental research where the air quality and health impacts of transgressions such as the VW issue can be calculated, and made available for public discussion,” says Kammen, who did not contribute to the research.


In Part 3 we highlight environmental crime prosecutions in general and the mens rea (or mental state) required for particular violations, focusing on the reasons VW is not likely to face criminal liability under the Clean Air Act in connection with the defeat device. In Part 4, we explore the scope of VW’s liability under other legal theories, in the context of recent guidance from the U.S. Department of Justice.

Tuesday, December 1, 2015

On the Road to Cleaner Air: Jail Time for White-Collar Violators?

Part I – How does a "Defeat Device" operate and why does it matter?

By Brandon Kline, Energy Law Fellow

This is the first in a four part series on the legal issues arising from the probe into an alleged nitrogen oxide trap (a "Defeat Device" in the vernacular) installed in vehicles manufactured by Volkswagen of America (VW). Part 1 describes VW’s actions in the context of the federal Clean Air Act, and explores the scope of liability that could arise under state and federal law.

Volkswagen of America branded itself as a car with mass appeal. Award-winning television commercials featuring Golden Grandmas and a pint-sized Darth Vader led consumers to believe that they could have it all: Clean air. Clean diesel. High performance. Low price. Even Car and Driver Magazine blogged high praise for VW: “Today’s diesels are clean, quiet, and powerful…you and I know it because we’re car folks. But old myths die hard.” VW almost had everyone fooled – from the “car folks” at Car and Driver to the U.S. clean-air authorities.

During this holiday season, one thing lovers of clean air should be grateful for is the plucky team of West Virginia University researchers who set in motion the investigation that uncovered the truth behind the myth of Volkswagen’s clean-diesel cars. The researchers found that nitrogen oxide emissions – one of the six common “criteria” air pollutants regulated under the Clean Air Act – from two Volkswagen light-duty diesel engines exceeded the EPA’s emissions standard. Following the 2014 study that detected the irregularity, they shared test results with the EPA and the California Air Resources Board. Here are a few key issues that we should all keep in mind as the investigation unfolds.

1. How did the Defeat Device work?

Under the Clean Air Act and EPA regulations promulgated under it, a manufacturer is prohibited from selling or offering for sale any new motor vehicle or motor vehicle engine equipped with any device designed to “defeat” the en­gines’ emission control system. [1].

The issue surrounds VW’s efforts to top the U.S. market for efficient diesel technology while complying with strict environmental regulations. Because government testing is conducted under ideal conditions and because the technology that controls emissions undermines the car’s ability to be quick, VW seems to have engineered a device that would respond in turn. Put another way, the vehicle’s emissions system is apparently designed to comply with clean air standards under testing conditions and then disengage during normal driving conditions. So the cars appear to be “clean, quiet, and powerful.” West Virginia University tested the vehicle’s emissions under the latter conditions and discovered that nitrogen oxide emissions exceeded the federal standards.

Internal sources familiar with the deliberations warned that employing the software was illegal; however, production pressed forward as management emphasized cost cutting, according to Automotive News.

VW engineers argued: “The only way to make the engine meet U.S. emission standards was to employ in the engine system an AdBlue urea solution used on larger diesel models such as the Passat and Touareg.” Rather than employing this costly mechanism, the company reassigned engineers and ultimately installed software in its diesel-powered cars that was designed to manipulate U.S. diesel-emissions tests.

A key issue in the days ahead is who knew what and when. As the New York Times reports, these and other questions were at the center of a Congressional hearing on the issue last month. Amid state and federal investigations, VW has hired Kirkland & Ellis LLP, the same U.S. law firm that represented BP after the largest oil spill in American history. As explained below, identifying the responsible corporate actors is important because deliberately faking emissions results could constitute a multi-layered fraud against consumers, regulators and investors.

Engine Volkswagen said the software discrepancy has occurred on Type EA 189 engines used in approximately 11 million vehicles. Diesel engines use a complex mix of sensors and filtration methods to track and limit emission levels. Controls Information gathered by sensors measuring steering and accelerator-pedal inputs are suspected to have been used to determine when the cars are being tested for emissions, triggering more a thorough treatment of exhaust. Under the car Modern diesel cars use a mix of devices to meet pollution limits, but they can hamper fuel consumption and other performance, automotive engineers say. Nitrogen oxides in some circumstances could be filtered more heavily based on car configuration. Exhaust Regulators and the Center for Alternative Fuels, Engines and Emissions at West Virginia University detected variations in emissions on Volkswagen cars when they were being operated on the road to those emitted when being tested. Note: Diagram not to scale Sources: Volkswagen; U.S. Regulators; Center for Automotive Research

2. The Defeat Device matters because it results in emissions that exceed levels necessary to protect public health and welfare.

The Clean Air Act is the comprehensive federal law that regulates air quality. The Act requires EPA to set National Ambient Air Quality Standards (40 CFR part 50) for certain criteria pollutants, including nitrogen oxide. Criteria pollutants are considered harmful to public health and the environment. Under the Act, the EPA establishes federal emission standards for engines and vehicles, including emission standards for greenhouse gas emissions. Additionally, Congress authorized California to develop more stringent engine and vehicle emission regulations than allowed under the federal rules. Thus, other states have a choice to either implement the federal emission standards, or else to adopt California requirements (CAA section 177).

The Clean Air Act requires every engine and motor vehicle within the chain of commerce ( mobile sources ) to meet a set of emission standards and conformity requirements. Any business wishing to sell a mobile source of air pollution within the United States must demonstrate compliance with the Act and applicable EPA regulations. Once the manufacturer has made adequate representations of conformity with these standards and the EPA has confirmed those claims through lab testing, the EPA may issue a Certificate of Conformity, which provides authorization for the manufacturer to access the U.S. market.

In November 2015, the EPA issued a Notice of Violation of the Act to Volkswagen AG, Audi AG, and Volkswagen Group of America, Inc., alleging that from 2009 until 2015, Volkswagen and Audi diesel cars equipped with 2.0 liter engines included software that circumvents EPA emissions standards for nitrogen oxides – a “defeat device,” as defined by the Clean Air Act.

On November 2, the EPA issued a second Notice of Violation to Volkswagen AG, Audi AG and Volkswagen Group of America, Inc. This notice was also issued to Porsche AG and Porsche Cars North America. These five companies are collectively referred to as Volkswagen or VW. The Notice of Violation alleges that Volkswagen developed and installed a defeat device in certain light-duty diesel vehicles equipped with 3.0 liter engines for model years 2014–16 that increases emissions of nitrogen oxide up to nine times the EPA’s standard.

Meanwhile, the California Air Resources Board has made its own determination that these actions violate state health and safety laws. As such, Volkswagen is subject to a continuing state investigation, in cooperation with the EPA on further testing of diesel engines.

Since Volkswagen did not disclose the presence of a defeat device and because it never officially justified the use of the device in its initial certification application for the vehicle’s engine components, each vehicle so equipped would not be covered by a valid Certificate of Conformity or Executive Order and would be in violation of federal and state law. In other words, Volkswagen appears to have misled authorities about the true level of noxious emissions coming out of its diesel models during real-world driving conditions, and therefore its vehicles are in violation of federal and state emissions standards.


In Part 2, we discuss regulatory compliance and the evidence that VW’s actions resulted in premature deaths. In Part 3, we explore environmental crime prosecutions in general and the mens rea required for particular violations, in addition to the reasons why VW is not likely to be face liability for an environmental crime in connection with the Defeat Device. In Part 4 we explore the scope of VW’s liability under the Clean Air Act, as well as other legal challenges in relation to recent guidance from the U.S. Department of Justice.

[1] What the law requires: Section 203 (a)(3)(b) of the Clean Air Act (CAA), 42 U.S.C. Sec. 7522(a)(3)(b), prohib­its the manufacture, selling, or installation of any device that bypasses, defeats, or renders inoperative a required element of the vehicle’s emissions control system. Section 203 (a)(1) of the same Act also pro­hibits the sale of motor vehicles or engines that are not covered by valid certificates of con­formity. 40 CFR Part 86, Subpart A describes the regulatory requirements for defeat devices. Clean Air Act Prohibits “Defeat Devices” in Vehicles, Engines, EPA Office of Regulatory Enforcement, August 1998.