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Volkswagen Emissions Scandal Is a Noxious Problem for Congress, Industry and Regulators

An examination into whether Volkswagen misled consumers when it dodged emissions standards could provide Republicans and Democrats in Congress another chance to unite in criticism of automakers evading regulations.

“Look, when there’s a failure of the federal government to protect the health and safety of people, we’re all united on that,” Rep. Tim Murphy, R-Pa., told CQ Roll Call. Murphy, the chairman of the House Energy and Commerce’s Oversight and Investigations Subcommittee, announced a hearing on the issue with Chairman Fred Upton, R-Mich., the Monday after news broke on Sept. 18.

Upton and Murphy, in a joint statement, noted particular concern “that auto consumers may have been deceived — that what they were purchasing did not come as advertised.”

Such concern also spurred Sen. Bill Nelson, D-Fla., to ask the Federal Trade Commission to investigate.

Volkswagen’s admission it had installed software on diesel vehicles to get better emissions results in tests than in road performance comes after several cases of auto manufacturers flouting U.S. regulations, most notably General Motors and Toyota. The Environmental Protection Agency said it will beef up its testing procedures in response.

German-based Volkswagen has not only has lost about 30 billion euros in market capitalization since the disclosure, but also faces fines and lawsuits that are likely to be in the billions. CEO Martin Winterkorn resigned last week as a result of the scandal. The company has said approximately 11 million cars worldwide have the software that improves emissions during tests.

The auto industry as a whole is bracing for changes as a result of the news.

John Bozzella, president and CEO of the Association of Global Automakers, told lawmakers at a House Energy and Commerce subcommittee hearing on Sept. 25 that Volkswagen’s problem “will likely have significant implications for the industry.”

As with last year’s hearings on vehicle safety, congressional interest in VW’s emissions could put regulators, in this case the EPA, under scrutiny as well. The issue is also raising questions about the need to prosecute individuals responsible at companies that don’t follow the rules.

The EPA, which announced the news about VW on Sept. 18, was alerted to the problem in 2014, after a West Virginia laboratory uncovered higher pollution levels in certain VW models during on-road testing. The agency’s own testing hadn’t uncovered the problem.

In addition to the FTC, the Justice Department and the National Highway Traffic Safety Administration are now looking into the issue.

The Senate Environment and Public Works Committee is also examining it, according to Chairman James M. Inhofe, R-Okla., as is the Senate Commerce, Science and Transportation Committee, according to Chairman John Thune, R-S.D. “I think this from the top down this is a huge colossal screw-up by VW,” Thune said.

Will Regulators Get Blamed?

Lawmakers have been scathing in their criticism of NHTSA for failing to catch faulty ignitions at GM and shrapnel-laden airbags made by Takata. But while lawmakers appear united in their criticism of VW in the latest case, their views on regulatory agencies’ role in the current scandal are mixed.

“I lay this not only on the corporate culture, I lay it at the feet of the U.S. regulatory agencies who ought to be doing their job, ought to be doing it in a forceful way,” Nelson said in a speech the Tuesday after news first broke on Sept. 18. “There ought to be some prosecutions and corporate executives that knew this and have done it ought to be going to jail.”

Rep. John L. Mica, R-Fla., also said regulators were partly to blame. “Somebody in government dropped the ball,” he said.

But Thune, Murphy and Inhofe were more reserved. The Republicans said they’d withhold judgment on the EPA until they know more.

“That seems to be the popular thing to say and I’m normally the first person who would say that, but I’m not,” Inhofe said of blaming the EPA. “Because we’re still looking into it to see how this could have happened and who really is at fault.”

To Drew Kodjak, executive director of the International Council on Clean Transportation, the nonprofit organization which paid the West Virginia lab to test the emissions, VW’s problem demonstrates that the EPA needs more resources so it can perform “real-world” testing, which he said is more expensive than the controlled tests the EPA performs. He estimated the test that led to the EPA probe, which looked at three diesel models, cost approximately $150,000.

“You don’t want to rely on the happenstance investigation of a small [nongovernmental organization] to trigger one of the largest global recalls around, so I think that’s the biggest lesson for all of this,” Kodjak said. “It was highly unlikely, given … [the] EPA’s resources, that they would have tested these [light duty passenger diesels] under real world conditions.”

Murphy was skeptical that resources were the only problem.

“Oftentimes we hear it’s someone’s resources. We heard that on the General Motors issue,” Murphy said. “We have to find out if it’s more than just resources or it’s some kind of systemic problem.”

EPA Strikes Back

The EPA’s Sept. 25 announcement of new tests looked like a regulator trying to move quickly in the hope it could soften potential criticism from lawmakers. The agency said last week it would immediately begin new testing of diesel cars and light trucks to catch other evasions in the industry.

Janet McCabe, head of the agency’s Office of Air and Radiation, told reporters the agency was sending letters to U.S. car companies telling them it is starting tests of new and existing models to uncover so-called pollution control defeat devices that turn off pollution controls except during emissions tests.

The EPA won’t specify the types of tests it will conduct. “We aren’t telling them what these tests are. They don’t need to know,” said Christopher Grundler, the director of the Office of Transportation and Air Quality.

The testing will be done with the California Air Resources Board and Environment Canada, that country’s pollution regulator.

The EPA and CARB alleged the company deliberately programmed about 482,000 four-cylinder Volkswagen and Audi diesel models, starting with the 2009 model year, to turn off pollution controls during driving but switch them on during testing. Turning the controls off gives the cars more power.

A Bad Bet

One aspect of the VW case that could stand out among other automaker issues is the apparent calculation behind the scheme, lawmakers said.

“Here we have a situation of deliberately building in a defect and we need to talk about that,” Rep. Jan Schakowsky, D-Ill., said last week during a House Energy and Commerce subcommittee hearing on motor vehicle safety.

Sen. Richard Blumenthal, D-Conn., said that aspect of the case is one that could bring lawmakers together.

“I think this debacle presents a unique opportunity for bipartisan efforts to support law enforcement, because of the sheer scope and scale of the wrongdoing and the apparent arrogance of literally deceiving state emissions authorities by using this software,” he said.

Murphy also pointed to intent as potentially setting the VW case apart from, for example, the General Motors case of faulty ignitions.

“Was General Motors just something where a couple people knew and other people just didn’t know because they had a chain of command that was not allowing [information] up and down?” Murphy said. “But was there, was VW — and we have to find out, and we don’t know yet — but what some people are implying was that it was willful, and that’s the question.”

To Kodjak, that’s a symptom of a weak regulatory environment.

“They took a gamble and they lost,” Kodjak said of VW. “But the point is the system should be such that they know they shouldn’t take such gambles — and what this shows is that they’re willing to bet that they wont get caught.”

Ed Felker contributed to this report.

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