The pollution-profit dilemma

Last year’s ‘dieselgate’ scandal have brought an avalanche of accusations against car-manufacturers of employing defeat devices to cheat emissions tests, source: intoday.in

Scrutiny was rewarded by quick success, as recent allegations against Renault and Fiat Chrysler surfaced this January.

Volswagen: starting an avalanche

The assessment of large corporation’s balancing of profit and their activities’ social impact has always taken a rather negative overtone. However, Volkswagen’s latest scandal earning the name ‘dieselgate’ with its proportions has drawn newfound attention to just how one-sidedly car-manufacturers weight environmental pollution and people’s lives against revenue. The scandal sparked off intensified scrutiny over the world, leading to an avalanche of emissions-cheating allegations compromising brands such as Fiat Chrysler and Renault in its wake.

Car-manufacturers have a long tradition of finding loopholes or ways around the law to avoid limitations posed by environmental regulations, as well as emissions and mileage rules. Many or most of these are completely legal (if not ethical), dug up by a body of highly-trained corporate lawyers, such as producing smaller vehicles with removable backseats to reclassify them as “storage-bearing SUVs or light trucks” or manufacturing an entire line-up of super small cars that the companies are fully aware will not sell, just to bring down their overall fleet mileage averages. These are all just pages from the corporate encyclopaedia of skirting the rules.

On the other hand, corporations do not strictly stay within the bounds drawn up by legislators: the recent Volkswagen emissions scandal has sent tremors through all news outlets. It all started with a 2014 spark when researchers at the University of West Virginia found that Volkswagen’s NO₂ emissions were 10-40 times higher than the 70 mg/mile stipulated for diesel vehicles by the US Environmental Protection Agency (EPA).

The following investigations found that about 600,000 Volkswagen vehicles were kitted out with so-called ‘defeat devices,’ software that reduces emissions while the car is in test mode. The move essentially allowed Volkswagen to label its cars as more efficient and environmentally-friendly, netting customers who were looking to buy green.

Volkswagen decided to admit guilt after the Federal Bureau of Investigation (FBI) arrested executive Olivier Schmidt. All in all, Volkswagen has agreed to cough up $4.3 billion in fines, of which $2.8 billion is payable in criminal penalties and $1.5 billion goes to resolve civil claims against the corporation, and to take on an independent monitor for three years to supervise its adherence to EPA regulations.

Altogether, the scandal cost the corporation $21.9 billion, as per the assessment of Bloomberg, but has not dented Volkswagen’s performance all that significantly: as soon as the corporation acquiesced to the fine, its shares rose by 2 per cent, bringing the gain to over 13 per cent over the month—a very quick rebound from the drop immediately following the outbreak of the scandal.

Volkswagen’s quick admission of guilt has been seen as a PR/marketing/political tool to hasten the scandal in blowing over. “As we see so often, the cover-up gets the perpetrator in more trouble than the lie, and I think the officials at VW realized that,” said Helene Gardner, a lecturer in environmental studies at the University of California-Santa Barbara to Pacific Standard magazine.

$21.9 billion sounds like a hefty sum, one that could touch even a corporate giant like Volkswagen. On the other hand, when looking into them impact of Volkswagen’s violations, researchers Steven Barreth (Massachusetts Institute of Technology) and Raymond Speth (Harvard University) estimated that due to the defeat devices being in use in Volkswagen units between 2009 and 2015 an approximate 36 million kilogrammes of excess nitrogen-oxide variants were emitted, about 1 per cent of the total light duty vehicle emissions over the world.

At an informed estimation, Barreth and Speth put the number of deaths caused by this excess emission to 59 early deaths, at a monetized cost of around $450 million. In addition, it has likely caused 31 cases of bronchitis, 34 hospital admissions, 120,000 major restricted activity days, and 210,000 lower respiratory symptom days, as well as 33,000 days of increased bronchodilator usage.

While it is difficult to pin guilt on a single car manufacturer for a respiratory disease contracted from air polluted by cars (and so Volkswagen will not be taken to court), the numbers calculated based on the proportion of contribution give a little more gravitas to the violation at hand.

Fiat Chrysler and Renault dragged along

The media outbreak over Volkswagen’s ‘dieselgate’ has put things in motion and investigators as well as researchers took to the field in frenzied activity to ensure no similar violations have taken place. The testing has quickly brought accusations against Fiat Chrysler in the US and Renault in France in January 2017.

Fiat Chrysler is accused of installing software on 104,000 Jeep Grand Cherokee and Ram 1500 models that allow them to exceed pollution limits. While the EPA stopped short of crying ‘defeat device,’ it called out eight control devices installed on the vehicles capable of changing emissions under circumstances Fiat Chrysler had not disclosed.

“The EPA is still investigating whether these are cheat devices,” said John German, senior fellow at the International Council on Clean Transportation in a phone interview with Bloomberg. “VW got hit hard because they lied, covered it up and didn’t have a fix.”

In the wake of the news, Fiat Chrysler’s shares dropped by 18 per cent, a record since the company started trading in October 2014, from about $11 to $9.25. In case EPA allegations are proved sufficiently true, the corporation is looking at a rather hefty fine, which could go up to $44.539 per vehicle, or a sum total of $4.6 billion.

Similarly, French authorities announced starting an investigation over suspected cheating in emissions tests of Renault’s diesel motors only a day after the charges against Fiat Chrysler came out.

Just like the EPA, French authorities also started testing with increased fervour after the massive Volkswagen scandal, looking for traces of similar violations in the groves of other car-manufacturers. The Paris prosecutor’s office said on January 10 that experts found dangerously high emission levels from the diesel engines of several carmakers, including Renault.

“Renault vehicles are all and have always been homologated in accordance with the laws and regulations. They are compliant with the applicable standards,” said Renault, referring to French and European Union regulations.

As both Renault and Fiat Chrysler are categorically refusing foul-play, there is no prospective Volkswagen-esque admission of guilt on the horizon.

It is possible that the two giants are looking to buy their way out of admitting misconduct—probably the first chapter of the big corporate book. It is not unheard of or unexpected, seeing how Toyota paid $1.2 billion in 2014 over faulty acceleration pedals, and GM forked over $900,000 after an engine fault was found to prevent the crash safety technology from operating—at least blame could have been attributed there.

RELATED CONTENTS:
	German prosecutors extend 'dieselgate' probe to VW chairman
	Lower Saxony has no plans to sue VW over emissions scandal: Welt am Sonntag
	Norway sovereign wealth fund to sue Volkswagen
	German automakers to recall 630,000 cars over emissions irregularities
	Mai Linh asks for government incentives for joint electric car project with Renault
	Renault to reveal its new car