Getting More Mileage from State VW Settlement Funds

In 2016, the U.S. Department of Justice reached an unprecedented settlement in Volkswagen’s enforcement case, in which the automaker was found to have cheated on vehicle emissions tests.

Under the $14.7 billion settlement, VW is required to:

1. Create a program to buy back or retrofit the vehicles involved;
2. Create a subsidiary—Electrify America—to develop zero-emission vehicle infrastructure and promote electric vehicle awareness; and
3. Provide direct funding to states where the polluting vehicles were sold.

States have wide latitude to use these funds and now find themselves with numerous vendors knocking at their door. We offer several principles to help states make the most of their VW funds as the transportation sector—like the power sector—transforms.

1. Think Long Term: The most effective projects will reduce emissions significantly and position the state for the future of transportation by minimizing stranded costs and investment risk. Replacing an older diesel or gas vehicle or engine with a newer one of like kind provides incremental improvement in emissions. But electric vehicles (EVs) offer much cleaner, less risky alternatives over a vehicle’s lifetime in many vehicle classes. For example, a gallon of gasoline contains 120 million joules of energy, which can fuel a typical car for about 25 miles. In the form of electricity, those joules provide more than 33 kWh, which could fuel an electric vehicle for 114 miles—a 78 percent reduction in energy use and associated emissions. If the EV were fueled with renewable energy, its emissions would be even lower. And as electrification penetrates the transportation sector, there is less risk that EV-related investments will be stranded.
2. Think Broadly: Cars, trucks, and buses emit multiple pollutants simultaneously; the most effective projects will reduce all of these pollutants at once. Electrifying passenger vehicles, fleets, school buses, transit operations, fork lifts, airport service equipment, and the like reduces multiple pollutants immediately, with the potential for further decreases as the electricity supply continues to become cleaner.
3. Measure Results: The most effective projects will include clear metrics to demonstrate the emissions and other benefits they achieve.
4. Apply Leverage: Efficient projects will leverage complementary efforts and resources to produce greater benefits than a stand-alone effort would achieve. Working with a utility, for instance, may enable an EV program to include one or more of these elements:
   • “Smart Charging” and rate designs that minimize program costs, improve utility load management and integration of renewables into the grid, while enabling customers to control their energy use;
   • Comprehensive demonstration projects, such as providing electric school buses to schools or communities that have invested in solar energy, using solar energy to fuel the buses, and exploring community energy storage and grid integration opportunities with the buses;
   • Equitable sharing of transportation electrification benefits across all classes of consumers; and
   • Program data monitoring, collection, and reporting to better align state transportation electrification goals with grid management and consumer protection goals.
5. Emphasize Education: The most effective projects will promote greater understanding of EVs and create models to be emulated by others. Among other options, projects could:
   • Educate consumers about the attributes of EVs to encourage faster adoption of electrification technologies by consumers;
   • Educate cities and towns about EV benefits (e.g., lower fuel and maintenance costs) and demonstrate leadership in transitioning to a cleaner transportation sector; and
   • Promote public awareness of the benefits of electric mobility, demonstrating innovation and value, and establishing “proof of concept” for new approaches.

The transportation sector is expected to rapidly transition to electrically powered vehicles over the next decade. While the VW settlement provides significant funds, spread among the states, its effects diminish unless it is used wisely and leverages other investments. States can utilize their VW funds to help prepare for and even get ahead of the curve, defining and smoothing their path toward improved mobility for people and goods. Given this strong trend toward electrification, using VW settlement funds to support continued operation of fossil fueled transportation options may increase investment risk and lead to stranded costs. States that consider the above principles in their VW-funded investments will enjoy greater likelihood of broad effectiveness and long-term success.

By Nancy Seidman

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