The NCSL Blog

02

By Kristen Hildreth

The trust effective date for the Environmental Mitigation Trust under the Volkswagen Settlement was set for today, marking the beginning of when potential beneficiaries can apply to receive funding.

Volkswagen logoTwo years ago, on Sept. 18, 2015, the U.S. Environmental Protection Agency (EPA) issued a notice of violation to VW stating that the automaker “designed and installed defeat devices” in numerous vehicles to “cheat” emissions tests and deceive both federal and state regulators. In November 2015, EPA announced that the automaker also violated the Clean Air Act. As a result, numerous cases against VW were consolidated under In re: Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation.

Subsequently, on Oct. 25, 2016, the U.S. District Court of the Northern District of California, approved a first partial consent decree that required VW to contribute $2.7 billion to an Environmental Mitigation Trust, from which beneficiaries—including states, territories and federally recognized tribes—could access funds. Additionally, on May 17, 2017, Volkswagen was ordered to contribute another $225 million to the trust in a second partial consent decree, making a total of $2.9 billion available to potential beneficiaries to fully mitigate the total lifetime excess NOx emissions in places where VW’s affected vehicles were or will be operated.

This $2.9 billion will be split into two separate trusts because of tax exemption purposes—the State Mitigation Trust and the Indian Tribe Mitigation Trust. Money placed in those trusts will be allocated to beneficiaries based upon the number of affected vehicles within their borders (Appendix D-1B).

To take advantage of those funds, potential beneficiaries, including states, are required to submit certification for beneficiary status no later than 60 days from the trust effective date, designating their “lead agency,” certified by the office of the governor. Once certification forms are filed, the court-appointed trustee, Wilmington Trust, will then approve or deny a beneficiary’s status.

If a governmental entity fails to file its certification in a timely fashion, however, it will be permanently excluded from the trust. See an estimated timeline of actions.

If a state is deemed a beneficiary, no later than 30 days prior to submitting its first funding request, a state must submit and make publicly available a beneficiary mitigation plan summarizing how it intends to use the allocated mitigation funds. A key point to understandi is that a state’s plans are not intended to be binding, but rather to provide the public with insight into its vision for use of the mitigation money. Some states, such as Indiana, are undecided about how to spend its part of the settlement.

Additionally, for each eligible mitigation action, a state must submit to the trustee a semiannual report detailing the project’s progress. It is important to note that no state may request funding in excess of one-third of its allocation during the first year, or two-thirds of its allocation during the first two years. All supplemental funding requests have to be made within 10 years, and all funds need to be spent within 15 years.

Eligible mitigation actions under the settlement include replacing or repowering eligible large and medium trucks, school and transit buses, freight switching railroad locomotives, ferries and tugs, ocean going vessels, airport ground support equipment and other vehicles with new diesel, alternative fuel, or all-electric engines.

The settlement also allows states to use up to 15 percent of their allocation on acquiring, installing, operating and maintaining new light duty ZEV supply equipment, such as DC fast chargers. States can select which eligible mitigation actions are best suited for them. A full list of eligible actions can be found in Appendix D-2.

In addition to the funds in the trust, Volkswagen AG agreed to pay $157.45 million to 10 U.S. states to settle environmental claims surrounding its emissions “cheating.” Connecticut, Delaware, Maine, Massachusetts, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington will split the funds, as they were following California’s vehicle emissions rules in 2015. This is permitted through California’s Clean Air Act (CAA) waiver that allows the state to set more-stringent than federal vehicle emissions standards, which other states can follow.

In addition to monetary compensation, VW has agreed to provide three electric car models, including two electric SUVs by 2020. This is the first-time states have secured environmental penalties from an automaker via state emission rules, and sets a vital precedent as the administration debates whether to revoke the CAA waivers.

Read a complete set of frequently asked questions and additional resources.

For any further questions or concerns regarding the settlement, please contact NCSL staff, Kristen Hildreth (202.624.3597).

Kristen Hildreth is a policy specialist with NCSL's Natural Resources and Infrastructure Committee in Washington, D.C.

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About the NCSL Blog

This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.