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Analysis: Most VW emissions settlement funds go to diesel tech, not electric vehicles

More than $2 billion in funding yet to be awarded

Anheuser-Busch was awarded a grant from the Colorado VW settlement program to deploy electric trucks. (Photo credit: BYD)
  • It’s been five years since the Volkswagen Group admitted to rigging passenger cars to cheat diesel emissions tests.
  • Money from the settlement is helping fleets replace polluting vehicles with cleaner equipment, but so far most of the money has been invested in diesel, not electrification.

In 2019, Connecticut-based food and household goods distributor Bozzuto’s Inc. was awarded approximately $1 million from the state’s Volkswagen diesel emissions settlement to be applied toward the purchase of 30 new Class 8 diesel-powered trucks.

The government grant made for a good return on investment, said Chris Sferruzzo, executive vice president of Bozzuto’s, which used the money to help replace 20-year-old trucks in its existing fleet with the more fuel-efficient models. The “beautiful” Kenworth and Freightliner tractor trailers are good for driver retention, and the fuel efficiency benefits boost the company’s bottom line and the environment.

“Everyone wins,” Sferruzzo said. “We get better mileage and the planet gets better emissions.”

From scandal to windfall

It’s been five years since the VW scandal broke, shocking policy makers, industry and consumers alike with a sordid tale of the German automaker rigging millions of passengers car to cheat emissions tests. As part of a massive settlement agreement, VW agreed to fork over nearly $3 billion to the U.S., to be used by states to replace aging trucks, buses and marine equipment. (The program does not fund passenger car replacements but does support EV charging infrastructure.)

There’s no question that the settlement is helping fleets replace polluting vehicles with cleaner equipment, and companies like Bozzuto’s applaud the program as a way to defray the costs of environmentally-friendly truck purchases and reduce fuel costs. But analyses of the initial round of awards shows that the majority of funds has gone to the purchase of new diesel equipment and not zero-emissions vehicles, as many electric vehicle advocates had hoped.

“Diesel vehicles have secured awards for the lion’s share of vehicles and the majority of funding,” said Joe Annotti, vice president of programs for  Gladstein Neandross & Associates (GNA), a California-based clean transportation and energy consultancy that has compiled a list of grantees based on publicly available data as of August 2020.

Only a fraction of the money, $240 million, has been dedicated to replacement vehicles since the award money was first handed out in 2018, according to GNA’s analysis.

But even with hundreds of millions of dollars still to be awarded, industry and environmental groups are questioning the settlement’s ability to help states meet ambitious fleet electrification and greenhouse gas emissions reductions targets.

The incentives needed to meet California goals for zero-emission trucks equals roughly $2.5 billion annually, Chris Shimoda, vice president of government affairs for the California Trucking Association, said in an email to FreightWaves.

Shimoda was referring to a law California regulators approved in June requiring manufacturers to sell an increasing percentage of electric trucks,

The state, he said, “will need to identify significantly more funding than exists today.”

The VW settlement funds are being used “in positive ways to make some real progress toward electrification,” said Matt Casale, environment campaigns director for U.S. PIRG, a nonprofit citizen advocacy group that produced a 2019 report criticizing the diesel orientation of first wave mitigation investments.

“But it’s clear that the money isn’t going to get us where we need to be.” 

Fifty states, 50 VW settlement plans

Under the terms of the agreement, every state as well as Puerto Rico and Washington got funds from the settlement. A separate trust was established for Native American nations. Parsing the fund data is a tricky proposition, Annotti said, mostly because there is a difference between what a state agency says is an awarded project and what information is actually publicly available.

Disclaimers aside, the trends are consistent across datasets. Breaking down the awards by fuel category, GNA’s analysis shows that as of August, of the $240 million awarded to vehicles, about $90 million had been invested in 344 electric vehicles, while $105 million was invested in 1,662 diesel vehicles.

The goal of the settlement is to reduce nitrogen oxide (NOx) emissions, a key contributor to smog, from aging diesel vehicles and cargo-handling equipment. But states have wide latitude in how they meet that goal, with some allowing a range of technologies — diesel, CNG, propane —  while others are more restrictive.

VW Settlement vehicle awards by fuel category as of August 2020 (Courtesy GNA)

The $240 million cited in the GNA analysis does not include money awarded to EV infrastructure, which had received around $62 million as of July 2020, according to Atlas Public Policy, a group that tracks VW settlement awards through its EV Hub dashboard.

Surprise! California leads

A deeper dive into the settlement data reveals more details about where the money is going, and differences in how states are distributing the funding.

Generally speaking, the states that have adopted California’s zero-emission sales mandates for cars and light-duty vehicles, as well as those that follow California’s stricter greenhouse gas emissions standards for vehicles, are investing more in electrification than those that have not. 

California itself received the largest allocation, $423 million. Its plan, which prohibits diesel-to diesel replacements, includes $90 million for zero-emission Class 8 freight and port drayage trucks. In August, officials released the first installment, $27 million. (Earlier this year, California released part of $35 million in settlement funds dedicated to marine equipment.) 

As of August, Arizona had awarded the highest amount of settlement money, around $37 million. That was all dedicated to 329 diesel replacements, the majority of which are school buses.

Texas received the second-largest allocation, $209 million, and has only made one EV award, for $1 million, according to Atlas Public Policy.

Electric vs. diesel

Landing on the other end of the spectrum is Washington state, which had invested the greatest amount of money in electrification, awarding $25 million for 90 zero-emissions public transit and school buses, according to the GNA analysis. The agency will begin planning for a second wave of VW funding this fall that may include a zero-emission truck grant program, Andrew Wineke, communications manager for the state Department of Ecology, said in an email to FreightWaves.

Colorado invested $17 million in 113 electric vehicles. Among the state’s preliminary grant recipients is brewery giant Anheuser-Busch, awarded $1.2 million toward the purchase of four heavy-duty electric trucks. The brewer will use the funds to expand an existing partnership with BYD Motors, a spokesperson told FreightWaves. 

To get the most out of the settlement funds, many of the states are bundling the money with existing state and federal money supporting more efficient and zero-emissions vehicles and infrastructure. 

New York’s VW funds are administered through the state’s Truck Voucher Incentive Program, where 90% of the funds are invested in all-electric trucks and buses, a spokesperson said. As of September, the agency had approved 11 vehicles totaling $11.75 million — seven electric and four for other clean fuels. Six additional applications for zero-emissions vehicles are pending, she said.

Fleet perspective: Fueling technology isn’t everything

Two weeks ago, the city of North Salt Lake in Utah took possession of a brand new diesel-powered Mack Granite dump truck purchased with assistance from the state’s settlement cache. The truck, equipped with a front snow plow, replaced a 2003 model, said Jonathan Rueckert, the city’s assistant public works director, who was preparing to videotape the destruction of the old vehicle as the program requires. 

“It’s unfortunate that the truck is destroyed but good that we get higher-polluting vehicles off the road and with something that gets better emissions on it,” Rueckert said. The VW program paid for about 45% of the $243,000 purchase cost.

Using settlement money to get rid of polluting vehicles requires fleet buy-in. States don’t take that for granted, regardless of fuel category.

In addition to the cost of the new truck — relative to the amount of settlement funding available —  the requirement to scrap an existing vehicle may prohibit some fleets from applying for VW settlement money, Nahal Mogharabi, a spokesperson for California’s South Coast Air Quality Management District, told FreightWaves in an email. The district, home to some of the highest levels of diesel pollution in the state, is administering a portion of the settlement funds.

The scrapping requirement “is probably the one thing that is not so good about this,” Bozzuto’s Sferruzzo agreed. He said the company could have used the older trucks in its driving school. The school doesn’t run 24/7, so utilization of the trucks would have declined along with their emissions even if they hadn’t been destroyed, he said.

An uncertain future

With state budgets taking a huge hit from the coronavirus pandemic, industry and advocacy groups have expressed concerns that states won’t have the funding to help fleets pay for pricey green vehicles and infrastructure. (On average, a diesel truck costs $100,000, a comparable natural gas vehicle $150,000 and an electric truck carries a $200,000 price tag.)

A bright spot in a resource-constrained environment, settlement funds in California alone are expected to yield a 10,000-ton NOx emissions reduction over a 10-year period throughout the state, according to the California Air Resources Board.

Still, nobody thinks the VW cash alone is going to solve state emissions challenges or accelerate the transition to electric trucks, a goal an increasing number of states have enshrined in legislation or public guidance.

Even with the grant funding, factors including vehicle price and availability, fuels and infrastructure, along with training and certification of employees, have affected the number of requests the state receives for zero-emission vehicles, said Anthony Chenault, a spokesperson for the Ohio Environmental Protection Agency.

According to the GNA analysis, Ohio’s Beneficiary Mitigation Plan has awarded approximately $29 million toward the purchase of 562 vehicles, 463 of which are diesel. But the number of electric awards may increase. Chenault said the agency recently received the first request for zero-emission vehicles in the local freight truck category: $660,000 for six all-electric trucks. That application is under review.

Other states may also plow more funding into electrification. 

With less than 10% of the funds awarded, there is plenty of money available, Annotti said. He points out that although electric vehicles have received relatively few awards by vehicle count, the amount of funding secured is quite large. Compared to electric vehicle investments, for example, propane vehicles have secured a larger number of awards but less funding.

Conner Smith, a policy associate with Atlas Public Policy, echoed that view.

“All told, we see a much greater opportunity for states to invest in electric trucks and a large proportion of Settlement allocations remaining unawarded,” he said in an email to FreightWaves.

A proxy for the marketplace, the settlement fund’s diesel bias reflects an industry in transition. Electric trucks are on Sferruzzo’s radar, the logistics executive said. But he’s not convinced the battery-powered big rigs are reliable enough for Bozzuto’s delivery cycle.

“They’re too new. But I’m watching it very closely, absolutely.”

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One Comment

  1. Allen Schaeffer

    Given that the settlement’s purpose is to mitigate the excess emissions of nitrogen oxides (NOx) emitted from non-compliant VW vehicles in the states in which they operated, more NOx emissions can be mitigated by replacing older diesel engines and equipment with newer generations of diesel technology. Other fuels may be able to mitigate NOx emissions but at considerably higher cost, and in some cases with need for attendant infrastructure that does not exist.

    Investing VW settlement funds in new generation of diesel technology delivers more clean air for the dollar, and delivers the clean air benefit far faster. Investments in electrification provide NOx mitigation only when vehicles are available and utilized.

Comments are closed.

Linda Baker, Senior Environment and Technology Reporter

Linda Baker is a FreightWaves senior reporter based in Portland, Oregon. Her beat includes autonomous vehicles, the startup scene, clean trucking, and emissions regulations. Please send tips and story ideas to [email protected].