Does Volkswagen fraud signal death of diesel?

Cheating to pass

UPDATE (June 18, 2018): Rupert Stadler, chief executive of Volkswagen AG’s luxury brand Audi, was arrested today in connection with a probe into his role in the German car maker’s diesel emissions-cheating scandal. The issue had surfaced in 2015, when it emerged that cars had been fitted with devices designed to cheat emissions tests.

The arrest comes a week after Stadler’s name was added to a list of suspects in a fraud investigation, which targets around 20 people. On June 13, a German court imposed a $1.2-billion fine on Volkswagen for rigging diesel engine emissions.

Volkswagen’s deceit 

Last month, the US authorities exposed a sinister plot hatched by the Volkswagen Group, one of the world’s leading automobile manufacturers that makes popular glam diesel car models. Its two-litre turbodiesel engine car brands, often high on shopper’s list for their low emissions and fuel economy, were found patched with “defeat devices”, which allowed the cars to cheat and pass USA’s stringent emissions tests for nitrogen oxides (NOx)—noxious gases liberally spewed out by diesel engines. NOx cause and aggravate lung and heart diseases, and are key component in the formation of ozone, another deadly gas.

The German carmaker has admitted to have installed the defeat device on more than 11 million cars, manufactured under the brand names of Jetta, Beetle, Passat, Golf and even the upmarket Audi 3, which it has fraudulently sold across the US, Europe and perhaps in other parts of the world since 2009.

The corporate fraud caught global attention on September 18 when the US Environmental Protection Agency (USEPA), responsible for enforcing the Clean Air Act and emissions standards, issued “notice of violation” to the conglomerate—Volkswagen AG, Audi AG and Volkswagen Group of America. In its scathing notice, a copy of which is available with Down To Earth, USEPA has laid bare gruesome details of the scam.

The notice of violation states that the defeat device is actually a cheating software hidden in the electronic control module of the cars (see ‘Volkswagen’s smokescreen’ on p26). The software is programmed to sense whether the vehicle is being tested in the laboratory, based on parameters such as the position of the steering wheel, vehicle speed, duration of engine operations and barometric pressure. It then switches the car into a clean-running mode, reduces NOx emissions and helps it pass the test. But once on the road, the software switches to run on a separate calibration, which reduces effectiveness of the NOx control system, and the car begins to emit 10 to 40 times more NOx than the certified level, depending on the driving condition.

Since in diesel vehicles, it is difficult to balance the NOx control system with cost effective means of improving energy efficiency, Volkswagen could have altered the software to compromise on emissions.

The impact of this fraud on Volkswagen is immense. Its stock value is falling since the scandal broke—share prices dropped by almost 40 per cent within a week; its chief executive, Martin Winterkorn, has lost his job; and worse, its brand value is in tatters, casting a shadow over the much-famed German engineering in the global market.

Volkswagen has reportedly set aside US $7.3 billion to repair the damage. But this is too little. Under the US Clean Air Act, it faces fines of up to $37,500 per defective car. Given that Volkswagen has sold 482,000 defeat device-fitted cars in the US alone, it may have to shell out $18 billion as civil penalty.

This can wipe out most of its last year’s operative profits. Till the magazine went to press, 34 aggrieved customers had filed lawsuits against Volkswagen, claiming that the value of their cars has declined because of the scandal. Volkswagen will have to compensate them directly or through class action lawsuits. Besides, it will cost the earth to recall and fix all the vehicles, not just in the US but elsewhere. Other governments may also impose penalties. Its financial woes could get a lot worse as sales of Volkswagen diesel vehicles have taken a hit worldwide and stopped in the US.

SIX YEARS OF LIES, DECEIT

Volkswagen owned up only after it was threatened to be booted out of the US market

Exposing Volkswagen’s fraud was not easy. In fact, Volkswagen could still be selling lies had it not been for a chance testing.

The NOx standards of the US are the most stringent in the world. In 2007, when the USEPA upgraded its standards for cars and enforced USEPA Tier2-Bin5 standard, Volkswagen could not comply with it and had to pull out of the US market. So in 2009, when it re-entered the crucial market, it came with what now seems a cheating strategy to circumvent the tighter emissions standards. It launched cars with two types of NOx control technologies—lean NOx catalyst and urea-based selective catalytic reducing technology—and convinced American regulators that they had cleaned up diesel car emissions.

Its claims came under suspicion two years ago when the US-based International Council on Clean Transportation (ICCT), along with the West Virginia University, tested a few 2012 and 2013 diesel car models of Volkswagen and BMW to assess if the new cars were meeting the emissions standards in real-world driving conditions. For this, the researchers mounted portable devices to monitor emissions from the vehicles as they moved in cities of California. The results showed that the on-road NOx emissions from cars equipped with lean NOx catalyst exceeded the USEPA Tier2-Bin5 standard by 15 to 35 times; it was five to 20 times for cars equipped with urea-based selective catalytic reducing technology.

ICCT brought the results to the attention of USEPA and California Air Resources Board (CARB), the state’s clean-air agency, which ordered Volkswagen to recall fraudulent vehicles and fix the problem. Volkswagen first tried to dismiss the problem of increased emissions as “technical issues or unexpected in-use conditions”, but later recalled 482,000 cars and claimed to have rectified the problem. USEPA and CARB conducted confirmatory tests and found little improvement. When challenged, Volkswagen could not give a convincing explanation. “It is only when USEPA and CARB threatened that they would not approve certification of conformity for the Volkswagen 2016 model until the company explained adequately, did Volkswagen admit that it had designed and installed a defeat design,” mentions USEPA’s notice of violation (see ‘On emissions crime trail’).

Such frauds can undercut other players in the automobile market, which are investing in advanced technologies to ensure that their products comply with the emissions standards. ICCT and the University of West Virginia had tested a BMW 5X model along with the Volkswagen brands. They found that emissions from BMW were high but more or less within the expected range of variation from the limits: it was close to the US standards for both city and highway driving and higher during uphill and downhill drive. John German of ICCT, who carried out the tests, says, “Without vigilant enforcement, companies that comply with the standards will be placed at a competitive disadvantage. If left unchecked, that could undermine the whole regulatory framework.”

The impact of Volkswagen’s deceit has spread far beyond the US. Switzerland has taken the stern step by stopping sales of all two-litre diesel Volkswagen cars that meet its Euro V emissions standards; the current Euro VI standards have come into force only recently. The UK, Germany and South Korea have announced investigations into the Volkswagen diesel car models. France, Italy and other EU member states have called for inquiries. In fact, diesel car engines of Volkswagen that are bigger than the tarnished two-litre engines may come under scrutiny.

In India, soon after the Volkswagen controversy came to light, Union Minister of Transport Nitin Gadkari issued a statement that the emission fraud is still not a concern in India but this is a development that the government is watching. The government has, however, directed the Automotive Research Association of India (ARAI) to carry out tests on Volkswagen cars.

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Volkswagen's smokescreen

In new cars, software controls everything, right from the engine, gearbox and power windows to controlling and monitoring emission control devices. Volkswagen (VW) clandestinely tweaked this software to reduce effectiveness of its emission control systems, mainly to achieve fuel efficiency and to avoid being noticed by regulators. Here is how and why Volkswagen fooled the world's stringent emission regulators for four years

Modern diesel engine: supreme controller

Modern diesel cars use a complex mix of sensors, electronics, filtration method and catalysts to meet emission standards. To limit NOx, Volkswagen uses two approaches: one, by trapping and reducing NOx emissions from the engine, and the other by treating NOx in the exhaust with urea. Sophisticated software in the Electronic Control Module (ECM) governs this entire process

Electronic Control Module: brain that was rigged

ECM is the brain of modern cars. Apart from controlling emissions, it senses, monitors and regulates air-fuel mixture, engine temperature, ignition, exhaust gas temperature and fuel economy. Volkswagen tweaked ECM's software (US regulators refer to this tweaked software as defeat device) so that the car can sense when it is being tested and make NOx control system work effectively. But once on road, it switches to a different operational mode to reduce effectiveness of NOx control system

Emission or fuel economy: tough choice

Modern emission control devices like NOx control system need energy to operate and hence require more fuel. Making improvements in both emissions control and fuel economy is therefore a challenge to the car maker. It can be tempting to keep some of these systems working at suboptimal level to achieve higher fuel efficiency. Volkswagen gave into this temptation

VW opted for high emissions

In 2013, International Council on Clean Transportation and West Virginia University detected high NOx emissions from Volkswagen cars plying on roads. This proved their emission control systems were not functioning optimally

Why VW cheated in the US

US has the toughest NOx standards in the world. Standards are even more stringent in California state. Volkswagen could not meet the standards without compromising cost and fuel efficiency of its cars

Governments act

Several countries in Europe, the biggest admirer of diesel cars, have launched investigations into Volkswagen's models

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Spanner in clean diesel?

Technical solutions to curb emissions from diesel engines need strong monitoring

The Volkswagen cheating episode underlines the desperation of the diesel vehicle industry to survive the stricter emissions standards being introduced by governments across the world.

While Volkswagen attempted to circumvent stringent emissions standards, evidences from Europe and the US show that several other clean diesel brands are struggling to maintain low NOx emissions during real-world driving. In 2013, ICCT conducted a study in Europe and found that on-road NOx emissions exceed at least seven times the certified limit under the Euro VI standards—the best emission standard in Europe today.

Equally shocking is the revelation by European non-profit, Transport and Environment, which in 2015 found that nine of the 10 new diesel cars sold in the continent did not meet emission limits under the Euro VI standard.

The researchers say advanced electronics and sophisticated emissions control systems in the diesel segment are the prime reason for this anomaly. These systems help achieve clean emissions, but making them perform throughout the vehicle’s lifetime without much deterioration on the road is a challenge.

It is therefore not surprising that Europe, which has dieselised significantly in the hope of curbing greenhouse gas emissions, is struggling to resolve the high NOx problem. When compared with petrol cars, diesel cars are more fuel efficient and emit less carbon dioxide, a greenhouse gas. But it has remained a complex engineering challenge globally to make diesel vehicles fuel-efficient as well as low emitters of both particulate matter and NOx emissions—technical solution to lower one raises the other.

This is one of the reasons Europe has kept diesel norms comparatively lax for a long time. In fact, its current Euro VI standards are 50 per cent less strict than the current standards in the US. Its standards also allow diesel vehicles to emit more NOx than petrol vehicles. On the other hand, the US, which has same norms for diesel and petrol vehicles, also requires vehicles to have emission control systems with 20 per cent higher durability than that in Europe.

Today, several European cities are facing the brunt of errant diesel emissions. Even after introducing tighter emissions standards of Euro V and Euro VI, several European cities are failing to meet the targets of ambient air quality standards for NOx. Last year, the UK was dragged to the European Court of Justice for violating the ambient NOx standards. This has led to serious backlash against diesel cars that are one of the primary sources of NOx. Eight cities in the UK are planning to ban diesel cars and more cities in Europe have banned them in areas declared low emission zones. Paris is restricting diesel car use.

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Time to raise the bar

Volkswagen fraud underlines the need for stringent regulations; monitoring systems

The Volkswagen case is now set to change the regulatory regime in the US and Europe—the worst affected by the fraud. The US is the first country to have drafted rules to prohibit defeat devices in vehicles way back in 1978. It also has the most elaborate system to make manufacturers accountable for their emissions performance on the road (see ‘How US makes carmakers responsible’). Yet it could not detect the cheating by Volkswagen. But it at least had the system in place to act quickly when the problem was brought to them. Michael Walsh, who played a crucial role in drafting the original defeat device rule in USEPA while heading its motor vehicle division, says, “We were preemptively staking out our position as computers took over control of vehicle systems. It didn’t take much imagination to think up scenarios that could expand the opportunities for cheating. We were constantly pushing back to establish that industry had a much broader responsibility and could not deliberately defeat the controls.”

Small wonder that soon after the Volkswagen incident, USEPA and CARB on September 25 announced plans to modify their compliance programme to detect defeat devices in vehicles.

Emission standards of European countries are not as stringent or explicit as that of the US. But they are now modifying emissions testing procedures to reflect realistic driving conditions.

But these measures may fail to yield the desired result as European regulators do not have the authority to penalise the errant industry yet. So they need to make the whole chain of car manufacturers and the technology vendors who design the engines accountable. So far, Sweden is the only European country that has system in place that makes manufacturers accountable for on-road performance of vehicles.

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Is India prepared?

The country lags in emissions standards and lacks the intent to regulate the industry

India follows European emissions regulations but with a time lag. The current Indian standard of Euro IV, known as Bharat Stage (BS) IV, is 12 to 16 years behind Europe. So, the controversial Volkswagen fleet might be complying with the country’s lax emissions standards, and as the Union minister of transport pointed out, it is still not a concern for the country. But the mood in Volkswagen showrooms in Delhi and Gurgaon—the highest car selling cities in the country—is certainly gloomy. Dealers at these showrooms told Down To Earth that demand has slowed down. Before the scandal broke, domestic sales of the company recorded seven months of consistent growth; exports of Volkswagen cars manufactured in India had also increased significantly.

Indian buyers are wary because not too long ago they had a brush with a similar corporate fraud. Between 2005 and 2012, General Motors (GM) sold 114,000 units of Tavera diesel SUV model—both BS-III and BS-IV variants—by tampering type approval tests and a process that confirms that mass production of new cars conforms with the vehicle certification results. To obtain the certification, the company had sent pre-selected samples that were fitted with improved engines and were in a different weight category than what it sold afterwards. It is said that this fraud could be caught because of whistleblowers within GM. The Ministry of Road Transport and Highways (MoRTH) initiated a probe into the matter, following which GM admitted to the fraud and recalled 114,000 units of the Tavera in 2012-13. However, it got off scot-free as India does not have a system to penalise companies for such corporate fraud.

This had exposed cracks in the system. The government had set up a committee under Nitin Gokarn, former head of the National Automotive Testing and R&D Infrastructure Project (NATRIP), which recommended tightening of certification tests and minimising interference of manufacturers in pre-selection of sample cars sent for certification. Instead, the committee recommended, certification laboratories like ARAI should identify samples from factories and dealers. Companies can then transport the sample cars to ARAI with proper coding and identification number. But so far, there is no system in place that legally allows testing agencies to select any vehicle, anywhere, anytime without prior information to the manufacturer. MoRTH is tight lipped about this.

Auto industry observers say on the condition of anonymity that the domination of the governing structure of certification agencies like ARAI by the automobile industry should be addressed to resolve the conflict of interest and allow impartial testing.

The big lesson for India is that vehicle standards alone are not enough. India does not have a system in place to check if individual vehicles are deviating a lot from the original norm in real-world conditions. The law should provide for an authority to check, issue recalls of vehicles by companies if they are found non-compliant, levy fines, withdraw approval for sale in the market to ensure that vehicles conform with the stated emission targets. Such systems will make non-compliance with standards more expensive for the industry and prevent frauds and low quality technology. “Unfortunately, we do not have such systems to monitor performance of new emissions control technologies like Selective Catalytic Reduction in India,” says B Bhanot, chairperson of Transport Engineering Division Council of Bureau of Indian Standards and former head of ARAI.

The Auto Fuel Policy committee of the Union Ministry of Petroleum and Natural Gas in 2014 had also recommended emissions warranty and recall programme to make manufacturers responsible for on-road emissions performance of vehicles. But this is yet to be implemented. “This requires an independent government body with resources, testing laboratories and authority under law to test vehicle emissions in real-world conditions and validate their performance,” say Ray Minjares and Anup Bandivadekar of ICCT that had carried out the tests on Volkswagen model in the US.

MoRTH has alerted state governments to be more vigilant in their emissions tests. But current on-road emissions testing programme, called pollution under certificate, is very rudimentary and is only meant to check if the vehicles are being maintained well. This cannot check inherent technical faults or frauds in vehicles for which vehicle manufacturers are responsible. Car companies in India do voluntarily recall vehicles, but only in case of technical defects.

“With high application of electronics, cars now have more chips than a packet of wafers. This is extremely complex to monitor. With robots getting smarter than the cops we need the strong end-of-process testing,” says auto industry expert Murad Ali Baig.

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On diesel tipping point

India is dieselising rapidly and needs to leapfrog to Euro VI standards

India cannot delay setting up these systems at a time when it is dieselising rapidly and is poised to bring advanced emissions control systems in the diesel segment. More than half of the cars that are sold today run on diesel. Diesel-based highway freight traffic has also expanded phenomenally. And all this is happening based on emissions standards that are 12 to 16 years behind Europe; without a clean diesel roadmap; and in the absence of regulations to ensure on-road effectiveness of new emissions control technologies. The World Health Organization has branded diesel emissions as class 1 carcinogens for their strong link with lung cancer. Diesel also emits high levels of toxic particulates and NOx, and is a contributor to deadly ozone gas.

To escape this double whammy, India, in 2020, needs to leapfrog to Euro VI emissions standards—the current regulations in Europe, as only at that level the toxic diesel emissions can be reduced effectively and nearly equalise with other fuels.

But the official proposal from the Auto Fuel Policy committee recommends deferring the adoption of Euro VI to 2024—nearly by 10 years. This is despite the recommendation from the Supreme Court to immediately clean up diesel and check dieselisation. The diesel vehicle industry is resisting early introduction of Euro VI standards even when the Union Ministry of Petroleum and Natural Gas has submitted an affidavit to the Supreme Court that 10 ppm sulphur fuel—needed to comply with Euro VI standards—will be available in 2020. A review of costs shows that it is more expensive for the diesel car industry to meet tighter emissions standards than the petrol car industry. The diesel industry is holding back quick progress in emissions standards improvement in India (see ‘Why clean diesel can be a myth’).

New diesel vehicles meeting tighter standards will come fitted with advanced particulate traps and NOx controls. If these systems do not function optimally, both particulate matter and NOx emissions can become uncontrollable. This is bad news at a time when particulates, NOx and ozone levels are rising in Indian cities, making the air more toxic.

Compliance is also about winning the trust and loyalty of the customers who are buying cars in good faith. This is a serious business risk.

India will have to bring clean diesel and fix the rules for compliance to make manufacturers accountable and responsible for emissions performance on the road. This is the global diesel dilemma. Even after cleaning up diesel emissions, other countries are finding it difficult to make the technology perform in the real world to cut the risk of both public health and business.