Thank you very much, Mr. Chairman.
To the Standing Committee on Environment and Sustainable Development, good afternoon. Thank you very much for the opportunity to provide remarks regarding charges brought against Volkswagen in December 2019 under the Canadian Environmental Protection Act.
My name is Ben Sharpe, and I am a senior researcher and Canada lead for the International Council on Clean Transportation, ICCT. We are a research organization that is focused on providing technical information to support government decision-making on policies for leading vehicle markets around the world.
Today, I'll make comments regarding the essential elements of the robust vehicle emissions regulatory program and the breakdowns that led to the Dieselgate scandal. Then, I'll highlight the large discrepancy between the Volkswagen penalties in Canada as compared to the United States, and how this represents a significant detriment to Canada. Finally, I'll summarize some of the ways in which Dieselgate has fundamentally altered the course of the global auto sector, and has been a significant contributing factor in the accelerated transition to vehicle electrification.
A strong vehicle emissions regulatory program requires that vehicles are tested under a wide range of operating conditions and that there are specific protections against cheating, so how did Volkswagen and so many other manufacturers cheat the system? Well, simply put, they designed vehicles that tricked regulators by performing well in the laboratory and meeting all of the required emissions levels. However, as soon as these vehicles sensed that they were in actual real-world driving conditions, their control algorithms drastically ratcheted up nitrogen oxide, or NOx, emission levels so that the vehicles would get better fuel economy. These so-called “defeat devices” were at the heart of the Dieselgate scandal.
Since we first uncovered the defeat device issue in 2014, the ICCT has been at the forefront of research and policy analysis to identify the full extent of the cheating issue and to present concrete solutions to policy-makers to strengthen vehicle regulations and improve real-world emissions performance.
The ICCT has developed step-by-step guidance for helping regulators identify vehicles with defeat devices, which can be challenging since the devices are embedded with sophisticated computer code.
The ICCT is the world's leading research organization with regard to vehicle compliance and enforcement and real-world emissions evaluation. As an addendum to my testimony, I've included a list of roughly 30 papers, consultant reports and blog posts that we have published on these topic areas.
In addition to designing vehicle emission regulations to explicitly close software algorithm loopholes, it's equally important to have sufficient enforcement provisions and penalties in place to deter manufacturer malfeasance. The discrepancy between the fines collected from Volkswagen by the U.S. and by Canada is significant and deserves further scrutiny, which is why we applaud the committee for taking up this investigation.
Altogether, Volkswagen's fines and penalties in the U.S. total roughly $32 billion Canadian, as compared to $196 million Canadian in Canada.
With roughly 580,000 and 128,000 guilty vehicles sold in the U.S. and Canada, respectively, this works out to about $55,000 per vehicle in the U.S. versus $1,500 per vehicle in Canada. More transparency is needed to determine how Canada came to a settlement that has resulted in significantly lower penalties on a per-vehicle basis versus the U.S.
In response to the Dieselgate fallout over the past five years, diesels are now much less attractive to both consumers and manufacturers. For example, in Europe, the diesel market share has fallen over 40% since 2015. Given the additional costs associated with re-engineering diesel vehicles to comply with increasingly stringent emissions requirements, several manufacturers have divested from diesel technology and have instead made aggressive pivots towards electrification. Not coincidentally, Volkswagen is leading this rapid transition to electric drive, and it announced in 2016 that electric vehicles will make up 25% of its global annual sales by 2025.
Another way in which Dieselgate has turbocharged the transition to electrification is that a significant portion of the Volkswagen settlement funds, nearly $3 billion U.S., are specifically earmarked to support U.S. states with programs that accelerate electric vehicle development.
In summary, Dieselgate has illuminated the critical importance of having well-designed regulations as well as robust compliance enforcement and penalty provisions to ensure that emission reductions are achieved in the real world and not just in the laboratory.
While the Canadian government's action against Volkswagen represents the largest environmental fine in the country's history, this committee is very well justified to probe the manner in which the settlement was reached.
Thank you very much for the opportunity to provide comments.