A Green Way to Punish Cheating Volkswagen

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Volkswagen cars are parked outside a VW dealership in London on November 5, 2015. Suzanne Plunkett/Reuters

A giant sum of money is about to be wasted in attempting to punish Volkswagen for its diesel emissions mess.

Rather than squander this money on fines and ill-fated attempts to fix old technology, let's seize the moment to bring lasting change to the auto sector—let's require Volkswagen to focus on electric cars.

With the cars Volkswagen has already sold that violate emissions rules, it is not even clear that there is a real fix. Drivers won't bring their cars in for repairs that compromise performance.

Some solutions would reduce nitrogen dioxide—the pollutant Volkswagen masked from emissions tests—but would result in greater emissions of carbon dioxide. Those solutions would be inappropriate for regulators to endorse, as carbon dioxide is now also a regulated pollutant.

Retrofitting the small cars with special urea tanks, as some have suggested, is costly and impractical. Some cars may be fixed, but clearly many will not.

Most essentially, these fixes do nothing to address what is next for diesel and its regulators. Volkswagen's chief Executive Matthias Muller now admits that the cheating occurred because, starting five years ago, their dreams of high performing, super efficient diesel engines had a head-on collision with reality when faced with U.S. emissions tests that are more stringent than their European counterparts. We have reached the point of de minimis returns in improving diesel performance while reducing pollution.

More broadly, emissions regulations are a mess and have missed the mark for years. Despite having the greatest research and development effort in these engines, Volkswagen had to cheat, and regulators were easily fooled.

Meeting future tighter standards will prove even more fruitless. And gas engines will soon run into the same reality that they can't get any cleaner while maintaining the same level of performance.

What is the solution then? Rather than punish Volkswagen, the EPA should release the company from its obligation to fix the diesel cars already on the road. They represent an insignificant portion of our total vehicles emissions and do not, individually, present any emissions-related risk to their owners or occupants.

Instead, the EPA should require Volkswagen to greatly accelerate its rollout of zero-emission vehicles, which by their very nature have zero emissions and thus present zero opportunities for cheating. And the EPA need not invent new complicated and costly tests for zero-emission vehicles. Zero is pretty simple since it is zero.

This by no means takes Volkswagen off the hook. We should require that this alternative result in emissions reductions that are ten times greater than Volkswagen caused with their cheating and achieve this quickly, over a few years. In practical terms, this might mean a dozen new zero-emission Volkswagens on the road for every offending diesel today, perhaps millions of electric cars in total.

This may sound like a lot—it's several times more than the current total number of electric vehicles. But a fine and a fix are running the company billions anyway—this is merely repurposing the money.

And consider the benefits to the economy. A main barrier to the greater availability of zero emissions vehicles is the availability of batteries. There is an urgent need to build more battery factories globally. We should demand that large investments in battery manufacturing plants, with their ensuing local jobs, be made in the U.S. It took only $3 billion for Tesla to get where it is today, so imagine what an investment from Volkswagen could do.

Such a solution would also sidestep the great injury and uncertainty that imposing fixes on individual diesel cars would place car owners, who shouldn't bear the burden for the failures of Volkswagen and regulators.

Rather than dig a deeper regulatory failure, further eroding the public's trust and patience, and diminish Volkswagen in the process, let's demand a huge push in new technology manufacturing instead. Right in front of our noses is the potential for us to reduce pollution, create lots of domestic jobs, shift the incumbent industry toward zero emissions and reduce regulation.

Ion Yadigaroglu is managing principal of Capricorn Investment Group.