Volkswagen’s acknowledgement last week that some of its late-model diesel cars contain a computer program designed to cheat emissions tests was a startling revelation. For a company that had relied heavily on its “clean diesel” branding and reputation for precise German engineering, the long-term impact of the revelations on the German automaker’s financial success could be tremendous. Under the terms of the Clean Air Act, the Environmental Protection Agency is theoretically entitled to collect $37,500 per vehicle in fines, or about $18 billion if the violations affect 482,000 vehicles in the United States, as the EPA believes.
If anything is certain, though, it is that the EPA will not force Volkswagen to pay the maximum amount to which American taxpayers are entitled. The most recent comparable case—last year’s $300 million settlement with Hyundai and Kia for overstating fuel-efficiency claims—only amounted to $250 per vehicle. Volkswagen’s leaders seem to be aware of this trend, as well. Despite admitting the “defeat device” exists on 11 million cars worldwide, they have indicated that the company will set aside just $7.2 billion for now to cover anticipated fines.
But in Volkswagen’s case, the EPA should reconsider its strategy. For one, the company’s deceit is arguably far more serious than that of the Korean automakers. Yet there is also the fact that we are in the midst of a funding crisis concerning our transportation infrastructure—and it is logical that Volkswagen should help remedy it.
By now, the story of our country’s subpar roads, bridges, and transit is a well-worn tale. According to a recent report from the Congressional Budget Office, annual federal spending on highway infrastructure peaked in 2002 and has since fallen 24 percent, representing an entire “lost decade” of investment. Nor is the decline limited to spending on roads: the same year, annual federal investment in mass transit reached a high of $1.49 per rider, and has since declined 22 percent when measured on that basis.
Fundamental to both of these problems is Congress’s refusal to raise the federal gasoline tax, which has remained stuck at 18.4 cents per gallon since 1993 (the diesel tax is six cents higher). As a result, the Highway Trust Fund, which is the source of most federal surface transportation spending, has teetered on the brink of insolvency, propped up only by emergency infusions of cash from the General Fund.
This funding crisis is not only a burden on our roads, but it is also the product of a national transportation policy that heavily subsidizes motorists (and, by proxy, automakers). Unlike in most other wealthy countries, fuel taxes in the United States are not nearly high enough to discourage driving or counteract the substantial environmental and social harms created by our use of fossil fuels—what economists call “negative externalities.” A recent paper by Professor C.-Y. Cynthia Lin at the University of California, Davis, calculated that a fuel tax accounting for these negative externalities would be $1.37 per gallon in California—more than twice what drivers pay at the pump now when state and local taxes are included. Meanwhile, a separate study from Kevin DeGood at the Center for American Progress found that nearly 40 percent of major roads in the U.S. do not generate enough taxes to pay for their own upkeep.
If there is one saving grace to this story, it has been the increasingly strict emissions standards applied to new cars in the United States. If we cannot tax fuel to the extent necessary to dissuade people from using cars, the thinking has been, at least we can ensure that driving is less environmentally harmful than it once was.
It is in this respect that Volkswagen’s actions appear particularly egregious. The International Council on Clean Transportation, whose research prompted the EPA investigation, claims the “clean diesel” cars produced five to thirty-five times more nitrogen oxides than is legally permitted. (According to the EPA, nitrogen oxides are associated with “serious health effects, including…premature death due to respiratory-related or cardiovascular-related effects.”) From the standpoint of this category of pollutant, it is as if ten million or so vehicles were on the road, but only five percent of them contributed tax revenue to the Highway Trust Fund.
This discrepancy is the fundamental reason why members of Congress and the executive branch should pressure the EPA to seek the full $18 billion fine from Volkswagen. By setting aside the money for transportation projects, we could symbolically recoup the fuel taxes “lost” as a result of Volkswagen’s deceptive emissions practices.
The simplest solution would be to deposit the money directly into the Highway Trust Fund, where it would pay for about six months of spending. A far more sustainable path, however, would be to earmark the money for discretionary infrastructure programs. The most prominent of these, known as Transportation Investments Generating Economic Recovery—or TIGER—was created during the recession and has won acclaim from infrastructure advocates for its design, which allows projects to compete against each other for funding based on their individual merits. In recent years, however, funding for TIGER has declined, with Congress only allotting it $500 million this year from the General Fund.
With an $18 billion settlement from Volkswagen, the government could triple annual TIGER spending and still fund the program for twelve years. Our infrastructure would benefit, and we could rest assured knowing the automaker’s punishment very much fit its crime. It is the kind of schadenfreude that even Volkswagen would appreciate.