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posted on 27 April 2016

The VW Scandal And Evolving Emissions Regulations

from the Chicago Fed

-- this post authored by Thomas H. Klier and Joshua Linn

In September 2015, Volkswagen (VW) admitted to having programmed nearly 11 million of its diesel vehicles to cheat on tailpipe emissions tests. To put VW's emissions rigging into a broader context, the authors review the different approaches that the U.S. and Europe have historically taken in regulating automotive emissions and fuel economy. Moreover, they discuss the scandal's implications for regulatory changes in both regions.

Automobiles are subject to emissions and fuel economy regulations in most regions of the world. Underlying the VW scandal are trade-offs between controlling a vehicle's emissions and improving its performance (i.e., its acceleration, power, etc.). VW, like most other European automakers, pursued diesel technology - which, compared with gasoline technology, provides greater fuel economy, resulting in lower greenhouse gas (GHG) emissions, such as carbon dioxide (CO2). Yet, relative to gasoline engines, diesel engines tend to emit more nitrogen oxide (NOx ) and particulate matter,3 which contribute to the formation of smog. VW pursued a "clean diesel" strategy rather aggressively; but when some of its diesel engines could not meet the stringent tailpipe emissions standards in the U.S. and Europe without sacrificing on-road performance, the company installed "defeat devices," which allowed its vehicles to circumvent lab tests.

In this Chicago Fed Letter, we discuss the different approaches that the U.S. and Europe have historically taken in regulating the emissions and fuel economy of light-duty vehicles (i.e., cars and light trucks) and some implications of the VW scandal for the regulation of the auto industry in both regions. The history of U.S. regulations

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