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Volkswagen Settlement - South Dakota Mitigation Trust

 

Overview

On January 24, 2016, the United States and the State of California filed a lawsuit against Volkswagen alleging it had manufactured diesel cars sold and operated in the U.S. beginning in 2009 with systems intended to defeat emissions tests. These systems allowed vehicles to emit nitrogen oxide (NOx) pollution at levels that significantly exceeded the amounts allowed under the Clean Air Act.

Volkswagen has agreed to settle some of these allegations. The first partial settlement was in regard to the installation and use of emission testing defeat devices in 2.0 liter diesel vehicles and a second partial settlement was in regard to the installation and use of emission testing defeat devices in 3.0 liter diesel vehicles. The overall settlement consists of three major parts:

Part 1: Buyback, Lease Termination, Vehicle Modification and Emissions Compliant Recall Program

Volkswagen is required to earmark about $11.2 billion ($10.033 billion from the first 2.0 liter consent decree and $1.2 billion from the second 3.0 liter consent decree) to buy back affected noncompliant vehicles, terminate leases early, or repair the vehicles by 2019 or 2020 depending on the make and model. Volkswagen administers this part of the settlement directly with affected vehicle owners. Additional information is available at www.VWCourtSettlement.com.

Part 2: National Zero Emissions Vehicle (ZEV) Investment Plan

Volkswagen is required to invest $2 billion ($800 million within California and $1.2 billion outside of California) over 10 years in the zero emissions vehicle (ZEV) infrastructure, access, and awareness initiatives. The form of the Trust Agreement can be found in Appendix C of the first partial consent decree. This part of the settlement will be administered by Volkswagen, the U.S. EPA and California in four 30-month investment cycles. For each round, project proposals are submitted to Volkswagen, and Volkswagen develops an investment plan to be reviewed and approved by the EPA. The first round of project proposals closed January 16, 2017. Proposals for the second round are currently being accepted. Additional information is available at www.electrifyamerica.com.

Part 3: Environmental Mitigation Trust

Volkswagen is required to fund an Environmental Mitigation Trust in the amount of $2.925 billion ($2.7 billion from the first 2.0 liter consent decree and $225 million from the second 3.0 liter consent decree) to be used to offset the lifetime excess air pollution (i.e. nitrogen oxide emissions) emitted by the Volkswagen vehicles that violated the Clean Air Act. The form of the Trust Agreement can be found in Appendix D of the first partial consent decree. The fund is distributed among states, territories and federally-recognized tribes based on the proportion of affected VW diesel vehicles registered in each jurisdiction.

Tribal Allocation

Nearly $54.5 million of the Mitigation Trust were allocated to federally-recognized tribes, to be disbursed annually over 6 years. The Department of Justice will consult with tribes to determine how these funds will be allocated among the tribes. Tribes are not required to submit Beneficiary Mitigation Plans. Tribes may submit funding requests annually, due September 1 each year. Certification is due at the time of the first funding request.

State Allocation

South Dakota expects to receive $8.125 million dollars from the Environmental Mitigation Trust. The funds are to be disbursed within 10 years, with no more than one-third disbursed in the first year or two-thirds disbursed in the first two years. A Beneficiary Mitigation Plan must be developed that summarizes how the State allocation of mitigation funds will be distributed among the various eligible mitigation actions to reduce nitrogen oxide emissions. The Plan will be based on eligible mitigation actions that can produce the greatest air quality benefit in terms of nitrogen oxide emission reductions, reduced public exposure, and the promotion of clean vehicle technologies. The Plan will be developed through a public process, with multiple opportunities for public comment. The Beneficiary Mitigation Plan must then be approved by the Trustee.

Eligible Mitigation Actions

The Trust establishes a process to administer the funds, and identifies 10 categories of mitigation actions that will be eligible for funding along with reimbursement rates for these actions. Eligible actions focus on reducing nitrogen oxide pollution from primarily diesel-powered trucks and buses. Generally, the types of approved actions include replacing older diesel-powered trucks, buses, industrial vehicles and other powered equipment with new, lower emissions equipment. Categories of eligible vehicles and equipment are as follows:

1. Class 8 local freight trucks and port drayage trucks
2. Class 4-8 school buses, shuttle buses or transit buses
3. Freight switcher locomotives
4. Ferries and tugs
5. Ocean going vessels shorepower
6. Class 4-7 local freight trucks
7. Airport ground support equipment
8. Forklifts and port cargo handling equipment
9. Light duty Zero Emissions Vehicle supply equipment
10. Matching funds for projects eligible under the federal Diesel Emission Reduction Act (DERA)

Next Steps

The court has approved a Trustee who will be responsible for administering the Trust and approving plans proposed by beneficiaries, but no Trust Agreement has yet been finalized between the court and the Trustee. The Trust Agreement must be finalized, establishing the Trust Effective Date. Once the Trust Effective Date has been set, a timeline begins for each state to take the required actions to qualify to receive funds. Within 60 days of the Trust Effective Date, South Dakota must submit a Certification Form in electronic format and by mail, signed by the Governor, explaining how South Dakota qualifies to be a Beneficiary under the Trust. If no one objects to South Dakota's request for certification, the Trustee can grant the request and designate South Dakota as a Beneficiary. The proposed agreement requires Beneficiaries to submit a Beneficiary Mitigation Plan to the Trustee no later than 30 days prior to submitting its first funding request. South Dakota will solicit input from the public as the State develops its Beneficiary Mitigation Plan.

Currently, neither the Trust Agreement nor the Trust Effective Date has been established. However, we are currently accepting informal input on how to develop the Beneficiary Mitigation Plan that best meets the needs of South Dakota. Please submit your ideas to Barb Regynski.

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