Volkswagen’s new advertising campaign raises some questions.
VW committed a crime. They lied about emissions testing for their Diesel powered vehicles and got caught. This affected about 500,000 cars in the US and another 10.5 million worldwide. As a consequence the air we breathe was dirtier than we thought it was. In the US they paid a hefty price – settlements were north of 30 billion dollars! That is a lot of change! You could buy 750,000 Tesla Model 3s with that money. Did VW do 30 billion in damage by being obNOxious (get it, get it?)?
The answer is no. One estimate puts the damages closer to 100 million dollars. And here is another one showing direct effects on low birth weights and increased asthma in children. So why were the penalties so large? There is a big literature in law and economics that basically says the fine should not be equal to damages, but larger. It should take into account the fact that whether you cheat or not depends on the probability and consequence of being caught. Hence the optimal fine could be defined as damages divided by the probability of being caught, which was very small in this case (these cars were on the road for years before this was uncovered). So fines can end up being orders of magnitude bigger than the damages caused by cheating.
So now that they have paid up, is it time to move on? Maybe in the eyes of the law. But there is still this pesky little consumer. We hold a grudge. It’s like finding a cockroach in your delicious organic salad at your favorite restaurant. While adventurous foodies may enjoy eating the occasional bug, most won’t come back to the restaurant and will whine digitally on Yelp. So the restaurant will make its best effort to convince us that they have changed! Chipotle promised us that its lettuce will longer make you projectile vomit. And they will throw in free liquid cheese to make you want their product again!
VW is following the same strategy. During one of the worst hours of television ever (Klay Thompson’s ACL injury) VW aired an ad showing the new VW ID Buzz – the electric successor to the beloved 1960s VW bus. Only now it has all wheel drive, close to 400 horsepower and enough room for 7! Plus it probably does not smell of patchouli and other now legal substances. My immediate reaction was – “I WANT ONE”. I am a sucker for German stuff that goes fast. But then my inner economist voice, which admittedly sometimes gets on my last nerve, spoke up.
And it said “is that enough to make me come back”? Much better and rational economists (like Gary Becker or my friend Lucas Davis) would argue that if the penalty was assessed at the proper amount all should be forgiven. But I am not that rational. I want more. So what would it take? And the answer is more than a picture of a cool looking van. I would like VW to emerge as a leader in the optimal electrification of the future. Specifically, I would like them to help us gain clarity about two things.
What is the expected benefit of VW’s EV strategy in environmental terms? There is lots of cool work out there showing what the emissions consequences of plugging in an EV are for any plug in the US. The bus is likely going to cost north of $70k. Very few of us will get one (I am , so I guess my kid is not going to college). I would like to be convinced that there is a plan to sell enough EVs that people want, at a price point that makes them want to buy them. VW has a number of vehicles planned, but they need to tell us concretely how they are going to make the world a better place. Simply putting a plastic flower in a vase on the dash ain’t gonna do it for me.
Global warming is, well, global. While the NOx scandal was not about Global Warming, but local air pollution, I would like to know VW’s strategy for addressing climate change. Do they have a plan to electrify the bigger markets like China and Europe? Will they help those places put in place the necessary infrastructure to accelerate rollout? In the case of China, it is questionable whether this is a smart idea, given how dirty their grid is, but with Europe’s greening grid, this should be NPV positive. I don’t know the answers to these questions, but I want a concrete roadmap.
VW has had the technology and market share to take a true and smart leadership role in this space. Instead of doing the minimum to meet regulations (like pretty much all of their peers) and at the same time trying to make us feel warm and fuzzy with fancy ads, get real. If they want us to forgive and forget, they should take that leadership role seriously and make sure that “the people’s car” runs on green electrons not gas.
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Suggested citation: Auffhammer, Maximilian. “Forgive and Forget”, Energy Institute Blog, UC Berkeley, July 1, 2019, https://energyathaas.wordpress.com/2019/07/01/forgive-and-forget/
Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the University of California Berkeley. His fields of expertise are environmental and energy economics, with a specific focus on the impacts and regulation of climate change and air pollution.