It’s hard to think of a worse environmental scandal in recent years than Volkswagen ’s 2015 diesel-emissions cheating. The German automaker was rightly pursued by regulators, enforcement agencies and class-action lawyers.
The scandal ended up costing Volkswagen an estimated $33 billion in fines and financial settlements—and revealed that diesel-emissions cheating was endemic. In 2020 Daimler AG made a $1.5 billion settlement over emissions cheating in Mercedes-Benz diesel vehicles. (One of us helped secure that settlement.) Last year engine maker Cummins agreed to pay $1.7 billion to settle claims that it skirted diesel-emissions standards.
In all of these cases, regulators punished carmakers that had cut corners and misled the public. But when it comes to electric cars, the government has a cheating scandal of its own. That scandal, grabbing far fewer headlines, is buried deep in the Federal Register—on page 36,987 of volume 65.
When carmakers test gasoline-powered vehicles for compliance with the Transportation Department’s fuel-efficiency rules, they must use real values measured in a laboratory. By contrast, under an Energy Department rule, carmakers can arbitrarily multiply the efficiency of electric cars by 6.67. This means that although a 2022 Tesla Model Y tests at the equivalent of about 65 miles per gallon in a laboratory (roughly the same as a hybrid), it is counted as having an absurdly high compliance value of 430 mpg. That number has no basis in reality or law.
For exaggerating electric-car efficiency, the government rewards carmakers with compliance credits they can trade for cash. Economists estimate these credits could be worth billions: a vast cross-subsidy invented by bureaucrats and paid for by every person who buys a new gasoline-powered car.
Until recently, this subsidy was a Washington secret. Carmakers and regulators liked it that way. Regulators could announce what sounded like stringent targets, and carmakers would nod along, knowing they could comply by making electric cars with arbitrarily boosted compliance values. Consumers would unknowingly foot the bill.
The secret is out. After environmental groups pointed out the illegality of this charade, the Energy Department proposed eliminating the 6.67 multiplier for electric cars, recognizing that the number “lacks legal support” and has “no basis.”
Carmakers have panicked and asked the Biden administration to delay any return to legal or engineering reality. That is understandable. Without the multiplier, the Transportation Department’s proposed rules are completely unattainable. But workable rules don’t require government-created cheat codes. Carmakers should confront that problem head on.