ESG Enforcement Tracker

Key facts:

The DOJ, the EPA, CARB and California Attorney General’s Office entered into a settlement with diesel engine maker Cummins Inc for alleged violations of the Clean Air Act and California law, which included the use of software “defeat devices” that circumvented emissions testing and certification requirements. The Clean Air Act requires car manufacturers to demonstrate that their products meet applicable emission standards to control air pollution, as part of the certification process. The car manufacturers are required to disclose and explain any functions, known as auxiliary emission control devices (AECDs), that can alter how a vehicle controls air pollutants.

In 2018, the EPA discovered defeat devices in Cummins’ vehicles, specifically: when the vehicle was tested for compliance with emission standards, the software activated full emission controls; whereas during other kinds of normal operation, the vehicles’ software features reduced or deactivated emission controls, reducing the effectiveness of the vehicles’ emission control systems. The result was vehicles emitting nitrogen oxides (NOx) at a much higher levels than emission standards allowed.

Under the settlement agreement, Cummins will pay a US$1.675 billion penalty, understood to be the largest civil penalty in the history of the Clean Air Act and the second largest environmental penalty. Beyond the civil penalty, Cummins will fund federal and California emission mitigation projects and the recall program for the affected vehicles at an estimated cost of over US$326 million. Cummins must also repair at least 85% of the vehicles within three years or face additional penalties.