Korean automakers Hyundai Motor and Kia Motors have agreed to a roughly $350 million settlement with the federal government for overstating vehicle fuel-economy standards — a deal that some analysts say indicates the Obama administration's commitment to enforcing regulations aimed at addressing climate change.
The settlement, announced Monday by the Department of Justice (DOJ) and the Environmental Protection Agency (EPA), includes a $100 million civil penalty, the largest ever for a violation of the Clean Air Act. In addition to the fine, the two companies will forfeit greenhouse gas emissions credits worth in excess of $200 million and spend another approximately $50 million on measures to prevent future violations.
"Today's action sends a clear signal to the industry that the EPA is serious about assuring compliance with greenhouse gas standards and committed to tough enforcement when necessary," an EPA representative told VICE News.
The trouble began in 2012, when EPA discovered that the fuel-economy of six car models did not match their manufacturers' claims. Among other errors, the companies had essentially cherry-picked data, for example, taking the cars on trial runs that were aided by a tailwind. As a result, the automakers lowered mileage estimates and last year paid around $400 million to reimburse car owners for their higher-than-advertised fuel costs.
While that earlier settlement dealt with consumers, Hyundai and Kia still had to pay for violating EPA's so-called "tailpipe rule," which sets greenhouse gas emissions limits for vehicles and establishes a system of tradable credits that automakers could claim for cars that beat standards. The credits are essentially permits to pollute. Companies can "bank" their credits for later, or sell them to companies whose vehicles fall short of the emissions standard. The new rule went into effect for 2012 models.
The 1.2 million law-breaking vehicles sold by the two companies did not violate the government's emissions limits. But by misstating their fuel economy, the automakers had wrongfully obtained credits for 4.75 million tons of greenhouse gases, equal to the annual emissions of 433,000 homes. The EPA treated each sale of the affected models — Hyundai's Accent, Elantra, Veloster, and Santa Fe, and Kia's Rio and Soul — as a separate violation of the Clean Air Act.
"Any company that misrepresents the performance of their test vehicles risks harming human health and the environment, either by causing more pollution than the law allows, or, as happened in this case, by claiming greenhouse gas emission credits they did not earn," said Attorney General Eric Holder.
The settlement is subject to a 30-day comment period and final court approval.
Hyundai and Kia aren't the only car manufacturers who have recently overstated fuel-economy. In June, Ford Motor Company revised estimates for six models, most notably the Lincoln MKZ, whose rating declined by seven miles per gallon. Mercedes-Benz and BMW have also reduced mileage estimates.
"This is by far the most egregious case that we have identified," EPA head Gina McCarthy said during Monday's press conference. "We have caught other discrepancies, but those discrepancies have not been systemic in nature."
The EPA declined to comment to VICE News about possible penalties against other companies.
"This settlement will probably be a very big warning shot to other companies to make sure that they're submitting accurate information about their vehicles," Frank O'Donnell, president of Clean Air Watch, told VICE News.
What's more, said O'Donnell, the settlement indicates the Obama Administration may aggressively enforce emissions rules beyond the automotive sector. The EPA has set rules restricting emissions from new or substantially modified power plants and has proposed regulations that would control emissions from existing plants.
"I think EPA is sending a signal to smokestack industries, saying we are going to make sure your emissions are what they're supposed to be," O'Donnell told VICE News.
But Jason Hutt, partner in the Environmental Strategies Group at the law firm Bracewell & Giuliani, told VICE News that the connection between enforcing greenhouse gas limits on vehicles and those on power plants "is a stretch."
"While it is notable that the EPA is using its enforcement authority to address greenhouse gas emissions, the statutory basis of the authority for mobile source enforcement is in an entirely different, federally-implemented part of the Clean Air Act," he told VICE News.
The EPA's proposed power plant rule would let states design their own emissions reduction plans, whereas regulating emissions for cars falls under the purview of the federal government.
"It's very encouraging," O'Donnell said, "that the EPA has made it clear that it will not only be on the watch for conventional pollutants, but also climate-related pollutants."
Follow Ben Goldfarb on Twitter: @ben_a_goldfarb