On November 3, 2014, the U.S. Environmental Protection
Agency (U.S. EPA) announced a proposed settlement between Kia,
Hyundai, U.S. Government and California Clean Air Resources Board
which marks the largest civil penalty in Clean Air Act
history. The settlement will resolve the automakers'
alleged Clean Air Act violations. As part of the proposed
settlement, the automakers will pay a $100 million civil penalty
(Hyundai to pay $56.8 million and Kia to pay the balance) to
resolve alleged violations of emissions testing and certification
of vehicles sold in the U.S. The consent decree allocates the
proceeds of the penalties as follows: $93,656,600 to the U.S.
Government and $6,343,400 to the California Air Resources
The complaint filed by the California Clean Air Resources Board
and the U.S. Government alleged that the automakers would
collectively emit approximately 4.75 million metric tons more
greenhouse gases (GHGs) than the automakers' certified to the
U.S. EPA. The alleged violations arose from the automakers'
introduction into the U.S. market of over 1 million vehicles (model
years 2012 and 2013) that were not covered by Certificates of
Conformity as required by the Clean Air Act. These
vehicles did not conform to the specifications included in the
automakers' applications for Certificates of Conformity.
A Certificate of Conformity covers only those vehicles that
conform to the design specifications stated in an automakers'
application. The issue here was the vehicles' road load force.
A vehicle's road load force is a critical design specification
that determines laboratory settings for testing fuel economy rates
and GHG emissions. If the accurate road load force is used, the
vehicle's emissions during laboratory testing are determinative
of real-world driving conditions. The automakers' vehicles
subject to the complaint allegedly had higher road load forces than
described in the automakers' application for Certificate of
Conformity. Due to inaccurate road load forces used during testing,
these vehicles actually had lower fuel economy and increased GHG
emissions than reported.
Corrective Measures and Audit Testing Under the Consent
In addition to the settlement's civil penalty, the consent
decree also requires the automakers to take the following action,
which is estimated to cost the automakers approximately $50
million: (1) the automakers must take certain measures to prevent
future violations; (2) those measures must be completed before the
automakers perform vehicle emission testing to certify their 2017
model year vehicles; and (3) until the corrective measures are in
place, the automakers must audit their fleets to ensure that the
vehicles sold conform to certification.
Kia and Hyundai must also forfeit 4.75 million GHG emission
credits that they previously claimed. These credits were estimated
to be worth over $200 million. The forfeiture of the
automakers' GHG emission credits are to ensure that the
automakers cannot take advantage of improperly earned emission
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