CARB Calls on Motor Vehicle Industry to Self-Report Regulatory Violations

Morgan Lewis
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Morgan LewisCiting recent investigations and new emissions detection capabilities, the California Air Resources Board (CARB) urges automakers and equipment manufacturers to voluntarily disclose potential violations of regulatory requirements by December 31, 2020 and warns industry of its plans to tighten enforcement in the coming year.

In a letter dated October 14, 2020, CARB is calling on car, truck, motorcycle, and recreational vehicle manufacturers as well as engine, equipment, and aftermarket parts manufacturers to self-report any noncompliant hardware, software programs, or other emissions-related violations by December 31, 2020. CARB’s letter warns that detection of such violations is inevitable and states that disclosing potential violations by this deadline and reaching a prompt settlement with the agency will substantially mitigate the associated penalties. While manufacturers that self-report potential violations may benefit from penalty reductions ranging from 25% to 75% for each violation eligible to be reduced under CARB’s enforcement policy, voluntary disclosure of potential violations does not guarantee any such penalty reduction and may raise a number of considerations and unintended consequences.

BACKGROUND

California has established certification and reporting requirements designed to prevent the introduction of motor vehicles, engines, and equipment into California that do not satisfy applicable emission standards. California law (California Health and Safety Code §§ 43000-44299.91) regulates the control of air pollution from motor vehicles and generally prohibits importing, delivering, selling, or leasing new motor vehicles or engines for use, registration, or resale in California unless such products have been certified by CARB in the form of an executive order (EO). These provisions of the California Health and Safety Code also provide that no new motor vehicles or engines can be certified unless they meet CARB-approved emissions standards and test procedures. Test procedures require manufacturers to, among other things, disclose in certification applications all auxiliary emission control devices (AECDs) used in a vehicle and, absent certain exceptions,[1] prohibit the installation of AECDs that reduce the effectiveness of the emission control system under normal operating conditions (commonly referred to as “defeat devices”). Similarly, California’s anti-tampering law (California Vehicle Code § 27156) generally prohibits the sale, offer for sale, or installation of aftermarket parts that have the potential to impact emissions, without an EO.

CARB’S WARNING LETTER

CARB’s October 14 letter references and builds upon a September 25, 2015 letter CARB issued to all light-, medium-, and heavy-duty vehicle and engine manufacturers to remind them to properly disclose all AECDs at the time of certification and to warn industry of the agency’s focus on unauthorized AECDs and defeat devices as an enforcement priority. CARB’s letter notes that only “a handful” of manufacturers have self-reported since the September 2015 letter and encourages other manufacturers to voluntarily disclose any potential regulatory violations by December 31, 2020. The letter references multiple successful CARB enforcement actions and settlements with vehicle and engine manufacturers since 2015 and notes that the agency will be expanding its testing programs in 2021, including a suite of new techniques at a state-of-the-art testing laboratory. According to CARB, the agency has already identified targets for future investigation, and manufacturers that fail to disclose violations risk becoming the subject of a lengthy investigation and enforcement action.

CARB claims that its recent screening tests and investigations have identified several categories of systemic violations. According to CARB, the violations generally relate to manufacturers failing to submit accurate information during the certification process. More specifically, CARB has identified the following potential violation categories:

  • Undisclosed AECDs
  • Defeat Devices
  • Unapproved Running Changes and Field Fixes
  • Failure to Report or Address Warranty Claims
  • Failure to Timely Complete Manufacturer In-Use Compliance Testing and Manufacturer’s Self-Testing (MST)
  • Failure to Report Corrective Actions that Should be Under a CARB-Approved Recall Plan—not a Technical Service Bulletin or Other Field Fix
  • Submission of False Data or Noncompliance with Regulatory Test Requirements
  • Failure to Meet Onboard Diagnostic (OBD) Requirements
  • Failure to Disclose Adjustable Parameters that May Affect Emissions

CARB’s letter indicates that future enforcement will focus on these systemic issues.

The letter concludes by urging manufacturers to avail themselves of the potential for reduced penalties under CARB’s enforcement policy by self-reporting violations. CARB considers a reduction in penalties for violations that are voluntarily disclosed. CARB’s enforcement policy provides for penalty reduction from 25% to 75%, depending on the relevant facts and circumstances of each voluntary disclosure and assuming the manufacturer meets the specified voluntary disclosure criteria, though CARB generally reserves the higher reductions for cases that generated no economic benefit to the disclosing party. The reduction is dependent on the extent to which the self-reporting meets the following criteria:

  • Discovery of the violation through a voluntary environmental audit or other systematic procedure or practice
  • Discovery of the violation was not due to legal mandate
  • Disclosure of the violation to CARB in writing, no more than 21 days after discovery
  • Independent disclosure, not made in response to any pending government investigation, enforcement action, or third-party complaint
  • Immediate correction of the violation
  • Agreement to take specific actions to prevent recurrences
  • No similar violations within the past three years
  • No actual harm, present imminent or substantial endangerment to human health or environment, or violation of any judicial or administrative order or consent agreement
  • Full cooperation with CARB’s investigation

CARB’s letter cautions that recent violations are subject to a maximum penalty of $37,500 per mobile source or engine, per identified violation, and that testing and investigations to identify regulatory noncompliance remain ongoing. CARB has previously reported that the actual percent of reduction for voluntarily disclosed cases has varied from 25% to 90% over the past couple of years, and such settlements have included additional obligations for the settling parties, including, among other things, corporate compliance improvements and new testing, audit, and reporting requirements designed to prevent future violations.

CONCLUSION

CARB’s letter should put industry on notice that there is likely to be an uptick in investigations and enforcement actions focused on unapproved AECDs and defeat devices. CARB would prefer to reduce the burden on its enforcement division by having manufacturers self-report, and CARB is using the carrot-and-stick approach—promoting potential penalty reductions as the incentive and threatening increased enforcement as the deterrent. It remains to be seen whether the carrot or the stick is more effective, but this would appear to be a good time for manufacturers to assess their compliance with California regulatory requirements. If potential violations are identified, however, there is a relatively short window of time to determine whether voluntary disclosure may be warranted or appropriate.

 

[1] An AECD may not be a defeat device if (1) the AECD conditions are substantially included in federal emission test procedures; (2) the need for the AECD is justified in terms of protecting the vehicle against damage or accident; (3) the AECD does not go beyond the requirements of engine starting; or (4) the AECD is present only for emergency vehicles and the need is justified.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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