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EPA Has Same Conflicts Faulted in Hyundai-Kia Mileage Fraud

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EPA Has Same Conflicts Faulted in Hyundai-Kia Mileage Fraud

Agency Combines Automotive Regulatory Function with Industry R&D Partnerships

Washington, DC — As part of this month’s precedent-setting consent decree with Hyundai and Kia motor companies for overstating their vehicle fuel economy, the companies were required to separate their engineering staff developing technologies from those responsible for certifying that those products meet U.S. regulations. Significantly, the U.S. Environmental Protection Agency suffers from this same conflict as its engineers receive royalties from technology design and development to meet EPA auto standards, according to documents posted today by Public Employees for Environmental Responsibility (PEER).

In addition to a $100 million civil penalty (the largest ever levied under the Clean Air Act), the consent decree mandates that Hyundai and Kia spend $50 million to establish an “independent certification group” whose members “shall have no role in Defendants’ vehicle development” to verify compliance with fuel economy, emission and other regulations. This step is labeled a “corrective measure” to prevent the conflicted role that gave company officials incentives and opportunities to overstate performance.

Although EPA officials criticized the companies for failing to divide engineering teams for product development from regulatory compliance, EPA suffers from the same conflict. In 2012, EPA ended the independence of its Advanced Technology Division which performed the majority of technology development, patenting and licensing but did not develop or enforce regulations. It was downsized and combined with the Testing Division inside EPA’s Office of Transportation and Air Quality (OTAQ). The resulting Testing and Advanced Technology Division is responsible for both developing automotive technology and testing it. In short, OTAQ licenses technology to the firms it regulates while under the revised organization EPA staff who develop and license technology also now manage EPA’s audit testing.

Technologies patented and licensed by OTAQ are predominantly related to meeting existing or proposed EPA standards, including hybrid vehicle, engine operation and turbocharger design. OTAQ has entered into technology licensing and cooperative research and development deals with companies such as Chrysler, Ford, Delphi, Eaton, Borg Warner, Parker Hannefin and Navistar, among others. Many of these licenses are through 2020 and beyond.

Conflicts arising from this dual agency role are both institutional and individual:

  • For the decade prior to May 1, 2012, EPA received more than $12.5 million in licensing royalties and funding for clean automotive technology work, according to documents obtained by PEER;
  • OTAQ managing engineers have numerous patents generating royalty payments from licensees. During this same decade, EPA distributed more than $1.8 million in such royalties to its staff listed on patents, though EPA declines to name individuals or disclose payment amounts; and
  • EPA allowed Navistar to continue selling engines licensed from OTAQ even though they were non-compliant with federal nitrogen oxide pollution limits.

“What is good for the goose apparently has no application to the gander. EPA has created and continues to allow the exact conflict of interest that the agency claims led to massive fraud by Hyundai and Kia,” stated PEER Executive Director Jeff Ruch, who more than a year ago requested that the EPA Office of Inspector General conduct a review of the absence of oversight or safeguards following the Navistar debacle. “EPA and individual EPA staff have a direct and an unresolvable financial conflict of interest with industry on the very matters they are supposed to objectively regulate.”

In a letter dated November 4, 2013, the Inspector General acknowledged receipt of the PEER complaint, assigned it a tracking number and indicated that following a “review, a determination will be made as to the most appropriate course of action.” No such determination has been communicated.

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Read the Hyundai-Kia anti-conflict “corrective measure”

View partial list of EPA vehicle engine and fuel efficiency patents

Look at EPA estimates of automotive-related royalty revenue

Revisit the Navistar debacle

See PEER October 2013 request for Inspector General review

Examine Inspector General acknowledgement