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VW Settlement Mitigation Fund VW Settlement Mitigation Fund

VW Settlement Mitigation Fund

Due to a recent settlement with Volkswagen, states will have access to $2.7 billion to replace aging diesel engines and diesel-powered vehicles. Governmental entities can receive up to 100% funding to replace vehicles such as school buses, transit buses or trucks, and private businesses can receive up to 75%. Any entity that needs to replace a diesel-powered vehicle or engine in the next few years should monitor their state’s participation in the recently-established VW Mitigation Trust Fund.


In September of 2015, Volkswagen admitted that it had secretly manufactured and installed illegal defeat devices in almost 500,000 diesel vehicles. As a result, these vehicles emitted nitrous oxides (“NOx”) up to 40 times the EPA-permitted limits. On October 25, 2016, a judge in the United States District Court for the Northern District of California approved a Partial Consent Decree that, among other things, creates a $2.7 billion “Environmental Mitigation Trust” to fund projects to reduce emissions of NOx.

Several procedural hurdles must be cleared before the states will have access to these funds. A trustee must be chosen, and the Mitigation Trust Agreement must be finalized and approved by the court. Once that occurs, states can access their allocated share of the trust funds by applying to become a beneficiary of the Mitigation Trust and accepting its terms.

What are the important deadlines?

The Trust Agreement is not likely to be finalized and approved for several months. Estimates range from early 2017 to late 2017. Once that occurs, and the “Trust Effective Date” is established, states will have 60 days to designate a Lead Agency, agree to the terms of the Trust Agreement, submit to the jurisdiction of the Court, and become a Trust Beneficiary. Any state that misses this deadline or refuses to accept the terms of the Trust Agreement will be denied access to the Trust Funds. Then, the Trustee has another 60 days to file a certification with the Court indicating which states chose to become Trust Beneficiaries. When the certification is filed, and any objections are resolved, the Court will enter an order determining whether each state has Beneficiary or Excluded Entity status. Beneficiary states will then have 90 days to submit and make available to the public a Mitigation Plan outlining how they intend to utilize their allocated share. Then, the states may begin seeking distributions from the Trust for eligible projects. It is likely that the states will not be able to seek distributions until early 2018, or perhaps later.

How Much will Each State Get?

Each state has already been assigned an initial allocation based on the number of VW 2.0 liter diesel vehicles sold in that state. The allocations range from $7.5 million for states with small populations, such as Hawaii and the Dakotas, to $381.3 million for California. Somewhere in the middle are Illinois ($97.7 million), Ohio ($71.4 million) and Indiana ($38.9 million).

What Types of Projects are Eligible under the Trust Agreement?

The settlement documents identify very specific projects eligible for Mitigation Trust Funds. The purpose of the Trust is to upgrade aging diesel-powered vehicles and replace them with newer, cleaner diesel-powered vehicles or vehicles powered by alternative fuels to reduce NOx emissions. Examples include diesel-powered freight trucks; school, shuttle or transit buses; marine shore power systems; forklifts and port cargo handling equipment; ferries and tugs; and airport ground support equipment.

For government owned vehicles, trust funds can be used for 100% of the cost of a replacement engine or vehicle. For non-government owned vehicles, trust funds can only be used for a percentage of the cost, ranging from 25% to 75%, depending upon whether the entire vehicle is replaced or just the engine, and whether the replacement unit is diesel or electric.

What Types of Projects are Likely to Be Given Priority?

States will probably seek applications for projects, and then choose among those deemed eligible under the plan. It is safe to predict that the projects that go to the heart of the Trust’s purpose of reducing NOx emissions are likely to be given priority. Therefore, projects that will result in substantial NOx reductions are likely to be preferred. Also, states may be inclined to give more weight to NOx-reducing projects in areas that are currently failing to attain National Ambient Air Quality Standards (NAAQS) related to NOx, which could help move those areas from “nonattainment” to “attainment” status.

Are there Limits on the Amounts States can Request?

No state can request more than its allocated share, a payout of more than one-third of its allocation during the first year, or more than two-thirds of its allocation during the first two years. Funds unused after 10 years could be subject to reallocation, and funds unused after 15 years will be returned to the federal government.

What State Agencies are Likely to Administer these Funds?

Each state must designate a Lead Agency when it applies to become a beneficiary of the Mitigation Trust. A program similar to the VW Mitigation Trust is the EPA’s Diesel Emission Reduction Program (DERA), which currently grants states funds to achieve reductions in diesel emissions. A likely candidate for Lead Agency for the Mitigation Trust will be the state’s environmental management agency, or whatever other agency manages the state’s DERA program.

Donald M. Snemis is a partner in Ice Miller’s Environmental, Natural Resources and Toxic Tort group. For 25 years, Don practiced law with Ice Miller LLP and concentrated on litigation, environmental law and product liability. He represented companies, municipalities and citizens in state and federal courts across the country on various business and environmental issues. In 2014, Don left the Firm and entered public service, serving as commissioner of the Indiana Bureau of Motor Vehicles and then as special counsel for the Indiana Family and Social Services Administration. He joined the Indiana Department of Environmental Management (IDEM) as general counsel in June of 2015, and assumed the additional duties of deputy chief of staff a few months later. While at IDEM, Don served as the agency’s chief legal counsel and managed the Office of Legal Counsel, including its 15 staff attorneys. In January of 2017, Don rejoined Ice Miller as a partner in the firm’s Environmental Practice group. Contact Don at or 317-236-2341.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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