MEMORANDUM

To:

Gina McCarthy, Administrator, Environmental Protection Agency

From:

Lucas DuSablon, Consultant

Re:

Damage Estimates from Volkswagens Emissions Scandal

Background
On September 18, 2015 the U.S. Environmental Protection Agency (EPA) served a Notice of Violation to
Volkswagen (VW) in violation of the Clean Air Act (CAA), claiming that 482,000 of their vehicles sold
in the U.S. between 2009 and 2015 included an auxiliary emission control device, or defeat device. The
defeat device allowed VW and Audi Clean Diesel vehicles to emit harmful pollutants in excess of legal
limits, while passing emissions tests in a controlled lab setting.
This memo outlines the damages associated with the scandal and estimates a range of monetized
damages.
Damage Categories
The following damage categories are necessary in evaluating the impact of excess emissions, specifically
nitrous oxides (NOx) and particulate matter (PM 2.5):
1) Mortality: Inhaling NOx and PM 2.5 causes premature death.
2) Morbidity: Inhaling NOx and PM 2.5 also diminishes health and wellness. Examples include
asthma, chronic bronchitis, and increased emergency room visits.
3) Environmental: Increased NOx in the atmosphere causes direct damages to the environment, such
as increased instances of acid rain.
4) Recreational: Air pollution reduces recreational enjoyment. For example, reduced visibility at
National Parks or reduced enjoyment while running outdoors.
5) Consumer preferences: Many automobile consumers value engine performance and torque.
Recalling or retrofitting vehicles results in decreased vehicle performance.
This analysis focuses on damages to human health (mortality and morbidity) and the environment.
Assessments of the value of visibility reveal recreational damages. This memo does not assess consumer
preferences. Quantifying and monetizing consumer preferences requires access to market research, which
is generally unavailable to the public.
Monetization of Damages
The EPA uses an estimate of peoples willingness to pay for a lower risk of death when conducting a
benefit-cost analysis of environmental policies. This estimate is the Value of a Statistical Life (VSL),
which measures ones individual willingness to pay for a small (for example, one-millionth) reduction in
their risk of dying from adverse health conditions caused by pollution. Select individuals receive a survey
with a series of hypothetical questions about air quality. Survey responses aggregated over the population
determine a monetized value of air quality improvements. The EPAs VSL is currently $7.4 million (in
2010 dollars).1
The following monetized damages do not include various additional ramifications for Volkswagen, such
as lost future sales, recall expenses, and private settlements.

What is a VSL?, US EPA

MEMORANDUM
Many news sources conducted non-peer reviewed studies estimating mortality damages from the excess
emissions. These estimations, and others not listed, vary in their methodologies and calculations. For
example, annual miles traveled per vehicle vary amongst studies.

Source
The Atlantic2
The Guardian3
Vox4

Figure A: Mortality estimates from popular press sources

Mortality (total)
Excess Emissions (annual)
60 deaths
3,686-20,800 tons of NOx
no estimate
10,392-41,571 tons of NOx
35-189 deaths
5,800-14,200 tons of NOx

Quantifying the total number of premature deaths is difficult due to uncertainties such as total emissions
and the spatial distribution of emissions. This estimate uses a range to calculate damages. A range of 45
to 90 deaths captures a conservative estimate from all major sources, including IOP Sciences recent
peer-reviewed study on the scandal. 5 When multiplied by a VSL of $7.4 million, total mortality damages
sum to between $342 million and $684 million (in 2010 dollars).
The following table monetizes morbidity damages caused by excess emissions from the 482,000 vehicles
each year since 2009. IOP Science calculated incidence values for each morbidity category. 6 IOP Science
also quantifies the number of morbidity cases using emissions data from VW vehicles with defeat devices
alongside urban and rural drive cycles and detailed air quality models.
Figure B: Monetization of morbidity damages

Morbidity
Chronic Bronchitis
Hospital Admissions
(respiratory &
cardiovascular)
Minor Restricted
Activity Days
Lower Respiratory
System Days
Days of Increased
Inhaler Usage

VW
Incidence
Values
31

EPA Monetized
Values from CAA
$ 24,000,000,000

EPA CAA
Incidence
Values
54,000

EPA
Monetized
Value Per
Case
$ 444,444

Monetized
Damages
$ 13,777,778

34

$ 1,940,000,000

86,000

22,558

766,977

120,000

$ 4,900,000,000

84,000,000

58

7,000,000

210,000

30,000,000

1,700,000

18

3,705,882

33,000

90,000,000

1,700,000

53

1,747,059

$ 26,997,696
Monetized values and incidence values from the CAA (in 2010 dollars) are from the EPAs most recent
benefit-cost analysis of the CAA.7 Dividing the number of morbidity incidents avoided from the CAA by
the EPAs monetized value establishes a per-case dollar value for each type of morbidity. The sum of
these values determines a total annual value of damages. Annual morbidity damages are $162 million (in

Volkswagen Lied, 60 People Died, The Atlantic

VW scandal caused nearly 1m tonnes of extra pollution, The Guardian
4
How many deaths did VW pollution scandal cause?, Vox
5
Impact of the Volkswagen emissions control defeat device on US public health, IOP Science
6
ibid
7
Benefits and Costs of the Clean Air Act 1990 2020, p. 5-25, table 5-6
3

MEMORANDUM
2010 dollars). For more information on the EPAs techniques for morbidity valuation, see the CAA
Second Prospective Analytical Plan. 8
This value is unlikely to capture all morbidity damages associated with excessive emissions. It does not
capture certain morbidity categories, such as underlying costs associated with living with asthma. This
calculation also does not include the opportunity cost of ones time while ill due to difficulties estimating
such a value. The EPA adjusts willingness to pay for certain morbidity reductions based on age using a
7% discount rate.9
The final category of damages to consider is the environmental impact. Environmental damages
considered include visibility, agricultural and forest productivity, and ecological damages.
Figure C: Monetization of environmental damages
Annual Monetized
Benefits

Environmental Damage

Monetized Benefit
per ton of NOx

Monetized Benefits

Visibility (recreational
and residential)

34,000,000,000

2,285.41

22,854,070

Agricultural and Forest

Productivity
Ecological

$
$

5,500,000,000
7,500,000

$
$

369.70
0.50

$
$
$

3,696,982
5,041
26,556,093

Annual monetized benefits for each environmental category stem from mean primary annual benefits
from the CAA.10 Dividing the annual monetized benefits from the CAA by the annual NOx mitigated by
the CAA results in a monetized value per ton of NOx. Using a conservative average value of 10,000 tons
of NOx emitted annually from non-compliant vehicles, the resulting environmental damages from VWs
malfeasance are approximately $26.5 million dollars annually, or $160 million total (in 2010 dollars).
Issues in estimating environmental damages arise when considering indirect effects of excess emissions.
For example, NOx is a primary factor in the creation of acid rain. 11 Damages caused by acid rain are borne
by a wide variety of industries and are likely to exceed the above estimation.
Conclusions
The analysis and monetization of damages demonstrates that total damages in the Volkswagen scandal are
between $663 million and $1 billion, in 2010 dollars. This range of values is current as of the end of
December, 2015 and does not include future damages caused by vehicles that continue to produce
excessive emissions. If VW fails to order a recall, future reports should incorporate additional damages.
Total damages of the scandal weigh heavily on how long non-compliant vehicles remain on the road.
Although mortality was the only damage estimated with a range of values, it could be appropriate to
estimate both morbidity and environmental damages as a range. However, damages due to mortality
dominate the financial implications in this case. Some sources, such as IOP Science, choose not to

Benefits and Costs of the Clean Air Act 1990 2020: Revised Analytical Plan for EPAs Second Prospective
Analysis, p. 8-10, exhibit 8-3
9
Benefits and Costs of the Clean Air Act 1990 2020, p. 5-18 table 5-4 & p. 5-25 table 5-6
10
Ibid, p. 7-5, table 7-1
11
Reducing Acid Rain US EPA

MEMORANDUM
monetize morbidity damages by claiming that mortality encompasses the vast majority of morbidity
damages over time. 12
The estimated cost of this scandal is comparable to the cost of the recent General Motors (GM) scandal,
in which vehicles shut down unexpectedly due to a faulty ignition switch. The GM scandal affected
800,000 vehicles and resulted in approximately 124 deaths.13 The Justice Department fined GM a $900
million fine for their malfeasance.
Roughly 800,000 gasoline powered VW vehicles exhibited irregularities in carbon dioxide emissions as
recently as November 2015.14 Therefore, the EPA may wish to refrain from penalizing VW until
additional facts surface.
Word count (excluding tables, footnotes and references): 1,195 words

Impact of the Volkswagen emissions control defeat device on US public health, IOP Science
GM agrees to $900M criminal settlement over ignition-switch defect, USA Today
14 VW Emissions Issues Spread to Gasoline Cars, Bloomberg
12
13

MEMORANDUM
Bibliography

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