California Air Resources Board Offers Penalty Reductions for Self-Disclosure of Certain Enumerated Mobile Source Violations

On October 14, 2020, the California Air Resources Board (CARB) issued guidance to vehicle and engine manufacturers urging them to voluntarily self-disclose certain mobiles source violations by December 31, 2020. The “carrot” offered in the guidance for self-disclosure is a reduction in civil penalties ranging from 25% to 75%, depending on the relevant facts and factors described in the agency’s updated April 2020 enforcement policy. The “stick” in the guidance is CARB’s warning that manufacturers that do not self-report by the end of the year may face lengthy investigations, enforcement actions, and substantial penalties.

In the guidance, CARB referenced its September 25, 2015, letter reminding manufacturers of their obligation to proactively disclose all auxiliary emission control devices (AECDs) at the time of certification. CARB advised manufacturers at that time that the agency intended to use tests in its In-Use Compliance Program and certification test cycles to identify undisclosed AECDs and defeat devices in diesel engines. CARB explained that it sent the 2015 letter to encourage “manufacturers to proactively inform CARB of undisclosed software devices and reintroduce a level of trust and forthrightness into the certification process ….” However, CARB expressed frustration at what it views as an alleged industry pattern of undisclosed AECDs and other issues.

As a result, CARB’s October 2020 guidance encourages manufacturers to voluntarily disclose potential violations and receive a reduction in penalties or risk inevitable detection by the agency’s new techniques and “new state-of-the-art testing laboratory opening” next year in Irvine. In the guidance, CARB shared its view that “the alleged “systemic violations” continue to be found in the mobile source sector, including

• undisclosed AECDs
• defeat devices
• unapproved running changes and field fixes
• failure to report or address warranty claims
• manufacturer in-use compliance testing and manufacturer’s self-testing
• failure to report corrective actions that should be under a CARB-approved recall plan
• submission of false data or noncompliance with regulatory test requirements
• failure to meet on-board diagnostic requirements
• failure to disclose adjustable parameters that may affect emissions

The targeted mobile source categories are all encompassing: light-duty vehicles, heavy-duty on-road engines and vehicles, motorcycles, off-road compression ignition engines, off-road small and large spark-ignition engines, off-highway recreational vehicles, spark-ignition marine engines, and evaporative systems for off-road small and large equipment and marine watercraft. The guidance also went out to CARB’s aftermarket mailing list.

CARB concluded the guidance with a warning: “CARB is selecting its next set of cases for enforcement and has already identified specific entities for further investigation.” In addition, the agency noted that the maximum penalty for violations after 2016 is $37,500 per mobile source or engine, per identified violation.

CARB’s guidance raises several strategic questions that companies and other affected parties may wish to consider.

1. Would a CARB self-disclosure affect the risk of Environmental Protection Agency (EPA) enforcement and any resulting civil penalties? Many mobile sources are certified by both EPA and CARB. The agencies also generally share information regarding enforcement matters. Despite this close coordination, EPA has its own self-disclosure policy that differs in material respects from CARB’s guidance.
2. What are CARB’s priorities for companies that may wish to consider self-disclosure? The alleged “systemic violations” listed in CARB’s guidance cover the waterfront of mobile source requirements, from initial certification through in-use testing. How does a company select where to target further review in its compliance program?
3. How will CARB decide the amount of penalty reduction for a self-disclosure? The range of reduction — 25% to 75% — is quite broad. What factors would CARB consider in selecting a number within the range, particularly in light of the updated April 2020 enforcement policy?
4. If a company wanted to perform an audit or review to address CARB’s concerns, would it be feasible to perform such a review by December 31, 2020? The CARB guidance reads as though companies know of historic violations and are simply sitting on the knowledge. But there are many cases where complex software and calibrations create unintended issues that may ripen into compliance concerns, particularly where there may be tens of thousands of calibrations in a single product, multiple suppliers, and attrition in product engineers. The December 31 deadline may be challenging because of COVID-19’s climbing infection rate and the resulting disruptions to society.

Regardless of these questions, CARB has sent a strong signal that mobile source enforcement remains a top environmental priority for California. Given that EPA has also listed mobile source enforcement as a National Compliance Initiative, manufacturers, suppliers, investors, and other affected parties should continue to monitor and manage risks in the area.