Justice Department expected to drop $3 million Harley-Davidson emissions penalty: sources

WASHINGTON (Reuters) - The U.S. Justice Department is expected to announce this week it is dropping a requirement that Harley-Davidson Inc HOG.N spend $3 million to reduce air pollution as part of a settlement the Obama administration announced in August, sources briefed on the matter said.

FILE PHOTO - A Harley-Davidson fuel tank is displayed in their head office in Singapore October 13, 2016. REUTERS/Edgar Su

Last year, the Milwaukee-based motorcycle maker agreed to pay a $12 million civil fine and stop selling illegal after-market devices that cause its vehicles to emit too much pollution as part of a federal court consent decree. It also agreed to spend about $3 million and enter into an agreement with the American Lung Association of the Northeast to retrofit or replace wood-burning appliances with cleaner stoves.

The consent decree has not been finalized by a federal court. Last month, U.S. Attorney General Jeff Sessions barred legal settlements in federal investigations that include donating funds to community organizations or other third-party groups, rather than paying those directly harmed by the wrongdoing or involved in the cases.

The expected reversal marks the first time the Trump administration has rejected part of an Obama administration Justice Department vehicle emissions settlement. It comes as some members of Congress and conservative legal groups have said the funds in the Harley-Davidson settlement and other cases should go to taxpayers and not an outside group.

The Justice Department plans to refile the proposed consent decree without the $3 million mitigation project. The revised decree will need to be approved by a federal judge in Washington.

A Harley-Davidson spokeswoman and a Justice Department spokesman declined to comment.

The settlement resolved allegations that Harley sold roughly 340,000 “super tuners” enabling motorcycles since 2008 to pollute the air at levels greater than what the company certified.

Harley did not admit liability, and said previously it disagreed with the government, arguing that the tuners were designed and sold to be used in “competition only.”

However, the Environmental Protection Agency said last year that the vast majority of these tuners were used on public roads.

According to the government, the sale of such “defeat devices” violated the federal Clean Air Act. Harley was also accused of selling more than 12,600 motorcycles that were not covered by an EPA certification governing clean air compliance.

The settlement required Harley to stop selling the super tuners by last August and buy back and destroy all such tuners in stock at dealerships.

The EPA said the modified settings increase power and performance, but also increased the motorcycles’ emissions of hydrocarbons and nitrogen oxides.

The settlement came amid greater scrutiny on emissions and "defeat devices" by U.S. regulators after Volkswagen AG VOWG_p.DE admitted to using illegal software to evade U.S. emissions standards in nearly 600,000 U.S. vehicles in September 2015.

The Sessions’ policy would likely have barred part of the EPA diesel emissions settlement with Volkswagen, which requires the German automaker to invest $2 billion in zero emission vehicle efforts over 10 years, government officials said.

Reporting by David Shepardson; Editing by Jonathan Oatis