The funds are part of a second settlement reached Wednesday related to the company's emissions cheating scandal.
The latest settlement involves another set of diesel VW vehicles found to have software that makes emissions look cleaner than they actually are.
Dave Clegern with the California Air Resources Board says the state has the worst O-Zone problem in the country, with millions of people living in areas that far exceed national limits.
He says the excess Nitrous Oxide or 'NOX' emissions from VW's diesel engines contribute to that problem.
"These cars, under worst circumstances, were emitting 40 times the NOX that is allowed in the United States and in California," Clegern says.
He says the settlement funds will go toward expanding the electric vehicle market and other programs that mitigate vehicle emissions.
People with vehicles related to the settlement can participate in a buyback program, or may be able to get free modifications to their vehicles.
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