The VW test is not like that. There's no way to innocently arrive in the scenario they did. They did not game a bad test, they literally lied to the test administrators. The car ran in "clean mode" only if it was in the test environment. If the car ran like it did on the road, they'd have failed (which is how they were caught, with a mobile testing setup).
One of the points in the article is that regulating for safety based on known testing conditions is going to result in over-fitting for the test. The water heater company is guilty of intentionally over-fitting. VW just straight up lied. I don't think those 2 actions are equal, VW is worse, but I agree that both are dishonest to a degree.
We don't have to. In this case we have clear admission of intent. The intent to deceive is what makes it fraud and not just being wrong.
What VW did was to take a clean-burning car and disable the pollution controls under normal driving conditions, for performance reasons. So while to the consumer it seems deceptive that VWs get better performance than they should, given how clean they’re supposed to be, in reality the cars are illegal and spewing toxins they were supposed to be removing from the exhaust. This makes the cars not only a pollution source but a health hazard to people living nearby.
To get on the same level of VW, the water heater would have to be doing something like emitting low levels of carbon monoxide into the home while having a feature that avoids doing that in the laboratory. In other words, reckless and willful disregard for human health and life.
Also, for the water heating one, there's a plausible reason for the regulator to care about the discrete measurements rather than the total amount of thermal energy in the water. Hot water at the top of the tank is more valuable, because it's used first and less likely to be wasted, so you could wait it more heavily in a test. There's no parallel for the VW test cheating. No indication that's what happened here, of course.
What placement of components would be ethical? Should engineers required to be separated from the test parameters by a Chinese wall? Do they need to build the system for the worst result? Some middle ground? If the engineers are unethical, where is the line?
The obvious answer to optimizations like this are for the testing body to tweak the test procedure based on what manufacturers do over time. That provides an incentive to be more conservative or accurate.
If the water heater manufacturer had special heating elements that only ran during the test, it would be equivalent.
I think this is what I disagree with.
The water heater story is about a viable-for-market design which also optimized for the test. The equivalent for a car emissions test might be optimizing the transmission to reduce emissions at the specific speeds which will be tested. Those speeds could be sweet spots of the engine curve by accident, or they could be planned that way. I don't think that's necessarily right, but it's within the bounds of "natural" design for the product.
Instead of doing that, VW submitted something for testing which was fundamentally different from what went to market. Rather than being misleading, the test results were fundamentally irrelevant. Creating two completely different modes of behavior isn't something you could do by chance, and it means there's no real limit on how badly they could cheat.
Rarely the purpose of tests is to assure the public of your fitness (e.g. a driving test) and cheating those might be a problem, but if you cheat my CS 101 course and then struggle because you needed remedial classes but the cheated test means you don't get them that's your problem.