(Reuters) - Volkswagen AG's (>> Volkswagen AG) $15.3 billion (11.48 billion pounds) settlement of allegations that it cheated on diesel engine pollution tests promises a substantial boost for federal and state efforts to expand electric vehicle sales, and could also help producers of commercial trucks and buses and other heavy equipment.

At the centre of the Volkswagen agreement are "cash for clunkers" programs aimed at taking older, sooty vehicles off the road - and not just Volkswagen models the government alleges were deliberately designed to cheat emissions tests.

Manufacturers of commercial trucks, school buses and machinery used to move goods at seaports or tow airplanes also stand to benefit from provisions of the settlement, according to state and federal officials. Volkswagen has agreed to put $2.7 billion over three years into a trust fund created to cut diesel pollution. States can use the money to replace and scrap or retrofit older vehicles with new models equipped with better exhaust cleaning technology.

For example, school systems driving buses 10 years old or older could get Volkswagen money to buy new models. Other eligible vehicles include tugboats, ferries, freight switchers, transit buses, medium and heavy duty trucks, airport ground support vehicles and ocean going vessels, according to settlement documents.

Older diesel engines emit air pollutants linked to a range of serious health problems including asthma, lung and heart disease, other respiratory ailments, and premature death, the Environmental Protection Agency said.

John Stark, editor in chief, Stark’s News Service, said the program may boost medium duty truck sales and diesel engine manufacturers such as Cummins Inc (>> Cummins Inc.).

VW's 650 U.S. dealers may get a boost from owners selling back their vehicles - and some may even be interested in buying a new vehicle from VW. Buybacks will start as early as October. VW will pay up to $10.033 billion to buyback as many as 475,000 2.0 litre diesel vehicles - and give most owners at least $5,100 to $10,000 in additional compensation.

Other potential beneficiaries of Volkswagen's agreement include marketers of electric vehicle or fuel cell charging systems. VW agreed to spend $2 billion on electric vehicle infrastructure and other projects over 10 years - including $800 million in California.

The California Air Resources Board said the VW funds would almost quadruple the money available for electric vehicle infrastructure in the state.

"All charging infrastructure in EVs floats the rest of the market. Since there is not enough existing charging infrastructure any capital that comes into the market benefits all EV suppliers and charging suppliers,” said Mike Calise, chief executive of Car Charging Group, a charging services company.

California, joined by nine other states, has mandated that zero emission vehicles account for 15 percent of sales by 2025 - a figure automakers have said is unrealistic.

The plan for spending the initial $500 million is due in 2017, court documents show.

VW will also agree to fund a "Green City" initiative in California to include features like electric vehicle car sharing services, zero emission transit applications, and zero

emission freight transport projects.

Tesla Motors Inc Chief Executive Officer Elon Musk and other leaders in December urged California to order VW to transition to electric vehicles, rather than try to fix diesel vehicles

Volkswagen will be able to label projects as "sponsored by Volkswagen" but they cannot favour its own vehicles and the statement cannot be prominently displayed. Still, VW has outlined plans to expand its electric vehicle offerings dramatically over the next several years, and investments in charging infrastructure could ultimately help persuade consumers to buy those cars.

Lewisville, Texas dealer Alan Brown said the dealer body will support VW's encouragement of electric vehicles.

"It will be an unbelievable opportunity for VW to be industry-leading in the segment and go after it," Brown said.

(Reporting by David Shepardson, Rory Carroll, Alexandria Sage and Paul Lienert; Editing by Joseph White, Bernard Orr)

By David Shepardson

Stocks treated in this article : Cummins Inc., Volkswagen AG, Tesla Motors Inc
Stocks treated in this article : Cummins Inc., Baltic Dry Index