Market News

 September 17, 2019
Why California is standing firm against Trump on auto emissions

 Ever since Donald Trump was elected president, the White House and California --- America's most populous state and the world's fifth largest economy --- have been at odds. Trump has attacked California on everything from immigration to forest policy. And California has filed more than 50 lawsuits against the federal government on topics ranging from guns to health care to the environment.

One of the most high-profile battles ramped up this summer after California signed a voluntary agreement with four large automakers (Ford, Volkswagen, BMW, and Honda) to largely keep in place [Obama-era] greenhouse gas emission standards that the Trump administration had been trying to roll back. Earlier this month, the U.S. Department of Justice upped the ante, opening an antitrust investigation into the automakers.

In an interview with Yale Environment 360, Mary Nichols, chair of the California Air Resources Board, talks about what's next in this high-stakes environmental battle, the importance these standards play in meeting California and U.S. climate targets, and why the Trump administration's efforts go against the momentum of the global auto industry.

"The auto companies are in a difficult position because globally, they are being pushed to compete for a market that is increasingly demanding advanced technology vehicles," Nichols said. "They can't be operating with confusion over what the standards are going to be for their base product, the core of their business, which is still the internal combustion engine."

Yale Environment 360: The Trump administration has called the emissions rules, which require automakers to improve average gas mileage for passenger vehicles to 54.5 miles per gallon by 2025, unrealistic and too costly and has spent years working to roll them back. Why is this significant?

Mary Nichols: The Trump administration's attempt to roll back the emissions standards and fuel economy standards, which were negotiated between the federal government, California, and the auto industry going back to 2012, is a major blow to the United States' progress on meeting the [climate] agreements that were made in Paris. Even if the government has withdrawn from the agreement, we were still continuing to uphold our commitment in terms of addressing the problem of greenhouse gas emissions, because of those standards. So the effect of the rollback is enormous, and for the local level here in California, it also represents the most serious assault in generations on California's ability to make progress on our own air quality problems.

e360: How big of an impact do greenhouse gas emissions from transportation play in California and the country's overall greenhouse gas footprint?

Nichols: Within California, if you add in passenger cars and heavy duty vehicles, transportation is about 50 percent of the total of greenhouse gas contribution. Globally, it's getting close to that number as well. As other areas get cleaner, mainly through phasing out of coal in many parts of the world, including around the United States, transportation emerges as our single biggest problem.

e360: So there's really no way to hit the targets nationally, or in California, without tougher emissions rules?

Nichols: Absolutely. In California, the emissions rules are recognized as a fundamental piece of our approach to meeting the state's own mandated target of reducing emissions.

e360: Critics say that tougher rules will mean the end of SUVs and other cars that motorists like.

Nichols: Well, first of all, we dealt with this issue back in 2012, when we were first working out the national program. It's actually written into the law that you can't ban any category of vehicle, but the way the standards are constructed, they take into account the size and weight of the vehicles. So we've actually been criticized by some for not having explicitly done more to try to disincentivize the largest, heaviest vehicles. But that was the political decision, that if we were going to set standards that would be sustainable and acceptable politically around the country, you could not make it too hard for people to get the kind of big, heavy vehicles that they want.

e360: Four automakers agreed to do a voluntary deal with California in July to largely maintain the Obama-era standards. Why do you think they did that?

Nichols: The auto companies are in a difficult position because globally, they are being pushed to compete for a market that is increasingly demanding advanced technology vehicles. China is mandating that all vehicles sold be zero-emission, either battery or dual cell vehicles, within a very short period of time. And so they need to be focusing their efforts, their engineering efforts and their internal planning efforts, on becoming competitive in that market. They can't be operating with confusion over what the standards are going to be for their base product, the core of their business, which is still the internal combustion engine.

So the great advantage of the Obama standards was that it set a path for a decade of peace and stability and planning, and everybody knew what the rules were going to be. By throwing a monkey wrench into this approach, what the Trump administration did is create confusion and anxiety. The companies that approached us were looking for a way to create a zone of peace by agreeing on a set of standards voluntarily... that included consideration of improvements they would be making in the cars they sell throughout the country, and avoid aggressive enforcement actions or other collateral damage while California and the federal government try to resolve our differences about how to move forward.

e360: The Wall Street Journal reported that the Department of Justice is launching an antitrust investigation into those four auto makers. How concerned are you that the investigation might scare away other companies from joining the California compromise?

Nichols: Other companies, whether they say so officially or only whisper it inside their own offices, are planning to meet those standards regardless. In other words, what's happening is that we're creating sort of a shadow system because everybody who has worked with this administration on these issues now has seen that their conduct is not consistent with the way that government normally operates. This announced investigation is creating some consternation in the sense that it requires those who are getting the letters from the Justice Department to lawyer up.

But these are big companies that have sophisticated legal teams. And one of the areas of law that they are most familiar with is the antitrust laws. They run their businesses on a day-to-day basis in a way that is designed always to be in compliance with the antitrust laws. This is a matter of business necessity for them. So they know quite well that they are not at any actual legal risk. I think the fear that there would be a court filing based on this investigation, the likelihood that that would happen is zero. One of the reasons why is that the statutes in this area are quite explicit about giving companies the ability to talk to each other and to the government at the same time.

We wouldn't have the agreement with them in effect now if the antitrust laws forbade them from talking. So in some respects, people who are familiar with this area of the law are just shaking their heads and saying, "What could they [the Trump administration] be thinking?" But at the same time, because it's so unprecedented, it reflects an attitude toward the use of power in the Justice Department which is cavalier at best. So if you have a government which is willing to threaten its own citizens this way, who knows what they might do?

So in that sense, companies who are inclined to be fearful are getting even more fearful. Companies that are getting fed up with the federal government's behavior in this area, and lack of seriousness about responding to the actual needs of the industry, are more likely to say "Who cares?"

e360: About a dozen countries, including France, England, Sweden, Norway, and Denmark, have announced plans to phase out the sale of new internal combustion engines by 2030 or 2040. Should California do that?

Nichols: Generally speaking, we don't like bans on anything. It cuts against our grain. So, I think it's more likely that we would set positive goals for zero-emission vehicles that could amount to the same thing. But any way you look at it, we're going to have to get to that same end point, that by something like 2030 or 2035, all new vehicles are going to have to be essentially electric-drive vehicles.

e360: In terms of this standoff with the Trump administration, how do you see this all ending?

Nichols: Unfortunately, I don't have a simple answer. I think that eventually, it will end with procedures to move ahead with the kind of transformation of our vehicle fleet that we've just been talking about. How we will get there though could involve very messy legal and political debates before we get to a resolution... This makes it all the more dramatic, but it's also kind of a side show, if you will, in terms of what's actually going on in the industry and where the world market is going.