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4 March 2009

Green vs. Green

The California Air Resources Board (CARB) has always had the freedom to set its own

fuel economy standards, with only approval from the Environmental Protection Agency (EPA)

needed (Nichols). In 2007, the EPA enacted the Energy Independence and Security Act (EISA),

raising the Corporate Average Fuel Economy (CAFE) standard to an astronomical 35 miles per

gallon (mpg) from the previous 25 mpg set in 1990 (Automotive). California decided that 35

mpg was not high enough and requested that it be allowed to set its own even stricter standard

for the state of California and its alliance of states including New York, Pennsylvania and sixteen

others, making up almost half of automobile sales in the United States (Californias). Former

President Bush rejected Californias proposal, citing that the new EPA standard was sufficient

enough (Blanco). Now the new President, Barack Obama, wants to reverse former President

Bushs decision, allowing California to set whatever standard it desires in the name of saving

our planet. This decision, if approved, would have many economic repercussions and should be

strongly reconsidered by the White House.

The 2009 National Automotive Dealers Association (NADA) study revealed many

loopholes in this legislation. First, why would it be necessary for California to have its own

standard when the EPA just enacted a new standard (Blanco)? As mentioned previously, the EPA

recently set a goal for automakers to raise their CAFE to 35 mpg by 2020; California wants

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to raise that number to almost 42 mpg by 2020 (Bensinger and Tankersley). Currently, only the

Honda Civic Hybrid and Toyota Prius meet this criteria (Bensinger and Tankersley). Another
loophole is that whats to keep a consumer from buying a car in another state and importing it

to California? If automakers were forced to meet Californias standard, they would have to raise

prices of cars sold in those states by over $5,000 to compensate the extra engineering to meet

Californias standard (Bensinger and Tankersley). Another law would also have to be made to

prevent consumers from simply buying a car from a state that follows the EPA standard and

driving the car across the border to a state that follows Californias standard. Another weakness

is that CAFE ratings are based solely on the ratio of vehicles an automaker sells. For example, an

automaker having ten hybrid models and one gas-guzzling sport utility vehicle (SUV) could still

fail to meet the EPA and CARB standards if consumers decide to only buy the SUV and not the

hybrids. Thus, an automakers CAFE rating is dependent on the consumers interest. The

carmaker can help raise its CAFE rating by providing a better ratio of fuel efficient models to

gas-guzzling models, but vehicle efficiencies are not a guarantor that the carmaker will meet the

CAFE standard.

The NADA study raised a few other minor points including the SUV Loophole, which

would allow SUVs greater than a certain weight to be exempt from this fuel economy standard;

and the small automaker exemption which would excuse automakers that do not sell many

vehicles in the United States from this standard altogether (Blanco). These weaknesses addressed

by the NADA study show that Californias legislation is not ready to be passed and really bring

into question the necessity of another standard over the current EPA standard.

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Because California and its coalition of states make up almost half of the automotive sales

in the country, automakers would be forced to either comply fully with the new standard or
create two versions of each model. There are a few strategies that automakers have explored in

an effort to comply with the new standards. One way to dramatically increase a vehicles fuel

efficiency is to hybridize it. The hybrid system, though raising fuel efficiency, would have a high

price premium of at least $5,000 per car. The hybrid system includes an electric motor to reduce

the use of the gasoline engine as well as a rechargeable battery to power the motor (Hybrid). The

type of battery used determines how expensive the hybrid system is. A nickel metal hydride

(NiMH) battery costs less, but does not hold as much charge; while a lithium Ion battery costs

three to four times as much, but holds a stronger charge, is more compact, and weighs less

(Hybrid).

Another method of compliance is through the use of alternative fuels such as diesel,

hydrogen, and pure electricity. Diesel-powered vehicles are currently very popular in Europe, but

have a bad reputation in America of being loud, smelly, and unreliable. A diesel car can get as

much as 20% better fuel economy than a comparable gasoline-powered vehicle, but costs two to

three thousand dollars more than the gasoline version (Vin). Also, the current cost of diesel fuel

in the United States has been consistently greater than even premium fuel. These two cost

barriers plus the psychological memories have kept diesels from gaining popularity in the United

States. Honda has pioneered research in the fuel cell industry, turning liquid hydrogen into usable

electricity through hydrolysis (FCX), and has shown this technology through its FCX Clarity

model. General Motors has chosen to invest in the electric car, with its Chevrolet Volt concept

that is due for production within the next few years (Chevy). All three concepts, though

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ingenious, will cost the consumer a fortune. The price of diesel fuel plus the diesel components

make the cost of ownership of a diesel-powered vehicle almost the same as a hybrid vehicle. The
Honda currently can only be leased, because of the astronomical cost for onea couple million

dollars (FCX). The Chevy is targeted to cost at least $40,000 (Chevy). All three technologies

have a promising future, but also have a tough road towards success. Consumers may be forced

to purchase high-priced vehicles like these in the near future if Californias legislation gets

passed.

The automotive industry is currently struggling, with national sales dipping below sales

figures of even the 1980s (Auto). The credit market is partially to blame, as without credit, most

Americans cannot afford the high price of a new car. Thus, they just turn to the used car market,

which has an all-time low inventory (Honda). New cars are already unaffordable for most

Americans because of the weak economy; if carmakers are forced to add on another $5,000 or

more of hybrid accessories to each car to meet Californias standard, the remaining Americans

that could afford a new car would definitely turn away from new cars also. Because of lax sales,

every automaker is on track to lose money this year. The American automakers, especially, are

on the brink of bankruptcy. If car sales dip any lower, U.S. automakers would most likely be

forced to declare insolvency.

The auto industry encompasses a lot more than just the people that work in the factories

and the engineers that design the cars. It includes everyone from the dealership salesmen and

mechanical staff to those who supply the parts to the factories. If one major automaker collapses,

every other automaker would also be affected. The suppliers that supply that one automakers

factories would be the first to go bankrupt after the automakers collapse. If one major supplier

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fails, then every other factory that it supplied would also shut down. All automakers use the same

suppliers in America. Thus the collapse of one supplier would halt production at all the factories
it supported. Other suppliers that supported those now defunct factories would also collapse,

sending all the other unaffected factories into bankruptcy. All the other surviving automakers,

without factories to produce products, would also eventually also be forced to declare

bankruptcy. The dealers would then be next to shut down without the automakers support.

Because the United States is the largest consumer of automobiles, this domino effect would not

just affect America. International automakers, losing half their sales, would also most likely fail,

destroying international factories, suppliers, and dealers. Every economy in the world is at stake.

In just North America, more than six million jobs would be lost (American Auto).

Two of the three American automakers recently received multi-billion dollar loans from

the United States government. It is in the United States governments best interest that the

American automakers survive this economic crisis, since it has heavily invested in them. This

bill would reduce the automobile sales and revenue by making cars unaffordable, and also force

automakers to spend unnecessary money to meet the double standard. Money is something the

automakers lack at the moment, and wasting it on the CARB standard would quicken the

automakers road to bankruptcy. If Californias legislation were enacted, we might have a

greener earth, but we would lose our economy in the process.

There are a few reasons why California and President Obama are pushing for this bill.

They believe that raising the CAFE standards would reduce our nations dependence on foreign

oilour fuel efficient fleet of cars would go farther on less fuel. Getting to such an

environmental point takes time. Obama and California want to expedite this process by forcing

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the nation to adapt abruptly to the new standards. This is the wrong approach. Somewhere in the

near future, we will meet and even exceed Californias lofty standard. But we have to be patient
and make sure that we do not harm our economy in the process of saving our planet. We should,

as a country, take a more cautious approach to this environmental and economical issue. First, we

should stave off the foreign-oil dependence by increasing drilling in oil-rich areas of our country.

This would create more jobs instead of eliminate them. Second, we need to gradually raise the

CAFE standard at an adoptable pace that both the consumer and automaker can keep up with.

Third, we need to invest more money in alternative fuel research. If we demand high fuel

economies now, we will achieve our goal, but will send ourselves into a second depression. If we

slow down this process, we could potentially achieve both goals, decreasing our environmental

footprint, while also increasing the wealth of our economy by being self-sufficient in the oil

industry. The NADA study concluded it best stating, state-by-state regulations would have little

or no environmental benefit but would erratically harm the economy (Blanco). Californias

optimistic plan may be environmentally pleasing, but is it worth destroying our economy? Are

we willing to sacrifice greenour economy and moneyto be greenenvironmentally

friendly?
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