Who would have thought that the automotive industry, a sector that’s undergoing vast disruption, and California’s clean air agency, a uniquely powerful group contributing to the environmental side of the auto disruption, would go rogue and make a deal?
But that’s exactly what just happened. Due to the vacuum of federal leadership, last week California’s Clean Air Resources Board (CARB) and auto companies Ford, Honda, BMW and Volkswagen agreed on fuel economy increases for new vehicles to nearly 50 miles per gallon by model year 2026.
Those goals are within the same ballpark — although, yes, weaker — compared to the standards put forth by the Obama-led Environmental Protection Agency. The automakers represent about 30 percent of California’s global car market, though noticeably absent are General Motors and Fiat Chrysler.
The efforts are a major middle finger to the Trump-led EPA, which has been working to revoke the Obama clean car plan. The EPA, in response, called CARB’s announcement a “publicity stunt.“
Bloomberg New Energy Finance notes that the new deal calls for vehicles to meet “20 percent efficiency improvements over five years,” from 2022 to 2026, compared to the same improvement over four years (2022 to 2025) for the national standard. It sounds like a small tweak, but it actually will have huge repercussions. BNEF describes the importance of the deal plainly: “The pace of decarbonization of the transport sector will ultimately be governed by whatever vehicle emissions standards prevail in this conflict.”
To me, the deal is indicative of several important things:
- The business world has largely accepted that climate change is happening. Sectors contributing to a changing climate, such as the ones making oil and diesel-powered vehicles, are ready to publicly adapt to the needs of the changing world. They can’t hide from reality anymore, and the spotlight is shining on these corporate changes.
- The business world doesn’t like uncertainty. When Obama’s vehicle emissions standards were set in place, automakers started working on meeting those goals. The auto industry originally lobbied to weaken the Obama era pollution rules but became alarmed with the extent of the scope of the proposed rollback that the Trump-EPA has been advocating. It requires less investment for automakers to keep on the path they were moving down than to completely reverse course.
- California is a big kahuna. If California ended up battling the Trump-led EPA for years, the automakers could face a bifurcated market and then would need to invest in building two versions of its cars: ones for other states and one for California. That’s an expensive proposition.
- The climate movement needs shrewd negotiation and business allies. It should come as no surprise that CARB Chairman Mary Nichols successfully led this deal. The Atlantic Magazine described Nichols in a profile last year as “an unusual combination of ferocious advocate and unfailingly collegial negotiator, not above bringing a Tupperware container of chocolate-chip cookies to lighten the mood at a tense meeting.”
- The auto industry is vulnerable. The auto industry is facing disruption of epic proportion across autonomous tech, electrification, digital and the rise of access over ownership. Individual car sales are falling globally. Collectively the industry isn’t prepared for a massive battle against California and doesn’t want to be caught in the crosshairs of a California/EPA war. It’s a good time to make a deal.
- Electric vehicles will be deployed less aggressively because of this deal. BNEF says that if the California deal were adopted nationwide, it would require around half of the EV sales share to close the gap between automakers’ performance and their targets, compared to the original federal standards. So, yeah, it’s a compromise.
Finally, thank you, Mary Nichols, for all the work you’ve done lowering pollution from vehicles.
6 takeaways from the emissions deal between automakers and California, by Katie Fehrenbacher, GreenBiz, July 31, 2019.